Take my money and lie to me… again

Totally disagree with this article. Last year, in 2025, the stockmarket lost about 18% between February and April due to the Trump tarrifs and none of the Australian private credit funds missed any payments and none of them went broke.

Also, with Bernie Maddoff, investors in his ponzi scheme got back 93.7% of their capital back via the The DOJ Madoff Victim Fund, which is much better than if they invested it in the stockmarket and lost 50% in the GFC or lost 30% during Covid-19 or lost 18% last year from the Trump panic. Ironically, you could say that investing in Bernie Maddoff was actually safer than going into the stock market.

Thank you for your insights, Geoff. As a retired credit manager in a major bank, I would not touch these funds. Guess I'm conservative, but have been around long enough to see what happens when the going gets tough. Yes, I did sell Mortgage funds at one stage in my career, and pulled back when things were tightening. I am really surprised to see David Kock (ex Channel 7 -Sunrise)sprouting one particular fund in company with a man extolling the benefits. Right at the end, there's fine print - but of course too quick and too small to read. Not worth the risk.

Though Kim, the vast majority of them are investing in the same credits that you would have approved in your role as a bank credit manager. Or were you just personal credit, not business credit?

The issue with the funds is primarily their product structure and ability to deal with liquidity stress, not their credit risk. (That was the challenge for mortgage funds in the GFC - there were actually few credit losses on their loans.) Most of them are quite well diversified and do detailed credit assessments on the issues, just like you would have at the bank. And many of them have been around for a long time as credit managers and have good relationships with their investors who actually understand the timeframes over which they need to invest. There are exceptions and definitely some that I wouldn't invest in either, but to simply 'not touch these funds' is branding a whole sector of the industry with the same brush and that's not warranted.

Saying that is not the same thing as saying that they've been sold properly. They needed to be sold as going up the risk spectrum to earn a higher return, with clear outlines of what the risks are and how they are managed by the fund. That is what has been sadly lacking across the industry.

just because investors are rushing to exit does not necessarily mean that the fund is doing badly, as pointed out by some of these managers who show that the underlying fund is doing fine.
Investor behaviour is often irrational and nonsensical.

Why did Bernie go to jail?

Sounds somewhat familiar.

What an unhelpful comment! Who is Bernie and how is his experience relevant? How is it familiar?

If you mean Bernie Madoff then the issue with private credit is NOTHING LIKE a Ponzi scheme. There are genuine, income earning assets in private crefit. So it's also an inaccurate comment.

From what I understand Private Credit involves lending money to people like real estate developers at high interest rates. What could go wrong ? We have been dealing with this stuff for 50 years or more. Back in the 60s and 70s individual investors were sucked in to companies like Cambridge Credit and Charters Towers Finance. The latter was offering interest rates of 13 % which was double the rates on term deposits. Both went bust. Now institutional investors invest in something similar and give it a fancy name . If somebody is willing to pay double the rate of interest available from the normal banks does that not tell you they are a credit risk ? The old saying if it looks too good to be true then it probably is should always be a warning. How institutional investors get sucked into this beggars belief.

Francis H, the sector is a LOT bigger than just real estate development lending. Some funds include that, though usually as part of a broader portfolio, but others don't. The most common description of the range of assets is something like "corporate, asset-backed and real estate loans", with the latter usually confined to traditional commercial mortgages (such as lending to a private investor who owns a warehouse on a busy suburban road that's rented to an auto repair shop0.

The examples you site could be added to - Estate Mortgage comes to mind in the 1980's - but that is not what private credit funds are about.

I know that my first comment on this article was supporting the argument that there are significant issues with private credit funds, but this was only in terms of how they were sold to investors in relation to the nature of their risks. The funds themselves are mostly really well managed and a well informed investor (like the super fund on whose Board I sit) who knows how to place them within their overall portfolio gets a solid yield and return enhancement by taking the liquidity risk inherent in the sector. Hence my response to several comments since that have picked up the article and talked about other issues that aren't the problems that folk like you seem to imagine.

So perhaps your understanding needs to be better informed than labelling an entire industry as being in the same category as a couple of very poorly structured offerings in Australia's past.

Fund Board Member, my comments are those of the person in the street who does not have the experience or wherewithal to do the research into these products unlike those in the know. You seem to acknowledge that the products are sold in many cases without adequately explaining the risks. To my mind that is a good reason not to invest in them. There are obviously problems with some of them in the US , even well known names. If they are not being marketed truthfully them there are obviously problems. The Article by Geoff Saab illustrates this well. Like any market product they can fall victim to a loss of confidence. Confidence is never inspired by hiding things as the marketing seems to do. I guess we will just have to wait on events.

And there lies the issue. I think people are quite happy with the credit and operational decisions of the big banks (for a lower return) and have issues with “private credit” because while they do offer higher yield, have little tangible modern track records or reputation that people can rely on.The biggest issue is transparency which is lacking so one does not know who they are lending to except for general sweeping statement about possible sectors that they may or may not be exposed to.

Francis, you are absolutely correct - if you don't understand an investment you shouldn't put your money in it.
That's not what you said at first - you said you wouldn't touch them because of the kinds of investments they made. And you expressed disbelief that anyone would get sucked into these investments. Perhaps you should have just said "I personally don't understand these funds so haven’t invested in them" .
I was seeking to correct your misunderstanding. That's part of what FirstLinks is here for, so that hopefully people who do understand things can explain them. The sector doesn't deserve ridicule like you expressed in your first comment.
The issues with some funds in the US having often been sold inaccurately are genuine, but your comment ventured an opinion on the kinds of investments they make, which is a different matter entirely.