Blackstone has bought an 80% stake in an Australian non-bank lender and fund manager, La Trobe Financial, to become its lending platform in Australia.
The US private equity group will work with La Trobe, which manages AUD13bn (€8.4bn) in assets, to push further into Australia’s AUD2.3trn plus residential and commercial mortgage markets.
Greg O’Neill, chief executive of La Trobe, declined to disclose the transaction price, except to say “it is a beautiful number”.
La Trobe, which has a 65-year track record, will hold the remaining 20% stake and will continue to operate under its existing management and brand, with O’Neill continuing to run the company.
He told IPE Real Assets that, as a majority-owned Blackstone entity, the growth opportunities for La Trobe will primarily be in three areas – traditional mortgages, wealth management, and acquisitions/joint ventures.
La Trobe’s business in residential and commercial mortgage markets in Australia could now be accelerated, he said.
O’Neill pointed out that the outstanding value of residential mortgages in Australia is AUD$1.7bn, and each year around AUD400m in new mortgages is issued.
In addition, the commercial real estate market is valued at around AUD658bn.
The combined commercial and residential mortgage market at AUD2.3trn is bigger that the entire capitalisation of the Australian share market (about AUD1.7trn), making it “a very significant” asset class for a global player, he noted.
Over the past 20-30 years, Australian banks have controlled 93%-94% of the mortgage market, but with the recent rise of non-bank lenders and alternate credit providers, that share is sliding towards 85%.
The Australian residential market has cooled as a result of stricter prudential regulations on banks.
The Australian government is also threatening to bring non-lenders under the supervision of its banking watchdog, the Australian Prudential Regulation Authority.
O’Neill told IPE Real Assets that government concerns are understandable because housing affordability has become a major issue in Australia’s tier one cities, like Sydney.
“In Sydney today,” he said, “the average house price-to- income ratio is 10 or 12 times, equivalent to that in London or New York.
And Sydney prices had risen by high double digits for the past two years, until a couple of months ago when the rise slowed to single digit.”
But any tightening by APRA on non-bank lenders is not a concern to La Trobe.
O’Neill said the entire non-bank market is clearly not sizeable enough to have an impact on the cooling process, notwithstanding who owns these businesses.
With Blackstone, La Trobe plans to expand its presence in the wealth management market.
Among its offerings, La Trobe has an AUD2bn credit fund.
“We see the potential to open other products, such as bonds, equities and new wealth management options, to our existing client base,” he said.
The Australian company has annual revenue of AUD335m, services 40,000 customers.
O’Neill said future growth could also come from acquisitions and/or joint ventures with other businesses.
Apart from Australia, La Trobe has offices in China and Hong Kong.
O’Neill said: “Certainly, over the past eight years, we have had a very clear focus on China.
“There is a good business alignment between La Trobe Financial and Blackstone to continue dialogue (with China) and to expand the business footprint of both Latrobe and Blackstone in China,” he said.
Before La Trobe, Blackstone had links with another Melbourne-based firm, Ausin, which is more of an agency servicing foreign, particularly Chinese, buyers.
O’Neill said that Blackstone, as a large global investor, will have multiple streams of execution strategies. La Trobe, he said, is just a part of its strategy for the Asia-Pacific region.
