Temasek’s 1st retail bond: Riskiest asset class?

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Is investing in private equity bonds for your retirement a good idea?

I refer to the article “Investors can invest in Temasek’s first retail bond to boost retirement income: Ho Ching” (Business Times, Jun 4).

It states that “INVESTORS can invest in Temasek Holding’s first retail private equity bond to help supplement their retirement income, said Temasek chief executive Ho Ching.

While Singapore has institutions like CPF for retirement, “we think we need to supplement it and companies can participate in this”, she said.

“One of the things we decided to do is to try and make use of our skills and strengths to create new products for individuals to invest for their retirement,” said Ms Ho who was replying to a question from the audience following her speech.

Temasek is now  in the process of introducing a product that allows retail investors to invest in private equity funds, she said.

“As you know these funds are open and accessible to many of you but not necessarily to the broad masses.”

“But by creating a product which is diversified and therefore provides a better risk adjusted return for the individual, we can bring a new category of product to the market for the retail investor,” said Ms Ho.

“So quite apart from things like housing this is another way that we as an institution, …try to bring our skills and knowledge to create products in the future for those who want to invest for their retirement,” said Ms Ho.

Temasek subsidiary Azalea Group is launching a private equity bond with a tranche targeted at retail investors, a structure which is believed to be a first in the world. Azalea pioneered a similar structure here in 2016 when it launched Astrea III, a series of fixed rate notes whose assets – comprising 34 private equity funds – have a current net asset value of nearly US$1 billion.

Azalea has lodged a prospectus for Astrea IV on the Monetary Authority of Singapore’s Opera site. It plans to raise a total of US$500 million from the bond issuance, which comprises three tranches, each designed to target a particular risk appetite.

The least risky tranche is the Class A-1 retail offering amounting to S$242 million. A portion of the retail bonds will be offered to retail investors for subscription via ATMs with a minimum investment of S$2,000.”

I understand that private equity is arguably, the riskiest among the major asset classes (private equity, equities, property, commodities, bonds).

According to investopedia – “What is ‘Private Equity’

Private equity is capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.”

“Overall, the risk profile of private equity investment is higher than that of other asset classes, but the returns have the potential to be notably higher.”

At its worse point (from the previous high in 2007) in the last financial crisis (2008/2009) – I understand that the average loss for private equity was about 80 per cent and many private equity funds went into liquidation.

What are your thoughts on investing in these retail bonds for your retirement?

Leong Sze Hian

 

About the Author

Leong
Leong Sze Hian has served as president of 4 professional bodies, honorary consul of 2 countries, an alumnus of Harvard University, authored 4 books, quoted over 1500 times in the media , has been a radio talkshow host, a newspaper daily columnist, Wharton Fellow, SEACeM Fellow, columnist for theonlinecitizen and Malaysiakini, executive producer of Ilo Ilo (40 international awards), invited to speak more than 200 times in over 30 countries, CIFA advisory board member, founding advisor to the Financial Planning Associations of Indonesia and Brunei. He has 3 Masters, 2 Bachelors degrees and 13 professional  qualifications.