Closing the credit gap

Those seeking key details on the federal government’s $2 billion Australian Business Securitisation Fund shouldn’t have much longer to wait.

The Australian Office of Financial Management this week quietly started a tender process to find an investment management services provider for the new fund. That process closes on September 6, with a decision expected to follow soon after.

That will be welcome news for small and non-bank lenders seeking to take advantage of the cheaper funding it will offer, after the government announced it last November. It was one of two measures to help alleviate a funding gap and difficulties in obtaining credit in the small business market.

The other was a private equity style fund that will take equity stakes in small businesses, which is also still in a period of gestation.

Obviously the new funds aren’t big enough to put a dent in the $80 billion-plus capital shortfall that domestic businesses face, but the measures provide small steps in the right direction.

The securitisation fund will support new and existing warehouse facilities for business loans and buy and hold parcels of securitised loans to support underserviced segments of the market.

Enabling legislation was passed in April, making the first tranche of $250m available for investment this financial year.

The AOFM’s head of global markets and business strategy Michael Bath has been setting the scene for interested parties at information sessions on the securitisation fund. And he’s not giving industry any false ideas that the program is an all-encompassing solution to the sector’s funding challenges. Bath said the AOFM perceived its role primarily as “one of market development, with the aim of attracting additional private sector investment to this sector over time”.

“It’s important then that the AOFM assists with the development of the market by using the ABSF to nudge things in the right direction. On one level, it can do this by providing visibility on the investments it makes on behalf of the ABSF so that they may act as model investments — helping to set market standards in such areas as documentation.”

The AOFM is also mindful — after seeking out industry feedback — of creating any distortions or competitive disadvantage in the market. Finalised investment principles covering areas such as competition, transparency and lending practices were released last month.

Bath spoke of a “cliff effect” where if a business loan didn’t make it past the criteria of one major bank, it would likely face the same fate at the other three. His analysis went into detail on a market gap between the so-called cliff and unsecured lenders, and a large variance in interest rates across the sector.

Initially, the AOFM will steer away from allowing participation by sub-scale unsecured lenders but Bath says eventually they can play a role.

“We want the ABSF’s market development benefits to raise the tide for all ships away from the cliff … we see that the path of least regret is consistent with an investment strategy that starts close to where the major banks are operating and moves methodically away from that over time.”

After an investment management provider is appointed via the tender process, the AOFM will call for proposals from lenders that want to get involved in the first and subsequent tranches of the securitisation fund.

Stott returns

This column understands it won’t be long before former Wilson Asset Management chief investment officer Chris Stott re-emerges in funds management.

Stott retired from Wilson at the end of 2018 but sources say he is in the process of raising a decent pot of funds and plans to be back managing money within months.

Stott’s new firm is lining up as 1851 Capital and documents lodged with the corporate regulator list him as a director and secretary.

The firm’s website says “Coming soon…” but describes it as a boutique investment management company specialising in Australian smaller companies.

With a handful of local fund management houses shutting their doors over the past 12 months, it’s likely to be welcome news for the industry.

Across the ditch

As aggrieved financial advisers plot their next move against AMP in its wealth shake-up, the plan in New Zealand is to divest.

AMP’s preferred exit route for its wealth management business in New Zealand is a trade sale.

The group’s CEO Fran­cesco De Ferrari last week told this column the decision to divest that division came down to a refocusing of its efforts on Australia.

“It’s (NZ wealth division) a business which has a fantastic competitive position,” he said.

“It’s just with all the focus that we need to deliver on Australia … we feel that the best thing for this business going forward is to be owned by a local party.”

His more pressing priority is ensuring regulators across the ditch and in Australia sign off on AMP’s revised $3 billion life insurance sale to Resolution Life.

The initial $3.3 billion deal ran foul of the Reserve Bank of New Zealand’s capital requirements on ring-fencing arrangements. Resolution has operations spanning Bermuda, London and the US.