Azalea issued Astrea III, marking the debut of listed PE bonds. This launch offered investors investment grade bonds providing regular distributions and exposure to PE
The year 2023 was one of portent. Deal value fell by 37%. Exit value slid even more, by 44%. Fund-raising dropped across private capital, as 38% fewer buyout funds closed. Interestingly, dollar commitments in buyouts surged as a number of high-performing funds came to market. But it was truly a year of haves and have-nots. Just 20 funds accounted for more than half of all buyout capital raised. Yet what’s driving these declines couldn’t be more dissimilar to what was happening in 2008–09, and making sense of it requires a different lens altogether.
As difficult as it was, the aftermath of the GFC followed a predictable pattern: To cope with the crisis, central bankers slashed interest rates to spur activity, the economy slowly stabilized, and private equity was able to claw its way back from what many predicted would be its unraveling. The resulting period of growth in the years that followed created a private equity industry that is vastly larger and more complex than anyone in 2008 could have reasonably expected.
Yet today that size and complexity magnify the challenges the industry faces. Business conditions are more perplexing than predictable. Interest rates have risen faster than at any time since the 1980s, and it remains unclear when the US Federal Reserve will reverse course or where rates will eventually settle. Concerns about what we dubbed last year “the most anticipated recession in history that hasn’t happened yet” continue to linger. Yet to the surprise of most analysts, the economy is chugging along nicely. Record-low unemployment, reasonable growth, and surging public markets in the US suggest the possibility that we might just escape these months of turmoil with nothing worse than a soft landing.
These crossed signals have left private equity hamstrung. The sheer velocity of the interest rate shock was something few in the industry had ever experienced, and the impact on value has driven a wedge between buyers and sellers.
Astrea Investor Day 2024 offers a platform for Astrea bond investors to delve into the nuances of private equity ("PE") bonds and the performance of Astrea bonds. The event featured a series of presentations that highlighted Azalea’s milestones and market updates, as well as a fireside chat with Christopher Tan, CEO of Providend, on strategies for retirement investing in the current economic environment.
The webinar kicked off with an overview by Azalea's Chief Investment Officer, Chue En Yaw, who highlighted the role that Azalea plays in the private markets space. Azalea, which was established by Temasek in 2015, has US$9 billion in assets under management and has completed five transactions on the Astrea Platform. The Altrium Platform, which is a series of private equity fund of funds and a direct co-investment fund, has seen significant growth in assets under management since the first fund launch in 2019.
En Yaw shared that economic growth remained resilient in 2023 despite challenges like bank collapses and inflationary pressures. He pointed out the easing of inflation and moderation in interest rates going into 2024, potentially improving the investment climate for PE, which has continued to outperform public markets over the long-term. Elaborating on the PE exit environment, he noted that despite market challenges, PE continues to exhibit resilience with multiple exit channels including trade sales, secondary buyouts, and IPOs. He highlighted the Astrea portfolios’ distributions from successful exits over the past year, including the notable IPO of Birkenstock, the trade sale of VMware, and the secondary buyout of Macrobond.
Lim Jun Jie, Director in the Investor Solutions & Marketing team, provided a quick refresher on the Astrea bonds, before diving into a detailed analysis of Astrea bonds' performance, underscoring our structured approach to risk mitigation and consistent cash flow generation.
The full redemption of Astrea IV bonds was highlighted as a testament to the program's success, with over US$1.2 billion in cash distributions, representing ~108% of the initial portfolio NAV
Astrea V also showed strong performance with over US$1.4 billion in cash distributions and significant fair value gains
Astrea VI has generated strong cash distributions totalling US$900 millionrepresenting ~63% of the initial portfolio NAV since its issuance in 2021
Astrea 7, despite broader market declines, has recovered to produce healthy cash distributions of over US$500 million, ~27% of the initial portfolio NAV, since its launch in 2022
The multiple rating upgrades received by Astrea bonds over the years reflect the strong credit quality of the bonds, despite market disruptions and the inflationary environment.
