Australian property lenders and private credit managers are under greater scrutiny than they have faced in years.
That scrutiny is healthy.
A difficult cycle reveals decisions made years earlier. How large the loans were, and what concentration limits applied. Whether the book leaned on a small group of big borrowers, or was genuinely diversified. Whether equity exposures were sitting in the portfolio dressed as debt. What security was taken, who governed the valuations, and how much liquidity was held before anyone needed it as a buffer against volatility.
Sometimes – and for some managers – that process of revelation can be painful, because “private credit” is a label, not a description of risk. Two funds can advertise the same target return, describe themselves in identical language, and own entirely different portfolios.
One fund may hold thousands of small, first-mortgage loans across a diversified portfolio. Another may hold a few dozen large positions concentrated across a small number of borrowers, projects or regions. A third may combine senior lending with subordinated debt, equity positions or investments in businesses owned by the manager.
They are different investments.
We have seen this before
None of this is new to us. We have been writing to investors for decades about the importance of getting the basics right, and for any student of history the case studies are not hard to find. The last time Australian mortgage funds were tested at scale, the same weaknesses did the damage: concentration, opacity, and liquidity that had never been designed for stress. We said so at the time; we kept saying it while markets were rising and money was cheap; and we are saying it again now.
In late 2008, as the global financial crisis took hold, the Federal Government’s bank deposit guarantee triggered a sector-wide run on mortgage funds. The Colonial First State Bricks & Mortar Fund, the Challenger Howard Mortgage Fund, the Perpetual Monthly Income Fund and many others all suspended redemptions. Funds that had borrowed short and lent long had no way to meet the demand.¹
And it wasn’t just liquidity that was at stake. In 2008, MFS (later known as Octaviar) collapsed and was later found to have used $150 million of investor funds in related party transactions for its own corporate purposes.² Provident Capital and Banksia Securities failed in 2012, both after building poor quality, highly concentrated portfolios in complex, opaque structures that left investors with little understanding of what they were really investing in and a far weaker claim on the assets than they expected.³ In 2013, LM Investment Management, a roughly $3 billion Gold Coast property fund, went into liquidation after channelling investor money into related party loans to its own development projects.4
And these aren’t just historical issues. In 2020, we saw Mayfair 101 collapse after high-yielding, risky portfolios were sold as cash-like investments.5 The Dixon Advisory business failed in 2021 after years of concentrated investment and conflicts of interest.6 Most recently, the Shield and First Guardian disasters saw investor funds channelled through a complex and opaque web of entities and allegations of misuse of investor funds, related-party transactions and conflicted arrangements.7
There are many more examples. The names change; the pattern does not. Concentrated assets, opaque strategies, capital used for the corporate purposes of related parties rather than for investors, under-prepared management, weak liquidity frameworks, and the steady blurring of the line between debt and equity until nobody could say where one ended and the other began.
If history doesn’t repeat, it sure does rhyme
Which brings us to today. And once again the newspapers are full of stories of strife in the sector. Some funds are frozen or have added restrictions on top of their normal redemption frameworks. Others are reporting sudden, unexplained spikes in the levels of defaulting loans. Some funds are entangled in opaque corporate structures, or hold substantial proportions of their investments in equity positions – a sure sign of portfolio stress. We are also seeing the re-emergence of related party loans and investor funds being used for the corporate purposes of the manager.
It is especially alarming to see the apparent panic caused by the collapse of a single home development business in Western Sydney. Whilst regrettable, and painful for those affected, it is utterly normal for developers (like all types of borrowers) to experience financial stress periodically and, occasionally, to fail. The only way that such an event could cause problems for a lender (and, more to the point, its investors) is if that lender had lent too much and had taken insufficient care to protect its investors’ capital.
What’s regulated and what isn’t
Mortgage schemes are the largest and longest-established part of Australian private credit, and ASIC has regulated them under Regulatory Guide 45 since 2008.8 RG 45 was written as some of the episodes described above were unfolding: it opens by citing the turbulence in debt markets and the mortgage funds that suspended withdrawals. Its benchmarks and disclosure principles read as a roll call of the timeless causes of fund failures – liquidity, scheme borrowing, loan portfolio composition and diversification, related-party transactions, valuation policy, loan-to-valuation ratios, distribution practices and withdrawal arrangements. It doesn’t tell managers how to manage their funds, but it does require that they be highly transparent as to what they are doing and why they are doing it.
