Astrea Investor Day 2021

Jan 28, 2021
Astrea Investor Day 2021

Astrea Investor Day 2021 was held online via a Zoom webinar this year. A recording of the live event has been made available below.

Due to time restrictions, we were unable to answer all the questions that we received during the webinar. However, we have made the answers to these questions available below as well.

To all attendees, thank you once again for participating in Astrea Investor Day 2021!

Webinar Recording


Astrea Private Equity ("PE") Bonds Offerings

1. Will Azalea issue new products soon?

We intend to issue Astrea PE Bonds on a regular basis. Besides Astrea, we have launched a fund of funds equity product called the Altrium fund in 2019. Altrium is distributed to only accredited investors as it is an illiquid product.

2. When are you coming out with Astrea VI?

We intend to launch the next Astrea issuance when market conditions and other factors, including investor sentiments, are conducive. Our intention has always been to launch new Astrea transactions regularly.

For every Astrea issuance, we run advertisements on newspapers, radio and online, and we will be registering a prospectus with MAS so you will see it on the OPERA website.

3. What will be the interest rate for your next issuance?

Since Astrea III, interest rates for our PE bonds have been determined through a competitive book-building process by institutional investors. These investors include insurance companies, endowments, asset managers and hedge fund managers. The same rate set by these investors are used for the retail offering.

Important factors that institutional investors look out for during the book building process include interest rate outlook as well as the quality of the issuance.

4. For the next issuance, will there be a change in allocation policy from Astrea V? Will I get more bonds if I put in a larger order?

Our intent has always been consistent, i.e. to allocate a significant portion of the IPO to smaller investors and we have achieved this for Astrea IV and V.

The allocation for the next Astrea issuance will follow the same principle but depend on the eventual demand for the bonds.

Private Equity

1. Among the large institutions (e.g. insurers and pension funds), have you observed any change to their asset allocation to PE over 2020?

Amongst pension funds / endowments, we have noticed an increase in asset allocation to PE from early 2000s to 2020. This highlights the increasing acceptance of PE as an asset class for institutional investors.

Astrea Portfolios

1. What factors do GPs consider when making investments?

When making investments, GPs generally look at several factors including growth potential, opportunity to operationally improve the company, amongst others.

As a PE funds investor, we invest in funds managed by quality GPs with good track record and who have had experience investing across economic cycles.

2. Beside S&P, what other yardstick/(s) does Azalea use to assess portfolio performance?

We do not use S&P to assess the portfolio performance. S&P is a rating agency that rated the Class A-1 Bonds for Astrea III, IV and V. In addition to S&P, the Astrea PE Bonds are also rated by Fitch, another internationally recognised rating agency. You may refer to their ratings reports on the Astrea website.

The rating agencies receive monthly rating reports on the cashflows and NAV and review their ratings on the Astrea PE Bonds on an ongoing basis.

As a Manager, we monitor the cash flows of the transaction and the performance of the underlying funds on a regular basis.

3. For day to day monitoring of risk - do you have the ability to look through to the underlying PE funds to monitor industry concentrations?

As LPs of the funds in the Astrea portfolios, we receive regular updates from the GPs on their underlying portfolios, and investments / divestments, including quarterly reports and financial statements.

4. What is the current exposure of the Astrea V portfolio to the industries worst affected by COVID-19, such as aviation, tourism, retail and property sectors?

The Astrea V portfolio is very diversified across more than 800 portfolio companies and has a high allocation to defensive sectors such as information technology (29%) and healthcare (19%). The exposure to the above heavily impacted sectors is small and is about 6% of NAV as at 30 Sep 2020.

5. The Astrea portfolios traditionally have exposure to growth and buyout funds. Will this continue moving forward? What is Azalea's position on exploring opportunities in special situations and distressed debt, given COVID-19 disruptions?

Every Astrea portfolio is constructed along similar parameters, emphasizing diversification across funds, GPs, vintages and regions.

We expect the portfolio to continue to be diversified across buyout and growth funds moving forward.

Across these funds, which are managed by quality GPs with good track record and have experience investing across economic cycles, some of them would take advantage of opportunities that present to them in special situations and distressed debt.

6. Is the US market overvalued to justify a two-thirds exposure? Will future Astrea PE Bonds issuances have greater focus on the China market?

US has the most developed PE market in the world with deep track record. Our emphasis in the selection of funds is on quality fund managers to deliver returns.

We are unable to comment on future Astrea bond issuances. In general, every Astrea portfolio is constructed along similar parameters, emphasizing diversification across funds, GPs, vintages and regions, and quality of the GPs.

7. What are the funds and where can I find more information on the GPs in the Astrea portfolios?

The portfolio of funds can be found in the respective Astrea transaction prospectuses.

If you need more information on the GPs, most of the GPs in the Astrea portfolios have their own dedicated websites.

Astrea PE Bonds - Performance and Trading

1. What is the minimum investment amount for the Astrea IV and V Class A-1 Bonds?

At IPO, Singapore retail investors can subscribe for the bonds at minimum of S$2,000. Secondary trading of the bonds on the SGX are transacted in minimum denominations of S$1,000.

2. If we hold Astrea PE Bonds till maturity, will we receive our capital & interests?

As an Astrea PE Bond investor, you receive semi-annual interest payments up to the maturity of the bonds.

Class A Bondholders will receive their bond principal amounts at maturity if there is sufficient cash accumulated in the Reserves Accounts. Under the Priority of Payments, cash is reserved every 6 months in the Reserves Accounts.

