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Dear Readers,

I’ve decided I need to build something. And I’ve decided to call it the “Dodgymeter.”

What is it? What does it do?

It is a tool that allows me to rate the crazy and frankly disturbing news that, slowly but surely, is beginning to hit the headlines.

I have zero doubts that the meter is about to get hammered over the next year or two.

You tell me, if you were an investor or client of the following credit fund provider and you logged into your portal, what would this notice do to you?
Source – Latrobe Financial

Oh cool, it’s just a notice that ASIC, the chief watchdog for the financial industry here in Australia has, you know, shut down three of Latrobe’s most popular funds until further notice.

Which means that you can’t get your money out of any of them.

I know how I’d be feeling right now if it were me seeing that notice.

The devil, as always, is in the details.

And it’s that same detail that we shall uncover today. You can’t ignore this, as this represents a true shot across the bow for the private credit industry in Australia and across the world.

Let’s find out what all the fuss is, and why, in my opinion, a little knowledge from history could have meant those affected could have avoided all this.

And provide you with a dire warning about how a new and damaging page in history is about to be written.

You made your bed, now you lay in it.
We must start with what’s actually happening. Take a look at the headline below.
Source – The Nightly

Here is a quote from the above article (the emphasis in text is my own):

More than 100,000 Australian investors have $11 billion in three frozen La Trobe Financial funds that the corporate regulator believes may have made high-risk loans to property developers that were marketed as safe bets.

On Monday, the firm’s chief investment officer, Chris Paton, told investors in its property-focused Australian credit fund there was little to worry about, even though the asset manager has cut off access to the website used by clients to access their investments.

So, not peanuts folks. That’s $11 billion with a B.

Not only that, but the profile of investors is a worry. It’s mainly retirees who are looking to maximize their income who are most attracted by these funds. And in one aspect, I can’t really blame them. We just witnessed the US Fed cut US interest rates with guidance that they will continue to cut. Other central banks are or are considering doing the same.

With inflation not going away, leaving your money in savings accounts is simply a losing formula in an easing environment. Therefore if you need a certain level of income for living expenses, you are compelled to make those savings work harder for you.

It is this exact market that funds like Latrobe are addressing. But look again at what CIO Chris Paton said above: there’s nothing to worry about. The regulator, ASIC, sees it differently. It is claiming instead that client funds are being moved into high-risk loans to developers.

How does Paton explain his confidence? Bolded text is my own.

“I want to reassure our investors that your investments with La Trobe financial remain safe and under our careful stewardship,” Mr Paton said. “Each of our products are supported by high-quality granular loan assets within highly diversified portfolios that are built with conservatism at their core.”

Do you know what a high-quality granular loan asset is? Do you think those retirees know what it is? No point asking me, I have zero idea.

Is this the reason why $11 billion worth of client funds are tied up with this or is it more to do with the ‘risk-free’ 6-10% p.a return on offer?

I think I know which.

It speaks to a lack of due diligence and taking the time to correctly vet the disclosure statements of these funds. Yes, Latrobe in this instance is still paying the monthly stipend to clients but I do notice their ASX-listed private credit fund is in a trading halt (ASX ticker: LF1).

Frankly, I believe these funds are now almost too complex for the average retail investor to truly understand the risks they are taking on. But also consider the fact over $200 billion is estimated to be invested in the total private credit market here in Australia.

Do you think there’s some vested interest at play in both getting and then keeping that money for the long term? To be deliberately opaque about the risks and what precisely are your monies invested in on your behalf?

This speaks to the heart of the matter, and why ASIC feels compelled to act.

ASIC has warned on the risks about two La Trobe funds that lend to Australian business borrowers on the basis their advertising may not be consistent with the regulator’s requirements.

“These products are not bank deposits,” ASIC said in its statement. “The rates of return are not guaranteed and are determined by future revenue of the pool of assets that comprise the account…. and there are conditions around withdrawals.”

Ah yes, “conditions.”

Prepare yourself now to be completely shocked.
Trust as far as you can throw.

I say that I’m certain I know what tempted so many to place their precious retirement capital into these funds: the returns on offer. Because it almost certainly isn’t what’s in what Latrobe disclosed to clients.