One problem is that RG 45 covers only part of the market. It applies to registered mortgage schemes offered to individual investors – now often called “real estate credit” – and no further. Corporate and business lending strategies, wholesale funds open only to sophisticated and institutional investors, and listed credit trusts all sit outside it. This means that two products both described as “private credit” can carry very different disclosure obligations, and that the RG 45 benchmarks an investor might reasonably expect to compare them on will only have been reported by one. Knowing which rulebook applies is a good starting point.
In every example of lender failure outlined above, the warning signs were visible to anyone who asked the right questions. They fall into four areas:
- Diversification: how concentrated the portfolio is;
- Asset quality: whether property due diligence has been conducted and the security position is real;
- Portfolio composition: whether debt is really debt and how it is disclosed to investors; and
- Liquidity: how investors get access to their money and where that money comes from.
We take each in turn below, and set out the six questions they lead to at the end.
Concentration changes the outcome
Every lender will encounter borrowers that come under pressure. That is part of lending. Arrears rise, they fall, they sit flat. On their own they say very little about a portfolio, and a manager who reports them honestly is simply describing the ordinary business of credit.
The question that matters is different. Can one borrower, or a small group of them, become every investor’s problem?
That is a question about concentration, not about arrears.
A handful of small loans in difficulty inside a portfolio of thousands is manageable. The same number of large loans inside a portfolio of fewer than one hundred is something else entirely.
This is why exposure should always be expressed by portfolio value and the number of loans. A fund can report a modest count of loans under management while a significant share of investor capital sits behind them.
When credit is easy and property values are rising, concentration can be mistaken for conviction. A small number of large loans to repeat borrowers may look efficient. Strong borrower relationships may be presented as evidence of origination capability. Rapid asset growth may be celebrated as success. And it’s certainly easier to originate large volumes of AUM that way.
The weakness in this model only becomes visible when a borrower stops performing. By then the arithmetic is settled. You cannot make a concentrated position granular after the event, and you cannot diversify yesterday’s lending once projects stall and redemption requests rise.
Diversification is one of the central protections available to an investor, and it has to be built into the portfolio from the beginning.
Security must be real
“Secured” is a word, not a guarantee. But it points to the quality of the asset that an investor is investing in.
Investors should ask whether the fund holds a first registered mortgage, whether another lender ranks ahead of it, what value supports the loan and how recently that value was independently assessed.
They should also understand whether their capital is being used as debt at all.
A loan secured by a first registered mortgage over real property has a different risk and recovery position from mezzanine finance, an equity investment in a development or an investment in an operating business.
Those structures determine who is paid first, who absorbs the first loss and what recovery options are available when a borrower experiences difficulty.
Keep debt as debt
The distinction between debt and equity is critical. Blurring the line in a fund described as “credit” or “income” points to a worrying lack of discipline.
What’s more, the distinction matters most when a manager uses investor capital for its own corporate purposes.
Where investor capital may be used to acquire businesses or fund related parties, that use should be expressly permitted by the mandate and clearly disclosed to investors.
Equity, subordinated credit and business acquisitions can all be legitimate strategies. Each carries its own risks, governance requirements and liquidity characteristics, distinct from those of a diversified portfolio of arm’s-length, secured loans targeting consistent, predictable income.
When a manager uses investor capital to acquire a business, investors may carry operating risk, integration risk, valuation risk and the commercial fortunes of that business. Their capital may also become exposed to decisions made for the benefit of the manager’s broader corporate group rather than the mandate investors selected.
The governance challenge is clearest when the same organisation holds equity in a borrower, lends to that borrower, participates in valuing the asset, determines whether the loan should be amended or extended and controls what investors are told.
Information barriers can control who knows what. They cannot remove the economic conflict underneath, and that still requires independent governance.
The simplest question remains the best one:
Did my money buy a loan, or did it buy a business?
They are not the same investment.
Liquidity has to come from somewhere
Liquidity cannot be treated as a promise printed on a product page.
If a fund offers investors periodic access to their capital, the manager should be able to explain where that liquidity comes from.
It may come from scheduled principal repayments, borrower interest, cash holdings, committed facilities, asset sales or a combination of these. Whatever the source, it must be credible, sufficient and matched to the fund’s assets and investor terms.
A liquidity mismatch stays hidden while redemptions are modest. It shows up the moment they are not.
Six questions every investor should ask
Investors should now be asking more of every private credit manager. I would put these six questions to any manager, including us.
First, what does the fund actually own?
