Aggregator AFG made headlines earlier this week with the appointment of ex-ASIC chief and former Societe Generale managing director Greg Medcraft to their board of directors.
Medcraft, who was most recently with the OECD in Paris, will join as a non-exec and brings one of the best CVs in the securitisation industry to AFG.
His career has taken him around the globe and, after over twenty years in the game, he is one of the most respected figures in the Australian finance industry, with a unique perspective on markets in particular.
At AFG, he will be putting that knowledge to good use, so Australian Broker started by asking him just how important aggregators are to the securitisation market in Australia.
“Aggregators form the background of a lot of securitisation programs. They’re an important, mutually-beneficial partnership,” said Medcraft. “They source product for program, as has always been the case.”
“If you look at the establishment of PUMA, one of the big original securitisations, they had a close link to Aussie Home Loans, which was a large aggregator. It’s always been an important source of supply of liquidity to mortgage aggregators, but also a source of assets for securitisation platforms. It’s an important relationship.”
“As the market has matured, the deals have become more commoditised and more investors have come into the market. The government has supported the market, creating a bigger investor base, a bigger pool and bigger issue size.”
“It’s gone alone at a good growth trajectory and the performance of underlying assets in the residential pool have delivered. It’s been a well performing market and the deals have been well-structured.”
“You’ve got investor trust and confidence, which evolves into a very robust market. That’s what I see.”
The resilience of Australian RMBS, which has remained strong despite a raft of non-bank lenders, traditionally the home of more risky borrowers, joining the market and despite the pandemic, has been one of the great successes of the industry.
Indeed, one of Australia’s leading RMBS experts, Erin Kitson at S&P Ratings, recently told Australian Broker that the RMBS market in Australia might be ‘pandemic proof’ due to the high standard of Responsible Lending Obligations that were in place, and which Medcraft help to design in his previous position at ASIC.
“It’s a reasonable observation, because the underwriting criteria has remained pretty conservative in terms of the guidelines,” said Medcraft. “If they remain conservative, more people coming onboard means that they maintain the quality.”
“It (the S&P analysis) is very pleasing to hear. A lot of those lending guidelines were common sense. That’s why I supported them. As I used to say, the last thing any lender wants is a borrower to default.
“One of the beauties of the Australian market is the broker trail. Because the brokers are incentivised to write loans that don’t default. They don’t just walk away. It’s like they have skin in the game because they want to ensure that they keep getting their income on a performing mortgage.”
“The Best Interest Duty is common sense, too. When I was a regulator, what I used to say is that, normally, you don’t get regulated unless the government feels that you can’t self-regulate. Unfortunately, it’s a small subset that cause trouble and you end up with these rules.”
“But good lenders act in the borrowers best interest, and there’s an alignment there. If you put people into loans that they can’t afford and they get into trouble, that’s problem. I’ve always had a view that you only end up regulating when the market isn’t working well.”
Medcraft has had a stellar career, taking in Societe Generale and latterly, the OECD in Paris. Now, back in Australia, he brings that weight of experience to bear at AFG.
“It’s what you can think about in innovation and new ideas,” he said. “What you’ve seen elsewhere in the world whether it be product or market. It makes you much more open to new ideas.”
“I’ve stated mortgage businesses and securitisation businesses all over the world, in new sectors in the market. As a company, if we’re looking at new ideas, clearly I can bring expertise.
“One of the areas that I spearheaded at the OECD is digital finance, artificial intelligence and distributed ledger. I started the OECD blockchain policy centre when I arrived four years ago, so I’m pretty well on top of developments in the digital finance and blockchain space.”
“They’re going to be key topics in the financial markets in the next few years. In the sustainable finance area, that’s going to be an opportunity and challenge for some, and I lead that area at the OECD as well, and lead our sustainable finance unit around the world.”
“Those are the two leading things at the moment that are going to challenge companies in different angles. I bring a lot from that perspective as well as the past experience from having worked in markets all over the world.”
That past experience, both at ASIC and then abroad, has given Medcraft a unique viewpoint on where Australia’s property obsession sits in global terms.
“Australians have a love of property,” he said. “I suppose part of it is that its an asset class that is correlated to the fact that, until recently, we’d had 25 years of non-stop economic growth. You can’t help people being passionate about real estate because it’s always delivered.”
“I was looking at Paddington in Sydney, and since 2007, it’s doubled in value. It’s pretty hard to ignore as an asset class.”
“It’s got this long tradition of performing well over the long term as an asset class. Overseas investors love Australian RMBS, because it has performed so well over such a long period of time.”
“That’s what we found at Societe Generale: we’d bring an issue and whether it was American, Japanese or European investors, it was an asset class that performed extraordinarily well. The only issue was the AUD to USD conversion, which is always there when you’re selling offshore.”
“Other than that, it’s a pretty good market.”
Read more: Meet AFG’s new Head of Broker Experience