The Australian Office of Financial Management is looking for an investment manager to help it manage its new Australian Business Securitisation Fund.
The Australian government’s debt issuance and cash manager has issued a request for tender, inviting interested parties to submit tenders for the provisions of investment management services for the ABSF.
The investment manager will assist with the evaluation of investment proposals received by the AOFM and provide ongoing portfolio management services.
The AOFM is looking for an investment manager with experience in structured credit investments, either directly for institutional clients or in a managed fund.
The ABSF was launched in July with A$250 million of government funding. Over the next four years it will receive a total of $2 billon of funding.
It was set up to invest in securities issued by warehouses vehicles established by small business lenders, with the aim of supporting the provision of credit to the SME market and to make the SME lending sector more competitive.
The AOFM held information sessions in Sydney and Melbourne last month to run through its plans for the ABSF.
It will not require a minimum track record before investing in an SME lender’s warehouse, nor has it specified a minimum tranche size. It sees the absence of track record as “a symptom of the funding access issue the ABSF was created to address.”
And when it comes to the size of its investments, it says individual investments need to be of a meaningful size but not so as to disrupt the competitive landscape.
The AOFM’s head of global markets and business strategy, Michael Bath, said: “The AOFM has consulted a wide range of investors to develop an understanding of the market and appreciate their concerns, in particular being crowded out. A core aim of the ABSF is to attract new investment in the long term, which will take some time.”
Bath said the AOFM would invest in notes in the form of either warehouse facilities or term deals. The expectation is that the ABSF may invest predominantly in notes issued by warehouses initially and migrate to term deals over time.
“If the ABSF finances a warehouse for a number of years, it would be well placed to underwrite the terming out of that transaction in future years.”
The AOFM will allow for the capacity to ramp up its investment in warehouse facilities over time.
Bath said the approach to pricing would be to gauge the market rate and, if applicable, apply a subsidy. The subsidy may go towards achieving a broader market development that encourages private sector investment.
Insurance and ratings will be considered when forming a view on pricing.
He said the AOFM has interpreted the mandate to take an “acceptable but not excessive level of risk” as having an overall investment grade risk appetite for the ABSF as a whole, if all transactions were to have a formal credit rating.
Bath said: “The AOFM can assist the development of the market by providing visibility on the investments it makes so that they may act as model investments – helping to set market standards.
“And it can support the development of a clear track record for the asset class. It is the absence of such a track record that investors and ratings agencies have told us is a key impediment to attracting more private investment.
“Part of the AOFM’s work will be to assist with the standardisation of data collection and reporting. We see an opportunity to influence the market in finding a common standard with regard to small business loan data.”