Brookfield assesses La Trobe Financial exit as it attempts to shake off Healthscope woes

The global investment giant is considering exiting its investment in non-bank lender La Trobe Financial, after fielding interest in the asset worth up to $3bn, sources say.

Brookfield’s Len Chersky in the investment giant’s Sydney office. Picture: Adam Yip

Global investment giant Brookfield is considering exiting its investment in Australian non-bank lender La Trobe Financial, after fielding interest in the asset that may see it fetch a price of $2.5bn to $3bn-plus including debt, according to sources.

The Australian understands given the growth at La Trobe since Brookfield purchased the Melbourne-based company in 2022, it has received a string of inbound interest from potential buyers.

That has prompted the private equity behemoth to weigh up appointing investment banking advisers to more formally gauge expressions of interest and conduct a sale process, with some banks already pitching their wares to Brookfield.

A decision is set to be made in coming weeks about whether Brookfield will proceed with appointing advisers for any sort of auction process, or retain La Trobe within its stable.

A Brookfield spokeswoman declined to comment on Tuesday.

Debate over La Trobe’s future ownership comes against the backdrop of private equity firms having had a notable presence in Australia’s non-bank lending sector over the past decade, including in Pepper Money, Latitude and Bluestone Group.

Brookfield acquired La Trobe for about $1.5bn almost three years ago from rival firm Blackstone and the O’Neill family. The purchase of the company, founded in 1952, included a contingent payment that hinged on the company achieving performance hurdles. The acquisition was accompanied by debt issuance in the order of $600m.

At the time, La Trobe had more than $13bn in assets under management and part of its attraction beyond its lending book was its fixed income credit funds.

While La Trobe is a residential and commercial non-bank lender it also oversees fixed-income credit funds for retail investors, largely in residential property-backed loans. The company website now points to $12bn being housed in La Trobe’s Australian credit fund and in total it has more $20bn under management, well up on where the balance sat in 2022.

Prospective buyers of the business would want to understand, however, if La Trobe’s growth is being sustained or if parts of its portfolio have plateaued.

The company’s latest accounts lodged with the corporate regulator show statutory profit after tax climbed to $189.7m in the 12 months ended June 30, 2024, from $156.3m in the prior fiscal year. Underlying profit – which excludes general mortgage impairment provisions, movements in reserves and other one-off items - was $207.6m, compared to almost $179m in fiscal 2023.

Earnings before interest tax, interest depreciation and amortisation amounted to $277.4m in the year ended June 30, 2024, versus $231.9m in fiscal 2023.

The accounts showed dividends of $330.8m were proposed and paid during the 12 months ended June 30, 2024, up from $27.4m in the prior fiscal year.

La Trobe’s team has already sought to educate potential investors on its operations by conducting non-deal roadshows in the past two years.

Still, any potential transaction or sale of La Trobe would come at an interesting juncture for Brookfield. The group’s investment arm – Brookfield Business Partners – also owns under-pressure private hospital operator Healthscope, which is in the crosshairs of suitors given its ongoing debt woes.

HMC Capital on Tuesday reaffirmed its private equity unit was in the “early stages” of establishing a consortium as a way of potentially acquiring and recapital-ising Healthscope.

Sources told The Australian that while the exposures in Healthscope and La Trobe sat in different Brookfield funds, a successful exit from the latter would help offset souring investor sentiment related to the hospitals group.

Brookfield is also one of a trio of private equity suitors separately bidding for ASX-listed wealth group Insignia Financial, which reports earnings this week.

Brookfield’s $3.1bn non-binding offer matched the level of rival bids made by Bain Capital and CC Capital, and all three firms are conducting due diligence on the target. At the time Brookfield entered the Insignia contest, sources said one option being assessed by the group was broadening La Trobe’s credit fund into other areas, which could be accelerated by an Insignia purchase.

When Brookfield snapped up La Trobe in 2022, managing partner for private equity Len Chersky said rising interest rates and the pullback by major banks from more complex borrowers created a significant opportunity.

He also highlighted La Trobe’s credit funds business as a differentiating factor and noted that in 2022 the business managed money for more than 50,000 high net worth individuals. 

Any prospective buyer of La Trobe would want to assess how it is faring this financial year and if there has been any compression in its net interest margins, particularly given the Reserve Bank has embarked on a rate-easing cycle. Potential loan loss exposures are also front of mind in the non-bank lending sector.

Originally published as Brookfield assesses La Trobe Financial exit as it attempts to shake off Healthscope woes