There's private credit, then there's Metrics

A pungent malodour has been rising from the private credit sector now for at least 12 months. Sundry inputs combine to cause the stench. Firstly, it is international, with the US majors having restricted client redemptions and their loan quality under immense scrutiny. Secondly, it is down to some kamikaze lending practices by dubious actors here in Australia. Most notably, the lenders to Jon Adgemis' debt labyrinth, Public Hospitality Group, have been rinsed while the Australian Securities and Investments Commission produced a watershed report in September raising concerns about conflicts of interest and poor disclosure among 28 local private credit funds. 

Last week, Andrew Lockhart, chief executive of Australia's largest private credit manager, Metrics Credit Partners, lunged onto the front foot, writing in The Australian without apparent irony that, "Not all private credit is the same". 

Lockhart distanced himself from "years of aggressive lending" in the United States – "typically sponsor-driven" and "funnelled through semi-liquid retail structures" – which has "left some managers poorly positioned". Australia's market, however, had "evolved very differently".

"Investors should not be retreating from the asset class," he insisted. "They should be asking harder questions." 

Lockhart raised some absolutely legitimate distinctions between US and Australian private credit, the starkest of which may be the superior rights of creditors under Australian insolvency law. The other material difference is the US sector's outsized exposure to the software industry versus the local sector's outsized exposure to real estate construction lending. The latter is asset-backed, whereas the former tends not to be. 

And yet Lockhart is probably the single worst person at the big end of Australian private credit to be disclaiming its relative purity. His open invitation to ask harder questions is most welcome. The challenge with Metrics and its olio of dubious standards has always been figuring out where to even start.

The laundry list

Firstly, who is Lockhart to speak pejoratively of "sponsor-driven" lending? For the uninitiated, this is industry jargon for lending to private equity-owned companies. The laundry list of Metrics' recent sponsored financing includes Device Technologies (owned by Navis Capital Partners), TEEG (Quadrant), Healthe Care (PEP), Aidacare (Quadrant), Invocare (TPG), iNova (TPG and PEP), ForHealth (BGH), Ritchies Transport (KKR) and Lumus (Affinity). Metrics were lenders to Healthscope (Brookfield), BIS Industries (Carlyle) and South Pacific Laundry (Anchorage). This lending accounts for 40 per cent of Metrics' non-real estate portfolio. 

Metrics blasted itself onto a whole new plane of brand awareness in October 2024 via one particular sponsor deal: providing the ill-fated leverage for Quadrant's Rockpool Group. When Quadrant finally gave up on its longstanding problem child, Metrics unexpectedly found itself the proud new owner of an uneconomic, unfashionable and investment-starved hospitality empire. Absurdly, Lockhart sought to make a virtue of his accidental turn as a restaurateur, offering up his profoundly misguided tips on restoring Rockpool's halcyon era (with cheaper wine and live music; and how's that working out?). The poor bloke seems to have mistaken himself for Jeremy King or Keith McNally. Of course, none of Lockhart's clients ever invested in Metrics funds to gain exposure to equity in a restaurant. 

Bad loans

Secondly, while Lockhart decries the loose lending standards of US private credit managers, it is obvious that Metrics has been loose itself. How else do you explain the fact that 40 per cent of the assets of the Metrics Income Opportunities Trust (ASX: MOT) – ostensibly a credit fund – are now equity or 'equity-like' investments? Let's call those what they mostly are: an overflowing basket of bad loans.

In his op ed this week, Lockhart identified the "harder questions" investors need to ask of private credit managers, one of which was, "What first-ranking security is held?" Well, senior secured loans accounted for 69 per cent of MOT's portfolio as at March 2023. By March 2026, that had fallen to 40 per cent – an enormous deterioration of credit quality. Over the same period, MOT's equity investments more than doubled from 18 per cent of the assets under management to 40 per cent. The risk profile of the fund has completely changed and any notion that the average retail investor understands this is far-fetched.

The smart money clearly understands: MOT's units now trade at a 19 per cent discount to the fund's net asset value (the discount was 6 per cent in March 2023), which is roughly equivalent to the prevailing trading discounts of major US business development companies (BDCs) managed by Blue Owl (21 per cent) and Goldman Sachs (24 per cent), and far worse than the Ares BDC (3 per cent) or Blackstone's Secured Lending BDC (8 per cent). Of course, MOT's discount is only 19 per cent if you actually believe the fund's valuations, which I certainly don't. 

Speaking of equity investments sitting in MOT, it would be remiss of me not to mention the stinkiest of them all – though this one was no accident. In June 2025, Lockhart decided he wanted to take full ownership of another non-bank lender BC Investment Group. What this transaction demonstrated – other than a non-comprehension of the concept of 'arm's-length' – was the farcical complexity of Metrics' operating structure. Please, bear with me.

Noodle diagram

A 30 per cent stake in BCI already sat in a Metrics fund, the Metrics Credit Trust (MCT). Why a credit fund would own equity in a credit manager is a seriously good question, but let's not get waylaid here. Lockhart concocted a deal whereby he could buy the rest of BCI and transfer all of BCI's equity (plus the equity in automotive lender Taurus) out of MCT and into the ownership of Metrics the management company (MCH). MCH was owned by Lockhart and his partners, with minority stakes held by ASX-listed investment manager Pinnacle, Townsend Group and the National Pension Service of Korea.

