This was unfortunate timing for La Trobe Financial, as the alternative asset manager had just finished an Asian roadshow ahead of an upcoming residential mortgage-backed securities (RMBS) transaction when the news broke. Capital markets all but closed as liquidity retreated in fear of financial sector contagion.

Barry says the issuer elected to pause the transaction but maintained constant communication with investors while it waited for volatility to subside. The hiatus, after all, was not a case of investors responding to perceived risk in the Australian financial system but a general desire to wait for the market to settle.

The pause proved to be a sensible strategy for La Trobe Financial. Two weeks later the issuer reassembled the transaction and printed a twice upsized A$1 billion (US$642 million) – from an original A$500 million – deal. “The result speaks volumes about the quality of the Australian financial system and the loans La Trobe Financial originates,” Barry remarks.

Two months later, La Trobe Financial returned to the capital market again to issue a further A$750 million. It received more than A$1.5 billion in demand for this deal and was therefore able to tighten the margin by 10-15 basis points in the triple-A notes during the execution period. “We have observed significant volatility in the market during 2023. Still, we have been able to issue two RMBS transactions thanks to support from key investors and our core banking relationships,” Barry tells KangaNews.

He continues: “Strategically, we believe it is important to issue throughout the economic cycle. To do this we will continue to partner with existing and new long-term investors. RMBS spreads are wider than historical norms, but as central banks reach terminal interest rates we expect a tightening bias to emerge for high-quality issuers such as La Trobe Financial.”

La Trobe Financial has a unique funding proposition. As an alternative asset manager, it runs Australia’s largest retail credit fund. The firm’s A$10 billion asset management arm specialises in finance and credit investment solutions, and serves approximately 93,000 investors.

As well as regular RMBS issuance, the asset management side of the business adds diversity to La Trobe Financial’s funding strategy. In fact, when Brookfield Asset Management acquired La Trobe Financial in 2022, Barry notes it was particularly impressed with the reach of the operation in combination with the alternative asset manager’s mortgage product suite.

The model gives La Trobe Financial opportunity to continue to grow its assets, Barry continues. In the last 12 months, La Trobe Financial has originated more than A$9.6 billion in new mortgages and now has A$18 billion in assets under management. Book growth is such that the issuer may even consider an additional RMBS trade per year.

“We have experienced strong, consistent growth in mortgage originations while remaining diligent and continuing to target high-quality borrowers,” Barry explains. “Historically, our capital market funding model has been twice-annual issuance. This has served our company well but, based on our growth trajectory, we would like the option to issue three or more times per year – subject to market conditions.”

La Trobe Financial’s portfolio remains resilient even as its customers adjust to higher interest rates, Barry adds. It expects arrears in its portfolio to remain within historical ranges, reflecting high quality underwriting standards.

Barry is thus confident La Trobe Financial’s portfolio will remain in good shape. “Australian consumers have adjusted their spending habits and continue to service their mortgages on time,” he says. “We are confident in the outlook based on our detailed up-front credit work, conservative underwriting policies – we do not lend above an 80 per cent LVR [loan-to-value ratio] – and serviceability buffers. This is underpinned by record low unemployment, household savings buffers and high levels of built-up housing demand.”