Now, to recap, the three funds currently closed by ASIC are the 12-month term account, 2-year term account, and the USPC (United States Private Credit) Fund class B. Respectively, they each see your funds locked up for 12 months, 24 months, and quarterly.

Obviously, in extreme circumstances Latrobe would consider early release of these funds minus fees. Ok, so let’s review the terms on Latrobe’s website.

Straight away, they remind investors that these aren’t traditional savings and term deposit accounts with traditional banks. And so, they aren’t covered by the Australian Government’s deposit guarantee scheme. Again, fair enough.

They then state the time it takes for Latrobe to consider withdrawal requests. 2 business days for the Classic Notice Account, 90 days for the 90 Day Notice Account, and 180 days for the 6-month Notice Account.

This is where one’s backside begins to pucker up a touch. And it comes back to the way your funds are invested. Loans are inherently not very liquid. You can’t simply recall the loan, pay it out and then distribute the monies across a large cohort of investors wanting to redeem.

Hence the timelines stated for redemptions. Now to be fair, you may accept such restrictions as the price paid to enable high returns.

Well, are you happy about this? From the Latrobe statement (bolded text is their own):

When determining whether to honour your withdrawal request within the specified timeframes we have to have regard to the Fund’s ability to realise for value the relevant assets and the best interests of investors. While there is a risk of not honouring your withdrawal request within 2 business days, 90 days, or 180 days, it’s important to note that there has never been a case in the history of the Fund when we have not honoured a withdrawal request on time due to a lack of liquidity.

There also happens to be a separate part concerning the USPC Funds disclaimer, quote (the bold text is my own this time):

Redemption requests are generally processed on a quarterly basis in accordance with this PDS. Investors do not have a right to redeem, and the Responsible Entity (RE) may reject redemption requests.

The RE will limit redemptions to up to 5% of the issued Class B Units each quarter.

5% redemption every 3 months might take a while to redeem the entire lot.

Folks, need I remind you that today, as you read this, the majority of the globe is not in a recession. For the most part things look relatively calm. And yet, the above are the draconian steps you must take to even have your request for redemption accepted!

Even more than that, just how much do you trust these people, how far can you trust them?

Take a look  at the following headline:
Source – Australian Financial Review

The corporate regulator says it did not tell La Trobe Financial to shut its online customer portal… anger from investors towards La Trobe grew on Monday as they were locked out of their online accounts for a fourth day, instead getting a message saying the portal was closed for maintenance.

Maintenance! What a joke. Latrobe deliberately didn’t inform their investors their funds, and therefore their money, were in fact frozen.

I shake my head at this because, frankly, the whole thing was entirely avoidable. The time for you to learn the valuable lessons from these investors’ mistakes is right now. That’s why you must become our newest Boom Bust Bulletin (BBB) member.

As a BBB member, you’ll learn the history of the 18.6-year Real Estate Cycle and its inherent timing. It is knowledge of that timing that would have alerted you to the fact we are very close to a peak in US land values.

And subsequently what those same loans these investors have allowed Latrobe and other private credit funds to invest in on their behalf will be exposed to soon.

Think about this; all this scrutiny, all these rules concerning your ability to request redemption of funds, the discretion the fund has in granting that to you, and then the length of time it takes, is happening today when the land market is about to peak.

I ask you: what happens to those loans to property developers, the $200 billion worth of retail investor monies tied up in them, the willingness and ability of private credit funds like Latrobe to protect those same funds when land markets start to fall!

The best position to be in is to never even hand over a single cent to them. That choice is available to those who study and research the real estate cycle. Opting out is in fact opting in to be safe and securing your financial future.

Here is your window into the future. As the land-price led recession takes hold, it is these private credit funds that will spectacularly explode and vaporize many millions of retirees’ hopes for a secure retirement.

And they don’t have the time to rebuild or bounce back from it.

It should make you wonder what other secrets knowledge of the land markets can give you?

There’s only one way to find out….

Sign up now.
Best wishes,

Darren J Wilson
and your Property Sharemarket Economics Team

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This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.