Institutional investment opportunities are poised to open up in the Australasian corporate loan business as new capital adequacy rules encourage banks to de-risk, according to Daniel Blizzard, head of Australian-based asset financier Alleasing.
On a recent visit to NZ, Blizzard said regulatory authorities on both sides of the Tasman would enforce tighter capital adequacy standards on their respective banking sectors under the global Basle III reforms, prompting banks to lay-off riskier lending activities such as business loans.
“Banks are going through huge regulatory change with Basle III – and in Australia the recent tax on bank profits,” he said. In July the Australian Prudential Regulatory Authority (APRA), which oversees the banking sector in Australia, announced new capital adequacy requirements that will see banks lift ‘tier one’ capital to 10.5 per cent from the current 9.5 per cent.
The Reserve Bank of New Zealand (RBNZ) is currently consulting on bank capital instruments.
Blizzard said as mainstream banks seek to exit riskier loans, institutions that operate without the capital adequacy restraints were well-placed to fill the niche.
He said in Australasia about 95 per cent of corporate loans were sourced via the larger banks “and it’s been that way for a long time”.
“In the US that statistic is 14 per cent… and it’s below 50 per cent in Europe,” Blizzard said.
With traditional fixed interest markets stuck in a low-return rut he said institutions were looking for higher returns from assets with a similar risk profile. To date, however, corporate loans have been low on the agenda for Australasian institutions.
“In Australia there’s about A$2.5 trillion in superannuation – none of that is in corporate debt,” Blizzard said.
The situation was similar in NZ, he said, with institutional investors yet to show much interest in corporate loans. However, Alleasing has been testing demand on both sides of the Tasman with a funds management model that gives institutions access to diversified portfolios of loans.
“We’ve had initial discussions with about five or six institutions in NZ,” Blizzard said.
The business, which has operated in Australia and NZ for 25 years in the asset financing space, was bought out by Australian-based private investment firm, Monash Capital, in 2015. Other investors in Alleasing include Kirsh Group, Genesis Capital, KKR and the JP Morgan Asset Management-owned Highbridge Principal Partners.
Blizzard said the firm has already attracted over a dozen institutional investors into four different fund structures that offer access to investment grade loans over fixed term with a fixed rate of return.
The Alleasing offer is a strictly wholesale affair with investment tranches typically in the $50 million to $150 million range.
Blizzard, who worked at GE Capital during the global financial crisis, said the Alleasing approach was vastly different from the finance company debenture model that unraveled in NZ from 2006.
“We’re not taking deposits from retirees, this is for professional investors,” he said.