High-quality growth at La Trobe Financial

La Trobe Financial continues to experience rapid growth in assets under management (AUM). The company’s Sydney-based chief treasurer and strategy officer, Martin Barry, tells KangaNews growth is being driven by products at the high-quality end of the credit spectrum, while La Trobe Financial’s retail fund continues to account for a meaningful portion of its funding.

La Trobe Financial’s AUM has again grown substantially over the last 12 months. What are the drivers?

There have been major changes in the Australian mortgage market in recent years with nonbank market share growing as major banks skew towards a more vanilla customer base due to regulatory changes. Further policy and process adjustments have resulted in bank-loan turnaround times elongating, which also pushes borrowers towards nonbank solutions.

La Trobe Financial has seen growth across all aspects of its product set without changes to credit parameters or pricing. Pleasingly, we have seen a consistent composition of new business in line with our historical experience. The primary driver of growth has been our consistent award-winning product set and service levels in dealing with our customers.

Specialist loans have decreased as a percentage of La Trobe Financial’s overall AUM in favour of growth in prime and super-prime assets.

Does this rebalancing of the overall portfolio suggest that prime lending is a more important part of the business nowadays?

At La Trobe Financial we strive to offer a broad product set, allowing our customers a one-stop experience for mortgage credit. Our products range from full-documentation, super-prime loans though to near-prime self-employed loans, aged-care loans and small commercial loans.

We have seen growth across the board including, pleasingly, in our full-documentation super-prime and prime segments. These two sectors make up 35 per cent of our assets today.

We do offer specialist loans where a customer may have experienced a life event, for example loss of employment, that has caused prior credit events on existing debt. If a borrower can demonstrate an improvement in their financial situation and a clear path forward to service new debt, we may consider that type of borrower for a specialist loan.

However, specialist lending is a decreasing part of our portfolio – it is down 50 per cent in three years. This is reflective of the growth we have experienced in the super-prime, prime and near-prime parts of our business.

La Trobe Financial’s last three residential mortgage-backed securities (RMBS) transactions have all been A$750 million (US$504.7 million). Is the intention for deal size to grow further?

As previously flagged to the market, we intend on being a public issuer twice each calendar year – market conditions permitting. We expect transaction size to grow, reflecting our underlying business growth. This means we will be looking at around A$1 billion for each transaction, possibly supplemented with smaller private placements.

La Trobe Financial has made funding diversity a priority and its credit fund has been a major differentiator in this respect. But how – if at all – has the funding mix changed in the last couple of years in response to accelerated growth? Has it been easy to keep funding up to pace with book growth?

The pleasing aspect of our asset growth has been a matched liability growth in funding – especially retail funding, which is sitting at 50 per cent of our group total.

This retail funding is unmatched in the Australian market and is the substantial point of difference for La Trobe Financial in providing funding diversity. This is recognised by investors. We continue to raise other forms of funding to support growth via our bank panel and capital markets. We foresee a growth path towards A$15 billion and beyond.

La Trobe Financial has not issued any RMBS tranches in foreign currencies. How closely have you explored going down this route?

La Trobe Financial’s capital-markets issuance to date has all been denominated in Australian dollars and we find end investors prefer to currency hedge at their individual portfolio level.

This being said, if there was certain investor demand for a foreign-currency tranche – and if pricing worked on a swapped basis – we would be happy to explore the option and would welcome the conversation.