Ross Stitt finds that millions of Australians are exposed to private credit risks as their fund managers chase higher returns in more speculative low liquidity real estate-based debt instruments

High inflation, rising interest rates, falling house prices, low productivity growth, and high government debt. The Australian economy has seen better days.

One sector under the spotlight in this challenging environment is private credit – lending by non-bank lenders such as credit funds, specialist asset managers, and institutional investors.

Two recent events highlight important issues for investors in this sector – the collapse of the Bathla Group and the revaluation of private credit assets in listed Metrics funds.

Bathla is a residential property developer and construction group. One of Sydney’s largest home builders, it’s been building affordable homes in Western Sydney for nearly 30 years. Its website claims a ‘project pipeline’ of A$15 billion.

Bathla entered voluntary administration in August. Reasons given for the collapse include slower pre-sales, falling house prices, construction cost inflation, and recent changes to the tax treatment of residential property investment.

At the time of its demise Bathla owed creditors around $3.5 billion. Significantly, the vast majority of that debt is due not to banks but to dozens of private credit providers, both domestic and international.

The amounts vary from a few million dollars to several hundred million. Security is against a range of real estate from empty development sites to completed dwellings.

Given the complexity of the Bathla Group’s affairs and the weak state of Sydney’s residential property market, the administration process will be time consuming and expensive. It seems likely that some of the private credit providers will lose money.

The Australian Securities and Investments Commission (ASIC), the corporate regulator, described the Bathla collapse as ‘deeply concerning’, but ‘not surprising’. The lack of surprise is due to ‘inconsistent industry standards that haven’t kept pace with the growth, significance, complexity and connections’ of the private credit sector.

There’s no doubt that private credit has expanded rapidly over the last decade in Australia as investors have chased the high yields on offer. Much of the lending has been to players in the cyclical property and construction business. Many of them would struggle to source equivalent funding from the traditional banks. 

Most Australians are not direct participants in private credit. However, ASIC points out that ‘millions of Australians are exposed to private credit – some through direct fund investment, others through shares in private credit fund managers, but many through their superannuation fund’.

With Australians now holding superannuation assets of AU$4.8 trillion, it’s inevitable that those assets include considerable private credit exposure, both in Australia and offshore.

In this month’s Financial Stability Review, the Reserve Bank of Australia comments on the rapid growth of private credit in Australia. However, it states that available estimates suggest private credit ‘still only accounts for around 10 per cent of total business debt and less than 2 per cent of financial system assets’. On that basis it does ‘not pose a system-wide financial stability risk at present’.

Nevertheless, risks remain for individuals who invest, directly or indirectly, in private credit funds. Transparency is a key to managing that risk. To ensure proper transparency, back in June ASIC called on funds ‘to ensure their 30 June asset valuations are current, accurate and grounded in realistic assumptions’.

The recent case of three listed funds managed by Metrics Credit Partners, a major private credit firm, highlights the issue. KPMG, the auditor of the funds, disagreed with certain valuation assumptions in the accounts prepared by Metrics, including the provisions for potential credit losses. This delayed finalisation of the accounts which resulted in a trading suspension for the funds. 
The funds eventually resumed trading but only after a combined $170 million write down in their net tangible asset (NTA) backing. This meant a reduction in the 30 June 2026 NTA for the Metrics Income Opportunities Trust from $2.15 to $1.93, and for the Metrics Real Estate Multi-Strategy Fund from $2.53 to $2.22.

Those are substantial revaluations.

This week the problem of valuation has been raised again by ASIC in its latest report, Accounting for your super: Super fund financial reporting and audit 2025-26. The report relates to an ASIC review of 42 superannuation entities and six superannuation audits by large auditing firms.

ASIC’s report identifies the valuation difficulties that arise with private market assets and unlisted investments including reliance on ‘significant judgement, assumptions and estimates’. These difficulties are often exacerbated by ‘complex investment structures with limited transparency over the underlying assets’ including multiple management layers that ‘further reduce transparency over how investments are valued’.

The six superannuation audits reviewed by ASIC covered $80 billion of unlisted investments. ASIC’s conclusions are troubling –

We are concerned that the auditors did not obtain sufficient appropriate audit evidence to support the value of $67 billion in externally managed unlisted investments (including $6 billion in private credit investments).

This should concern all indirect investors in unlisted assets.

In a competitive market investment managers are judged, and paid fees, based on their financial performance. If that performance turns on the valuation of unlisted assets, as it does in private credit funds, the risks are obvious.

*Ross Stitt is a freelance writer with a PhD in political science. He is a New Zealander based in Sydney. His articles are part of our 'Understanding Australia' series.