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Dear Readers,

Do you like playing the drums? I’m asking because I have one here too. And I will continue to beat the damn thing harder and harder as we go on.

Because not enough people are aware, not enough are listening to what’s actually going on. Both here in Australia and the US.

It’s a subject that I have covered with you before. Because it is just so important.

Things are really starting to get out of hand with the private credit and equity industry.
Source – Australian Financial Review

Straight after the high-profile collapse of two auto-related companies in the US who defaulted on loans they made with private credit funds there comes the news that the Australian Securities Investment Commission (ASIC) are concerned about the level of transparency in the industry.

From the above article. Bold text below is my own.

A months-long investigation by the corporate regulator has uncovered fee gouging and poor risk management practices among the nation’s private credit firms, with its review suggesting that some lenders may not be accurately reporting their loan losses or defaults.

The Australian Securities and Investments Commission has become concerned about transparency in the private credit sector, a booming industry which new figures suggest expanded lending by 9 per cent to $224 billion in the last year and is worried that loan defaults could hurt retail investors and potentially harm the broader financial system.

And those drums get louder, and louder.

Folks, the cracks are starting to pile up. Their noise is whitewashed by whatever the hell passes for entertainment in society these days. Always another X post to read, always another streaming service to subscribe to.

Believe it or not, funds being invested into this sector are increasing. Clearly the warnings aren’t being heeded.

What are those warnings? I guess you better keep reading then.

Whether you’re invested in these or not, at the end of the day when it all culminates, all of us will be affected.
What did they find under the hood?

Frankly, this had been coming, at least from an Australian perspective. Yes there are concerns about the same in the US, but I’m not seeing nearly enough news concerning official reaction.

At least ASIC have been looking for a year, and we can only hope that their international equivalents do the same soon.
Source – Australian Financial Review

From the above article.

The corporate regulator’s year-long capital market health check has reached a crescendo with the publication of a string of papers on what it has uncovered, and with Australian Securities and Investments Commission chairman Joe Longo heading to Canberra to present his findings.

ASIC doesn’t like much of what it sees in private credit, and its surveillance report will call out the conflicts, hidden fees, and other questionable practices that it says the industry needs to stamp out before it does so.

It does seem this additional focus on private credit is having an effect. La Trobe had a handful of its investor funds frozen recently by ASIC. That meant you couldn’t add money to the fund, nor could you take it out until La Trobe had worked with regulators to address their issues.

Seems that investors took notice and sharply slowed their uptake of the investments these funds offer.

Well, I hope those same investors are watching now. Here are some of things that were discovered during the last 12 months of investigations.

The regulator’s inquiries between October 2024 and August this year found fewer than half of the funds assessed had “detailed, written credit or impairment and loan default management policies” in place. In fact, there were sharp differences between how each fund defined a loan default.

ASIC found that of the eight wholesale investor funds that it monitored, only two performed stress testing on loans. As volumes under management increase, these fund managers should be applying ‘what-if’ scenarios to determine the true level of risk to client’s money in the event of mass defaults.

Four of 28 funds surveyed published information about interest rates or ranges charged to borrowers, and only two retail funds quantified interest earned from their assets and borrower fees and disclosed the amounts they retained.

ASIC analysis showed weaknesses in the product disclosures of 10 retail funds it assessed, noting disclosures were lacking around investment strategies, details of underlying assets and related-party transactions.

Two retail funds used “strong and sometimes aggressive direct marketing tactics” to lure investors to their product.

Folks, this is likely your money here. Do they strike you as good stewards of that same money when things begin to turn bad? Would they even know or appreciate when things were turning bad? If you asked them if your money was safe – what do you think they’d say back?

The regulator is finding a lack of good practices amongst some fund managers, failure of governance, lack of transparency on fees charged, and treatment of interest margins on behalf of clients.

And this is during the good times.
There is only one thing you can afford to trust.

This is yet another example of a historic set-up we have seen time and time again. In each of the preceding three real estate cycles at least, the same things keep repeating.

The media is not your friend here. Neither, it seems, are the private equity fund managers that many of you have entrusted with your money.

It is a tale of watching what emerges once the tide goes out. This time last cycle, it was discovered the true level of collusion and obfuscation that was happening between fund managers, rating agencies, and mortgage-backed securities and collateral debt obligations.

The derivatives were widely blamed as the cause of the so-called GFC. They were not; however, they were more the symptoms of decay rather than the cause.

You know the true cause of it, falling land values.

In its wake saw a raft of rules and regulations that encourage traditional banks to move on from this type of lending. The gap this left was filled by private credit and equity.

And yet, we now see evidence of similar behaviour developing again.

ASIC has also been critical of research houses that analyse and provide ratings and reports about investment products, including those offered by credit funds.

“We observed that private credit researchers rely heavily on fund operators and investment managers to provide data and information, and have limited capacity for independent verification,” it said.

It also found that most of the fund’s ASIC reviewed did not have “effective separation” between their investment committees, which approve loans, and those responsible for monitoring the performance of loan assets.

This is exactly what happened last cycle.

A myopic and insular view of the markets, a self-fulfilling loop of optimism driven by the inability to garner or listen to an opposing view. It led to financial disaster.

It’s about to do it again.

It makes you ask; who can you trust these days? There really is only one answer now – yourself. It is up to you to arm yourself with a strong floor of knowledge that allows you to safely profit and protect yourself at these times.

You need to begin that journey here, with a membership to the Boom Bust Bulletin (BBB). Learn the hidden order of the economy and its inherent timing, which you can use to your investment advantage.

With monthly editions designed to turbocharge your own research of the real estate cycle and weekly videos intended to bring you up to date with the latest news as the cycle turns.

All that for less than $4USD a month! Outrageous value.

If you can’t trust the people you have charged to take care of your investment capital and ensure they guide those funds through thick and thin then who can you trust?

Use what the BBB teaches you about the timing of the real estate cycle and take that decision back into your own hands.

They won’t see what’s about to happen to the economy globally, but you can. And that gives you the precious time to pre-empt the worst and act.

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.