Fireside Chat with Christopher Tan
Azalea’s Managing Director of Investor Solutions & Marketing, Tang Hsiao Ching, hosted a fireside chat with Christopher Tan, CEO of Providend, who offered insights into retirement planning and investment strategies. He highlighted the importance of building a diversified retirement portfolio, tailored to withstand various market conditions. Read the summary of the fireside chat here.
Watch the full replay of the webinar here:
Disclaimer: Please note that all information shared in this session is intended for your information only and is not an offer, invitation, or recommendation to purchase, hold or sell any securities. If you would like to receive any investment advice or recommendation, please do speak with a qualified financial advisor.
In an enlightening fireside chat at Astrea Investor Day 2024 held on 6 February 2024, Christopher Tan, CEO of Providend, shared his experience in investing for retirement. Christopher's journey in the financial services industry, which began in 1998, culminated in the founding of Providend, a fee-only wealth advisory firm. He emphasized a "philosophy of sufficiency," advising against chasing maximum returns due to associated risks, and instead focusing on obtaining reliable returns to meet one's needs.
Planning for Retirement with a Multi-Bucket Strategy
Christopher highlighted five significant risks that retirees face, offering strategic insights into mitigating these challenges to ensure financial stability in retirement.
Inflation Risk – the prospect of reduced purchasing power over time
Longevity Risk – the chance of outliving their retirement savings
Healthcare Risk - the potential for high medical expenses, which can be a considerable burden in retirement
Sequence of Return Risk – the risk of lower or negative returns due to market downturns when withdrawing funds in the early years of retirement, leading to a more rapid depletion of the portfolio
Overspending Risk – the risk of overspending or underspending during retirement years
To address these risks, Christopher outlined a multi-bucket strategy that involves compartmentalizing assets into income, cash/near-cash, and equities/bonds buckets.
Income Bucket: This bucket includes assets that provide a reliable and steady income stream, such as CPF Life, annuities, bonds, and other fixed-income instrument
Cash/Near-Cash Bucket: Comprising cash, CPF OA and SA, fixed deposits, Singapore savings bonds, T-bills, and other similar liquid assets, this bucket is designed to cover immediate and short-term expenses in the first several years of retirement. It serves as a financial buffer during market downturns, allowing retirees to avoid selling equities at low prices, thus addressing sequence of return risk
Equities and Bonds Bucket: The rest of the retiree's portfolio can be allocated to a mix of equities and bonds for a long investment horizon, with the proportion depending on the individual's retirement years left (i.e. investment horizon), risk tolerance, and income needs
He stressed the importance of integrating assets into a comprehensive spending plan to ensure financial security in retirement.
Astrea PE Bonds and Diversification
Discussing Astrea PE Bonds, Christopher pointed out that Astrea bonds, backed by cashflows from private equity funds, provide diversification in investors’ portfolios.
Welcome to the 2023 edition of McKinsey’s annual review of private markets investing. Our ongoing research on the industry’s dynamics and performance has revealed several insights, including the following trends:
The music didn’t stop, but someone turned it way down. Private markets have enjoyed strong tailwinds since the depths of the Global Financial Crisis (GFC). Interest rates stayed low, credit availability was high, and valuations rose consistently. Each year since its inception, this annual publication has discussed new records in fundraising and deal flow while celebrating strong performance across asset classes. Even in 2020, when activity stalled briefly during the early months of the COVID-19 pandemic, private markets hummed again in the second half. In almost every regard, 2021 was an exceptional year, but it was not a trend breaker. Markets climbed higher still, awash with central-bank-induced liquidity. In the first half of 2022, central banks fought roaring inflation with sharply rising interest rates, and public market valuations cratered. In the private markets, first-half deal activity softened but subtly so, nearly matching the record-setting pace set in 2021.
