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US investment firm acquires Bluestone APAC business

US investment firm acquires Bluestone APAC business

Private investment firm Cerberus Capital Management, L.P. has acquired specialist lender Bluestone Mortgages Asia Pacific (Aus and NZ) for an undisclosed sum.

The transaction will divest the parent company, Bluestone Group UK, of its Asia Pacific business in its entirety.

The deal allowed for the buyback of major shareholder Lloyds Development Capital’s Bluestone holding, which in turn facilitated a buyout of Bluestone’s operations in the United Kingdom and Ireland.

Cerberus and its affiliates manage over $30 billion for a range of investors, including government and private sector pension and retirement funds, charitable foundations and university endowments, insurance companies, family offices, sovereign wealth funds and high-net-worth individuals.

Campbell Smyth, the CEO of Bluestone Asia Pacific, told Mortgage Business that the acquisition will not result in any changes to management or significant hires in the near term, nor will it impact the day-to-day activity of the company, but instead enable the non-bank lender to expand its offering.

Mr Smyth said: “The interesting thing about having a partner like Cerberus is that there is a clear opportunity in the non-bank market at the moment for lenders to write a wider variety of loans. This is really as a result of everything that is going on with respect to the banks, both from an APRA perspective [and] just in general. The banks do a great job writing for mainstream borrowers, but they are just not set up to deal with more bespoke or specialist borrowers. 

“Having Cerberus on board really means that we gain a lot more financial firepower, so we’ll have an ability to have a much bigger balance sheet, which means that we’ll have an ability to grow the business more rapidly and to expand into other products to further enhance our service. So, it just makes us a bigger, stronger business.”

Mr Smyth added that the one “opportunity” for Bluestone’s APAC business would be targeting borrowers who are near prime, those that are “falling outside of bank criteria that 12 or 18 months ago were within the criteria”. Several non-banks, such as Pepper Money, have been increasingly targeting this group of borrowers as the banks tighten their credit policies.

“I think, for us, the way we look at it is that if you start in the specialist space and you core credit skill is specialist, transitioning through to a less credit-intensive product is probably an easier transition that going the other way,” the CEO said.

“So, that space is probably an area that we will certainly be very keen on.”

Mr Smyth added that Bluestone Mortgages Asia Pacific would also consider extending out residential mortgage products for self-employed into “small ticket commercial” offerings and would be looking at other asset classes.

He added: “We will be evaluating to see what makes sense to us. [We’re] certainly not going to just do things because the market is doing them. It will be things that we believe we have a competitive advantage and skill set in and something that is going to make sense economically,” the CEO told Mortgage Business. 

“Overall, the transaction is a win for all involved. We have a fantastic team who consistently work incredibly hard to realise the company’s goals. We’re now looking forward to accommodating the current team and future staff into the newly secured office space with twice the capacity of our current premise.”

US firms look to Australian lenders

The Cerberus acquisition marks the latest in a series of American firms looking to take up a piece of the growing popularity of Australia non-bank lenders.

In August last year, Pepper accepted a takeover offer from California-based investment manager KKR. The non-bank was sold for approximately $675 million.

The actual KKR-owned entity that bought Pepper is known as Red Hot Australia Bidco. The federal court approved the deal on 21 November 2017.

KKR is a major player, with $153 billion in assets under management and over a hundred companies in its private equity portfolio.

But it’s not the only American firm looking for a slice of Australia’s $1.7 trillion home loan market.

New York-based global asset management firm Blackstone acquired 80 per cent of La Trobe Financial in the third week of December for an undisclosed sum. The American behemoth manages $521 billion in assets and has a market cap of $38 billion.

According to Deloitte financial services partner Heather Baister, an expert on mortgage and securitisation markets, Australia’s housing and credit fundamentals are now looking very attractive to global investors.

“We have seen non-banks grow and develop and they have consistently been able to access the RMBS market. They are widely trusted there,” Ms Baister said.

“When you combine that with the international view of the Australian housing market, which is a very resilient market, one that is able to be funded through RMBS and one that still has margins — which you don’t have in a lot of the other global jurisdictions — I think that is really where the opportunity is coming through.

“In the prime sector, the margins are tighter. That is why you are seeing more investment into those non-bank lenders focused on the non-conforming space.”

[Analysis: Americans are betting big on Australian mortgages]

US investment firm acquires Bluestone APAC business
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