Thoughts on Astrea IV PE Bonds

I don’t want to speculate too much on why Temasek/Azalea is issuing this PE bond when there are clearly easier/cheaper ways to raise money. It might well be a grand start to a possible CPF replacement.

Anyways, here are some (factual) reasons why I would be subscribing to Astrea IV. You can watch their fantastic video here.

What I Like

  • Big Pie – The aggregate amount available to the public under the Class A-1 tranche is only $242 mil which makes up 20% of the total AUM ($1.1 Bln). In fact, given that the total allotment of all 3 tranches is only $562 mil or 50% of the AUM, Azalea is likely to still profit handsomely from this venture.
  • Interest rate hedge – On top of the prevailing coupon of 4.35%, there is a 1% step up if the bond is not called in June 2023. This is one of the more investor friendly features, compared to other recent issuance’s. In the case of rising interest rates, the bond holders are somewhat compensated and if it falls you are likely to get our money back early.
  • Safe PE – Cashflows are locked away ahead of semiannual distributions. Which is useful as the underlying funds might have uneven cashflows. Being in the senior holder also mean you get paid first, even in the case where Astrea IV goes boom.

What could be better

  • Class discrimination – Class A-2 investors get 5.5%, which is 1.15% higher than Class A-1. Same same but different
  • Bond structure – No matter how you upsell it, Astrea IV is a bond. There is no upside participation here. Other than the underlying asset class, you can’t really see past the coupon yield.

Conclusion
While interest rates are rising, I don’t think we are going to be looking at >5% interest rates in 5 years. If that did happen, inflation would be sky high too.

Previously, I had contemplated putting my money in bonds or SSB, given how the yield curve has flattened and how overvalued equities look right now. However, Astrea IV does provide a safe risk adjusted return given the unique asset class.

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