Astrea bonds open up another option for S'pore retail investors

Risks to liquidity and returns cited but safeguards in place to prioritise payments

- Chor Khieng Yuit

With interest rates on flagship savings accounts coming down, fixed deposits becoming less attractive and rates on risk-free Singapore Government Securities also coming off highs, retail investors are looking around for places to park their spare cash.

Many flocked to the auditorium at the Singapore Exchange (SGX) on Aug 4 to find out more about the Astrea series of private equity (PE) bonds issued by Azalea, an indirect subsidiary of Temasek.

The private markets had been traditionally out of the reach of retail investors until 2018, when the Astrea IV series of PE bonds was launched.

Astrea 9 will be the sixth series of listed PE bonds with tranches for public subscription.

Mr Kyith Ng, founder of financial blog Investment Moats, said a private equity fund invests in companies which are not listed.

By buying this Astrea 9 PE bond, a retail investor is essentially lending money to the bond issuer.

The money is invested in a portfolio of 40 PE funds, which invest in 1,086 unlisted firms, as opposed to buying a corporate bond issued by a listed company.

A bond issued by a private equity fund is considered to be riskier, Mr Ng noted.

According to the product highlights sheet of Astrea 9, there may be a limited trading market for the bonds, which poses liquidity risks.

Retail investors must be prepared to hold these PE bonds until maturity as they may not be able to sell their bonds at a price which is attractive, or even sell them at all.

In addition, there is no guarantee of returns, so investors may lose all or part of their investment.

Notwithstanding the risks, Mr Ng said there are safeguards in place to prioritise the half-yearly interest coupon payments and the final principal amount to retail bond holders.

He added that the diversified portfolio of 40 PE funds further reduces the risks for retail investors.