Lacking the cash in MCH to fund either of these manoeuvres, Lockhart got MCT – that is, a fund that MCH manages – to take 15.4 per cent of the equity in MCH in exchange for the existing BCI and Taurus stakes plus $140 million of cash proceeds to fund the acquisition of the other BCI shares.[[As part of the transaction, Metrics also split an unnamed and unquantified proportion of MCT's debt assets into a new fund, Metrics Credit Trust 2. Again, no valuation methodology for pricing the asset/unit swap was provided.]] There was no valuation methodology disclosed to MOT unitholders for the number of MCH shares received by MCT in exchange for its assets. The independent sign-off of the fair valuation of those MCH shares was not provided to MOT unitholders.[[An independent expert report was provided to MCT unitholders only, despite MCT deploying MOT capital on retail unitholders' behalf.]]

Note that less than three months earlier, Townsend and NPS had acquired a 4 per cent stake in MCH at a valuation of $1.2 billion (an imperious 60 times its post-tax profit), setting a lofty mark at which MCH could justify selling even more shares in itself to the unitholders of its funds.

Now, remember, the retail fund MOT invests 41 per cent of its capital in MCT (via an intermediary trust I won't even name – we're already close to an acronym overload here). This means that retail investors in MOT – which is also managed by MCH – collectively funded the acquisition of 4 per cent of MCH. And, indeed, Metrics was only compelled to disclose this self-dealing publicly because MOT is indirectly a party to it.

If you are completely confused by the noodle diagram I've just attempted to untangle here, then Metrics' structure has achieved its objective. It's hard enough for a professional investor to get his or her head around this layer cake. What possible chance does a retail unitholder have? 

At the manager level, Lockhart's balance sheet was never big enough to support the takeover of Taurus or BCI and so Metrics warehoused this investment in its funds for six years. Swallowing these peers has increased Metrics' assets under management by $7.5 billion to $35 billion. This may have been a good investment (for Metrics) but what reeks is that Metrics used retail money under its stewardship to fund its own strategic growth objectives. For Metrics to do this while ASIC was breathing down its neck showed breathtaking arrogance – or perhaps just a clear-eyed view of ASIC's impotence to curtail the sector's worst instincts.

Uncommercial loans

Thirdly, for the purposes of comparing Australian private credit managers to their US counterparts, let us briefly dwell on the fact that Metrics borrows on non-commercial terms from MOT and from another fund it manages, the Metrics Master Income Trust (ASX: MXT). The MXT loan of $40 million (or 1.6 per cent of the fund's assets) to MCH is particularly egregious. It is unsecured, covenant-free and bears a flat 4 per cent rate of interest.[[The stated purpose of the loan is for buying and renovating Metrics' Sydney and Melbourne offices, and for general working capital.]] Yes, you read that correctly. Not 4 per cent over the swap rate; four per cent period! So MXT's retail unitholders are actually subsidising Lockhart's cost of funds.

If it would lend to another client on these terms at all, MXT would lend at an interest rate well in excess of 12 per cent. In the US, a BDC's investment manager is forbidden from borrowing from the BDC by US law. 

Less than three months after the BCI-MCH-MCT transaction, ratings agency Lonsec downgraded three Metrics funds, including MOT and MXT, over governance concerns including "a recent and material related-party transaction" and their lending to Metrics. Lockhart remained defiant, which is apparently his factory setting.

And on Pinnacle's interim results call in February, chief executive Ian Macoun lamented, "It was a tough year for Metrics. They had to deal with a lot of generally uninformed, ignorant and stupid comments."

Pinnacle owns 35 per cent of Metrics (MCH). It bought more shares last week at a $1.5 billion valuation (or 73 times trailing net profit after tax).[[Pinnacle first invested in 2018. It was diluted to 28 per cent, first by the National Pension Service of Korea/Townsend equity investment and then by the MCH-MCT-BCI-Taurus transaction, both in 2025. Last week, Pinnacle paid $101 million to increase its stake back to 35 per cent, buying shares from retiring Metrics partner Graham McNamara. NPS/Townsend increased their shareholding in the same transaction.]]

Thin skin

Macoun's non-specificity about the supposed deficiencies in the public commentary around Metrics is perfectly understandable, since he would have no persuasive explanations for the particulars of its disreputable practices. Those I've addressed in this article were really just an introductory sample. I didn't even get to the provision of debt and equity to the same real estate projects – something that is frowned on globally.[[US private credit managers need approval from the Securities and Exchange Commission to co-invest debt and equity in the same deal.]] I didn't get to the residential construction lending at confounding valuations. I didn't get to the side-fees that MCH charges the borrowers from its funds but then doesn't pass on to the funds, something that ASIC raised in its report as a specific concern – alongside funds investing in their managers' equity and lending them money on uncommercial terms. Who could the regulator have been talking about there?! 

In June last year (12 days after the announcement of the MCT investment in Metrics), Macoun sold 4 million of his shares in Pinnacle (1.7 per cent of the company) for the stated objective of investing "all or most of" the after-tax proceeds – more than $50 million – in Metrics funds. 

Macoun's enviable 20-year record as a value creator speaks for itself, but how fascinating that he is only now showing us his thin skin. True character is often revealed under challenge, and you'll certainly lose your objectivity about the judgement and propriety of a fund manager once you're balls deep in its funds yourself.

Private credit is a phenomenal asset class for anyone sophisticated enough to discern the legitimate general partners from the highwaymen. As Lockhart himself says, not all private credit is the same. 

Investing in Metrics funds is not unlike being an experienced intravenous drug user. You know your dose. You know your hit is probably cut with a couple of nitazenes or fentanyl, but you trust your dealer and you know exactly what your limits are.[[Even so, your next OD is a question of 'if' not 'when'...]]

No person whose experience of illicit drugs is confined to a couple of spliffs at house parties should ever try this at home just as no person whose entire investment experience is buying Telstra shares should entrust their savings to Andrew Lockhart.