3. Is it possible to buy and sell Astrea IV and V Class A-1 Bonds on SGX?

The Astrea IV and Astrea V Class A-1 Bonds are listed and traded on SGX. You may trade the Bonds subject to prevailing market price and availability.

4. Do Astrea IV and V Class A-1 Bonds have a lock-up period? Is there any capital upside for bondholders?

The Class A-1 Bonds have a non-call period of 5 years. The bonds can only be redeemed on the Scheduled Maturity Dates at end of year 5. However, this does not mean that the Class A-1 Bonds have a lock up period. These Class A-1 Bonds are listed and traded on SGX. Bondholders may trade the Bonds at any time subject to prevailing market price and availability.

As this is a bond instrument, there is no capital upside and the bonds will be redeemed at par. However, a 0.5% Bonus Redemption Premium will be paid to Class A-1 Bondholders if the Performance Threshold is met.

5. Was there any breach of LTV as at 31 March 2020?

The LTV for each Astrea is calculated every semi-annual Distribution Date, which fall on every June and December of the year for both Astrea IV and V. The LTV calculations are shared in the Distribution reports that we publish the same periods. These reports are available on the Astrea website. Based on their latest Distribution reports, Astrea IV’s LTV Ratio was 32.8% and Astrea V’s LTV Ratio was 32.7%, below the Maximum LTV Ratios of 50%.

The next reports will be published in June 2021.

6. Since private equity investments always employ higher risk, why is the return on the Class B Bonds lower than the usual PE double digit returns?

The Astrea Class B Bonds is a fixed income instrument. They are rated investment grade by Fitch and is therefore a lower risk investment compared to an equity investment into a PE fund.

Bondholders rank senior in priority and equity holder takes first loss

7. Are the Astrea Class A-1 Bonds going to mature in Year 5, together with the Bonus Redemption Premium of 0.5%? Is the Class B Bonds eligible for this bonus? 

The Astrea IV and Astrea V Class A-1 Bonds will be redeemed on their Schedule Maturity Dates if there is sufficient cash in the Reserves Accounts to redeem the Bonds.

Class A-1 Bondholders will receive an additional 0.5% of their bond principal at redemption if the Performance Threshold of the respective Astreas are met by the respective Scheduled Maturity Dates.

The Bonus Redemption Premium is only intended for Class A-1 Bondholders. As of the last Distribution Date, the respective Performance Threshold have not been met. For more information on the Performance Threshold, you may refer to the respective prospectus.

The Bonus Redemption Premium is only paid to Astrea IV and Astrea V Class A-1 Bondholders if Performance Threshold is met.

8. Bond market is booming, partly driven by fiscal and monetary policy stimulus in 2020. As such stimulus packages run down, how would it affect the Astrea PE Bonds? 

We are unable to comment on how stimulus packages affect Astrea PE Bonds prices. The trading price of the Bonds may be influenced by numerous factors, including the market for similar securities, the performance of the Fund Investments and political, economic, financial and any other factors that can affect the capital markets and the industry sectors that the Fund Investments have exposure to.

9. What kind of updates and how regular will investors receive? 

We publish Semi-Annual Distribution Date Reports and Annual Reports on the Astrea transactions. These reports are available on the Astrea website.

Astrea PE Bonds - Bond features & structure

1. Coming from someone who has not had any exposure to these instruments, were there any defaults in PE bonds in recent memory? What are the rights for bondholders if such event happens? For corporate bonds, bondholders have a senior claim over the company's assets. For PE Bonds, do bondholders have claims over the investee companies?

All Astrea PE Bond obligations have been met to date. The Astrea PE bonds are secured over all the assets of the relevant Issuer.

The Astrea PE bonds have 10 years maturity term, but the Class A-1 Bonds must be redeemed after 5 years if there are sufficient cash reserved for this purpose. If there are not enough cashflows at the 5th anniversary mark, then the bond is extended until the 10th year, and only then if there is not enough cashflow will there be a default.

However, each Astrea has a well-diversified and quality portfolio of PE funds and each structure has a conservative LTV. You can also refer to the results of our own hypothetical model in each Astrea prospectus, which show that the bonds will be repaid in 10 years under stress cases.

We also engaged an independent research consultant to do an analysis of the PE funds in the relevant Astrea portfolio, which also shows that the bonds will be repaid under stress scenarios.

2. Is there any performance fee imputed in the management fee calculation and if yes, is there a high watermark used?

There is no performance fee. Management fee is a fixed rate per distribution period based on Total Portfolio NAV as of the Distribution Reference Date.

3. What do you do with the cash in the reserve accounts?

Cash in the Reserve Accounts are invested in Eligible Deposits and Eligible Investments. There is a strict set of investment criteria for Eligible Deposits and Eligible Investments, as outlined in the Prospectus. This set of criteria is aligned with the rating agencies’ methodology.

4. Does ‘Sponsor’ refer to retail investors?

The Sponsors for Astrea IV and Astrea V refer to Astrea Capital IV Pte. Ltd. and Astrea Capital V Pte. Ltd respectively, which were Singapore companies incorporated for the purpose of initiating the respective Transactions.

The Sponsors are indirectly wholly-owned by Azalea Asset Management Pte. Ltd..

5. Could you explain what is payments for capital calls?

Capital calls are issued by PE funds to draw capital from LPs to make investments and pay for fees and expenses. Capital calls are paid from the distributions received from the PE funds. In the event there is insufficient distributions, we can draw on credit facilities to pay for the capital calls.