There's private credit, then there's Metrics
Leading restaurateur Andrew Lockhart speaks out.
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.
