Funding diversity supports Liberty’s growth

Liberty Financial has access to funding options beyond its securitisation programme and has fostered deep links with European and Japanese investors. Liberty’s Melbourne-based chief financial officer, Peter Riedel, says adaptation is its key to future growth.

Last year was an exceptional one for Liberty. But economic headwinds have picked up and the Australian housing market is under pressure. How is the company adjusting its business strategy to maintain growth?

Since establishment in 2007, Liberty has continually created diverse solutions for customers. Diversity has many strategic benefits at group level, especially when managing risk, and generates alternative sources of income.

Having a diverse range of customer solutions is powerful when market conditions in one area become volatile or uncertain. For instance, being diverse allows us to underweight capital allocation in one class of business and overweight in another. Being able to alter capital allocation dynamically allows us to continue growing while managing economic uncertainty.

Our diversification strategy has been in place for 25 years. But it is in uncertain economic times that the strategy becomes most obvious for the benefit of all stakeholders.

Equally important is our approach to customer risk assessment and pricing. Liberty is renowned for the granularity of risk assessment and the loan terms offered to borrowers. Again, this approach is particularly powerful in times of uncertainty as our approach to risk can alter rapidly to manage hazards as they emerge. This ensures sound decisions are taken at borrower level and Liberty retains a well-balanced loan portfolio.

Liberty had printed two securitisations in 2022 by mid-September. How has the company adjusted its issuance strategy to a higher cost of funds and less favourable market conditions?

We are developing a diversified funding programme alongside a diversified borrower and loan product suite. Like most issuers, we have wholesale and term funding securitisation programmes. But we also have an asset-backed commercial paper and a medium-term note programme, each of which is unique among non-ADIs [authorised deposittaking institutions].

These funding sources provide Liberty with an extended source of liquidity not available to other nonbanks and are particularly valuable when term markets are not the most effective source of funding. They have been in place for many years and accessing them does not represent a change in funding strategy. But their value becomes more obvious in times of uncertainty.

Liberty has in the past issued securitisations in yen and euro. Is foreign-currency funding a likely option in the foreseeable future and have the dynamics of this type of issuance changed this year?

In 2017 and 2018, Liberty issued three times into the euro market off the back of reverse enquiry. The return profile for investors and issuers has diverged since 2018 and we have not offered notes in euros. We would always be very happy to issue in euros if the return profile worked for investors and ourselves.

We have issued three transactions in yen since 2018, again resulting from investor enquiry. Japanese investors are now quite familiar with our origination and funding programme, and we are confident opportunities to issue in yen will continue.

We want to issue notes in the denomination investors are seeking. We are confident demand in Japan will remain deep and we will continue to engage and explore opportunities with these investors. Many Japanese investors have also supported our Australian dollar deals. But if we can build a market for Australian collateral in yen, it opens a much broader network of potential investors.

In Europe, most of the large asset managers are very comfortable buying Australian dollar notes so our need to diversify into euros is not as strong. However, we will continue to engage European investors to understand their demand.

It is important for us to understand the relative value of our product and we would not hesitate to issue foreign currency tranches if it made sense.

Can we expect to see any auto or SME securitisations in 2022, and how is this part of the book performing so far this year?

SMSF [self-managed superannuation fund] and SME lending are growing and continue to be a significant component of our business and funding plans. Subject to market conditions and demand, we hope to bring an SME opportunity to market before the end of the calendar year.

The borrower and collateral mix will likely be consistent with previous transactions, so around 90 per cent loans to SMSF investors and the remainder to SMEs for business purposes. Similarly, subject to market conditions and demand, we hope to be able to issue another auto asset-backed securities deal in the first quarter of 2023.