A new debt fund working with alternative lenders has launched, and aims to take advantage of the search for new forms of finance following the toxic banking culture revealed in Australia’s financial services Royal Commission.
The Sydney-based private fund, called HHR Capital Partners, will lend money to online and non-bank lenders and replicating, where possible, a bank’s balance sheet. It targets an annual return of 8 per cent to 10 per cent net of fees, while also offering advisory services.
It will be run by Glenn Hodgeman, currently the executive director of AltFi Australia, who has run global credit trading operations for over 20 years with Westpac, Citi and ANZ.Philippe Roger, an ex-global Head of structured credit at JPM, and Greg Hickling, a former senior Structured Credit and Fixed Income sales head, will also head the fund.
The move follows last month’s release of the Royal Commission on banking by High Court Judge Kenneth Hayne, which details a noxious sales culture at many of the country’s biggest banks
A number of scandals were uncovered, including fees charged to thousands of dead superannuation customers in practice so widespread that compensation for it could top A$1bn.
The countries four major banks - National Australia Bank, Commonwealth Bank, Australia and New Zealand Banking Group and Westpac - that dominate domestic lending all came in for severe criticism. A number of heads leading banks have been forced to resign.
Hayne made 76 wide-ranging recommendations to tighten up banking conduct to the government who will give its response later in the year.
Hodgeman said: “I think there are some major changes going in the Australian financial and lending markets right now. Australia has been dominated by four major banks, a total monopoly, with lending market share of about 90 per cent. However, the Hayne Royal Commission into the financial industry uncovered enormous problems with the culture and conduct particularly with the banks. They now realise they have not done a good job particularly in their service and treatment of borrowers, consumers and small businesses.
He added: “In my view the recommendations from the Royal Commission will be the tipping point where customers say enough, and they now understand they have other financing options, a real opportunity for alternative lenders in Australia.”
The HHR fund, under its current mandate, is likely be no larger in size than A$200m. It will target shorter duration and higher yielding credits across different asset classes.
The target market will be institutional investors, sophisticated high net worth individuals and family offices. It will not be target retail investors.
Hodgeman added that because fintech and alternative lending is still an emerging area, HHR intends to work closely, with their lenders and includes strong institutional due diligence.
“This fund is not a couple of guys in a small office with Bloomberg terminals,” Mr Hodgeman said.
“We will need to be travelling and working with lenders and spending time with them and doing high quality due diligence, research and work with them around that.”
HHR’s fund has now received initial seeding and is now open to investors. HHR Capital will attend the AltFi Australasia Summit on the 15th April.
