Retail investors of Astrea IV bonds know a good deal when they see one

THE overwhelming response to Astrea IV bonds by retail investors is a sign of their growing appreciation for sophisticated investments as well as a reflection of their desire for better yields at a reasonable risk.

When Azalea Asset Management, a Temasek Holdings subsidiary, launched the bonds for sale in early June, some sceptics were quick to pan them as either too esoteric or risky.

The doubts may be justifiable in form but not in substance. It is true that Astrea IV's retail offer has no precedent and retail investors' knowledge and exposure to private equity are practically non-existent. After all, this was Singapore's first private equity bond for retail investors as well as the world's first listed one for retail investors.

Private equity is typically classed as a high-risk investment, as a big part of its strategy is to invest in promising private firms or unproven startups in return for a big payoff should these investments take off.

Which is why they have been hitherto open only to accredited investors and other high net-worth individuals and companies, with minimum subscription typically set at US$200,000.

A detailed study of Astrea IV, however, showed that much thought had gone into mitigating the risk for retail investors.

Its Class A-1 bonds, the portion pitched to retail investors, incorporated several safeguards that protect their investments in all but the most adverse of circumstances.

To be sure, Temasek isn't guaranteeing the bond so there is no question of it being compared with the Singapore Savings Bond, which currently yields an annual interest of 2.63 per cent over 10 years.

But it's also clear that the Class A-1 tranche isn't your typical private equity offering. Thanks to the multiple safeguards, investing in the bonds is akin to participating in a Nascar race with a souped-up car that is built like a tank. And with an annual coupon of 4.35 per cent, retail investors clearly know a good deal when they see one.

It was no surprise that the retail portion was oversubscribed heavily. To avoid disappointing the investors, all were successful but allotment was scaled back for those who applied for more than S$4,000 worth of bonds. The issue manager said this reflected a desire to distribute the private equity bonds to a wider retail investor base.

Kudos should be given to Temasek for taking the effort in making Astrea IV retail-investor friendly. Make no mistake, this was not merely a fund-raising exercise. If it were, the issuer could easily have raised the entire amount from institutions and sophisticated investors alone, as reflected by the full take-up of the bonds, including the riskier Class A-2 and Class B tranches.

If there is any regret, it is that only half of the Class A-1 tranche, or S$121 million, was allocated to retail investors. None was alloted more than S$11,000 each, which means the absolute return isn't significant.

There is nothing to stop those who want more from buying in the market since the bond is traded on the Singapore Exchange. But prices are up, with the bond trading at a premium - which compresses the yield - on its debut on Monday. This being a maiden retail offering, it is understandable the issuer took a more conservative approach.

Retail investors may be delighted to know that this offer will not be a one-off. The issuer has said it will work towards bringing new offerings to the market at a steady and regular pace.

READ MORE: Astrea IV Class A-1 bonds close first trading day at 103.7