Azalea's next challenge: Private equity investing for the mass affluent

Business Times

25-04-2025

[SINGAPORE] Azalea Investment Management, which pioneered the Astrea series of Singapore Exchange-listed private equity (PE) backed bonds, has arguably fulfilled its mission of democratising retail investors' access to PE – or a structure close to it.
Over the past decade, it has raised a total of US$3.6 billion for Astrea bonds, including nearly S$1.3 billion in retail subscriptions. Three of the bond issuances have been fully redeemed.
But now Azalea, a Temasek Group company, has set its sights even broader. Its ambition is to extend direct co-investing in PE portfolios to an even wider audience than accredited or sophisticated investors. It hopes the mass affluent, widely defined as those with between US$100,000 and US$1 million in investable assets, will be allowed to invest.
It is also working on offering open-ended or semi-liquid funds, which typically have regular redemption windows, subject to limits.
Azalea's PE co-investment platform is called Altrium, which has raised a total of about US$2.3 billion in assets from accredited accredited investors and institutions to date. This includes the recent successful first closing for Altrium PE Fund III, which attracted commitments of US$262 million.
Altrium enables investments in the equity of private companies. This offers higher growth potential but at a higher risk. Investors generally have to remain invested over the funds' life. In contrast, Astrea comprises bonds collateralised by portfolios of PE funds. Distributions from the underlying funds are paid out as coupons to bondholders, who receive their principal at maturity. Bondholders do not participate in the underlying companies' growth.
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The Monetary Authority of Singapore is currently seeking public feedback on a framework to enable retail investors to access private markets investments. Interest in private markets has intensified as investors seek sources of return uncorrelated with stocks and bonds.
Traditional asset managers, who grapple with fee compression, are also muscling in. Private market fund fees are more lucrative than unit trusts' fees. Apollo and State Street recently listed an exchange-traded fund in the US with an allocation to private assets. Bond giant Pimco is set to launch a European private credit fund.
Azalea itself recently completed a leadership transition. Margaret Lui, who has been chief executive since the firm was set up in 2015, has retired. She remains on the investment committees of existing Altrium funds. Chue En Yaw, who joined in 2018, is now chief executive officer, and retains his role as chief investment officer.
Lui, a Temasek veteran, led the development of the Astrea bond programme, which took pains to mitigate the risk of PE investments for the man in the street. Safeguards typically include the prioritisation of coupon payments for the retail tranche, a reserve account to set aside cash to redeem the bonds, and a liquidity facility to fund expenses.
The firm is confident about the resilience of the PE asset class and the Astrea bonds, despite the market upheaval over US President Donald Trump's tariffs. Chue said: 'We are still in early days, and the situation remains highly fluid. We're monitoring the situation closely and actively engaging our fund managers to assess the potential impact of the latest tariff changes on the underlying portfolio companies.
'While tariffs could impact PE investments and exit activity in the short term, it is worth noting that PE has historically demonstrated resilience across market cycles, including the dotcom crisis, global financial crisis and Covid-19.'
The firm is convinced that PE can help enhance returns for retirement portfolios as well as provide diversification benefits. Lui said: 'I'm very fortunate to have this mandate to do good, and make it work in a commercial sense. The entire team is passionate about financial inclusivity and enabling people to have access to this asset class to invest for their future… The holy grail is to bring equity investing to retail investors. The regulator is quite understanding in that respect; the world is moving towards that.
'We'll still provide Astrea bonds and Altrium PE funds so investors can have the whole array of risk-reward options to give them a chance to build for their future.'
Lui and Chue believe some retail investors are ready to co-invest in PE. Lui said: 'Over the past seven years investors in Astrea have graduated to a level where they're very curious about equity. We want to make sure people understand… After many iterations of Astrea PE bonds, perhaps it's time that investors can, within a certain framework, get access or invest in the equity. I do believe in time they will be allowed to.'
Chue said: 'Our philosophy has been to reach the mass affluent. One of the ways we measure success is to focus on the smaller accounts. We want more people to benefit from PE.'
The firm, he said, has sought to address some of the pain points of investing in PE. One is the 'J curve', where returns in the early years of a fund are poor or negative due to investment costs and the time needed for underlying investments to mature.
To mitigate this, Azalea commits an amount to seed the portfolio, in what is termed a 'warehoused portfolio', which reduces the 'blind pool' risks. The warehoused portfolio allows investors to enter at a later stage and potentially enjoy a markup in value, which reduces the negative effects of the initial years of the J curve.
Altrium funds also comprise a diversified mix of primary and secondary investments. Secondaries refer to existing PE assets put on the market by primary investors. Altrium also has relatively lower minimum commitments and shorter holding periods. Capital calls are made on an annual basis which enables investors to better manage their own capital and cash flows.