La Trobe Financial future up in the air as potential suitor walks away

The Australian Securities and Investments Commission may have lifted trading restrictions on La Trobe Financial products, but a sale of the money lender remains fraught with difficulty as one of the two final bidders walk away.

After contest favourite Warburg Pincus paused work on an acquisition while the regulatory uncertainty was resolved, the rival bidder CVC Capital is understood to have left the contest for good.

Private equity firm CVC was taking advice from Deutsche Bank and Warburg Pincus is working with Goldman Sachs.

But even if the US-based Warburg Pincus remained an interested buyer, it’s hard to run an auction without competitive tension, and an initial public offering now looks challenging.

The Australian reported on Wednesday that interim stop orders placed on two La Trobe Financial products just days ago were now lifted.

ASIC alleged deficiencies in what is known as “target market determinations” to some of its investment products, specifically the 12-month term account, the two-year account and the USPC Fund class B.

The regulator applied an interim stop order while the concerns were addressed.

Target market determinations have been required by law since 2021 to ensure products are designed and distributed to the markets they are intended for and to ensure investors don’t invest in products that don’t match their appetite.

A stop order prevents offers being made, effectively freezing the inflows for the fund manager.

It may lead to redemptions being frozen, and if this became widespread across its business it could create a run on the private credit industry.

Some have taken the view that ASIC is making an example of La Trobe Financial, as it places heightened focus on the private credit industry and may increase regulation for operatives.

La Trobe said last week it would pause the receipt of new investments for the funds (which have total assets of about $10.5bn) while the issues were addressed.

CVC’s departure from the contest comes after Bain Capital left the race last week after initially offering between $2.6bn to $2.8bn including debt or between $2.1bn to $2.3bn excluding debt.

The Australian reported that under instructions from ASIC, La Trobe investors would now have to fill out a questionnaire that would assess their suitability for the products.

A spokesman for La Trobe confirmed the asset manager would reopen its online portal despite stop orders still applying to a third La Trobe fund, its US Private Credit Fund.

The regulator imposed the interim orders on La Trobe’s flagship 12-month term account, its two-year account, and its US Private Credit Fund, last Thursday.

Investors had been unable to get on to the portal for close to a week. Clients wanting to redeem funds had been forced to place their redemption orders over the phone since Thursday.

La Trobe Financial manages $21bn in assets for more than 120,000 investors attracted to its higher-yield offerings.

Final bids for the UBS and Morgan Stanley-advised sale were due on October 17.

La Trobe makes most of its money offering loans to homebuyers who cannot get debt from a bank.

Brookfield purchased the business from Blackstone in 2022 for $1.5bn.