CGF Challenger Limited

Australia's fund managers are stepping in to meet the growing demand for commercial loans left by the deleveraging of the banking sector.

Specialist loan fund manager Metrics Credit Partners has partnered with National Australia Bank (NAB.AU) to create a fund to tap the growing appetite for fixed yielding assets among Australia's 1.4 trillion ($1.42 trillion) Australian dollar superannuation industry.

Metrics Executive Director Graham MacNamara said the fund, which is expected to raise A$3 billion by the end of 2012--half of which will come from NAB--hopes to cash in on the funding gap left as Australia's banks rein in their lending and Europe's embattled lenders retreat to their home markets.

"Heading into the Basel III environment will again increase the pressure on the banks in terms of the kind of assets they can have on their balance sheet," he said. "European banks withdrew about A$15 billion from the (Australian) market in the last quarter. The withdrawal of that much capacity has to be found from somewhere else."

Metrics will own and service the loans, but sell units in the fund to investors such as pension funds, giving them access to a fixed income stream without having to shoulder the risks of owning the underlying assets.

MacNamara said the funds loan portfolio currently yields 200 to 500 basis points and he expects "loan margins to remain at these levels" for the foreseeable future. "If we're successful I think you'll see some other banks looking to do the same thing," he added.

Australia's major four banks----Australia and New Zealand Banking Group Ltd (ANZ.AU), Commonwealth Bank of Australia (CBA.AU), Westpac Banking Corp. (WBC.AU) and NAB--control around 60% of the country's syndicated corporate loan market, according to data from Dealogic.

Steve Lambert, NAB's executive general manager for Capital Markets, said the banks could raise between A$20 billion and A$25 billion a year by 2015 by selling off their syndicated loans.

"NAB is doing this to help address the problem we're facing," he said. "We're not necessarily as efficient a place to hold long-term debt as the super funds."

The void left by the banks' deleveraging has also created opportunities in property loans for fund managers.

Quadrant Real Estate Advisors estimates the exodus of the European banks from Australia's commercial property sector will create a A$12 billion borrowing squeeze over the next two years. Asset managers like Perpetual Ltd. (PPT.AU) and Challenger Limited (CGF.AU) are expanding their property debt portfolios this year in a bid to cash in on the high margins in the capital-hungry sector.

-By Caroline Henshaw, Dow Jones Newswires; 61-2-8272-4689; caroline.henshaw@dowjones.com

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