Are the assets senior loans, subordinated loans, developments, equity positions, businesses or related-party exposures?
Second, how concentrated is the portfolio?
What is the largest borrower-group exposure? What proportion of the fund is represented by the ten largest positions?
Third, what is happening inside the loan book today?
How much of the portfolio, by value, is in arrears, impaired or in default – and how is that changing over time?
Fourth, what security supports the loans?
Does the fund hold a first registered mortgage? What is the LVR? Who performed the valuation, and when was it last reviewed?
Fifth, does the manager use investor capital for its own corporate purposes?
Can investor money be used to acquire businesses or support companies in which the manager holds equity?
Sixth, where does the liquidity come from?
What resources support withdrawals, and what happens if redemption requests increase significantly?
A good manager will answer all six directly.
How to think about the market from here
Step back from any single borrower, and from any single fund, and the picture is clearer. Much of what is currently being reported as a private credit problem is a property cycle problem, working its way through lenders that built very different levels of protection against it. The cycle is doing what cycles do. What differs is how well each lender prepared for it.
Price corrections are normal – and this one follows an extraordinary run. Between March 2020 and early 2025, home values across combined regional Australia rose 56.3%, and capital city values rose 33.6%. In Queensland and Western Australia, where population growth ran well ahead of new construction, home values more than doubled. South Australia was not far behind, at 90%.9 And the momentum held right up until the market turned: national prices rose nearly 9% across 2025, taking the national median to a record $880,000 by December, with Perth posting monthly gains as high as 2.4% late in the year – an annualised pace above 25%.10
That is extraordinary growth. No market compounds at that rate indefinitely, and this one has now turned. On Cotality’s Home Value Index, national values fell 0.7% in July 2026 and 0.9% in August, a fifth consecutive monthly decline that leaves them 3.6% below their March 2026 peak.11 Commonwealth Bank expects a peak-to-trough fall of around 9% nationally.12 Measured against history, that is unremarkable. National values fell 8.4% from peak to trough between 2017 and 2019, and 8.4% again in 2022–23 – a decline that played out in under nine months and was recovered within a year, with individual cities recording even greater falls.13 In fact, the Australian housing market has corrected roughly every seven to ten years since 1980.
What matters is the buffer underneath. The gains of the past five years have not been unwound; they have been trimmed. This cycle is shaving the top off an unprecedented multi-year run, not wiping out wealth. We have been here before, more than once, and the sky is not falling.
So here is the plain lesson, and it is a warning to everyone lending into this market. If the collapse of one property developer, or the prospect of a double-digit fall in prices, causes a lender angst, that lender has no business being in the credit business. A property cycle is not an unforeseeable event. It is precisely what you are meant to have underwritten for.
Credit is a promise. When someone entrusts you with their capital, safety has to be the first job, not the last. The managers being found out now are the ones who forgot that while markets were rising – and as an investor, you are entitled to know which kind of manager you are dealing with before the cycle answers the question for you.
What about those tax changes?
Given what’s been going on, it is not surprising that many are pointing the finger at the Federal Government’s changes to capital gains tax and negative gearing in the May Budget. But the truth is more complicated. It’s not unreasonable to say that those changes have negatively impacted market sentiment and have perhaps contributed to some acceleration in price falls. But the decline was underway well before May and the market was showing signs of softening towards the end of 2025.
Which is not to say that the tax changes are helpful. In our opinion, they are not. And to understand why, you need to consider the background and objectives of the changes.
The place to start is the myth that property as an asset class has enjoyed unfair tax advantages. Property is already one of the most heavily taxed assets in the country.
Unlike shares and bonds, for example, property transactions are subject to stamp duty and property taxes. The Property Council of Australia puts the national tax take on property at more than $130 billion a year, and estimates that almost 40 cents in every dollar of the cost of a new home is tax, charges and regulatory cost – a burden its chief executive told a Senate economics committee in June 2026 means property is now taxed “like tobacco”.14
The changes will not help – and will probably materially hurt – housing affordability and home ownership rates. The real issue making it hard for our younger people to buy a home is supply, as it has been for decades. Strip away the noise and the imbalance is simple: too many households, too few homes, and a construction pipeline that keeps going backwards. On OECD figures, Australia has around 420 dwellings for every 1,000 people, against an average closer to 470 across member countries.15 This has been building for a generation, and it is the reason Australian property is expensive. As NAB’s chief economist put it recently, affordability will only improve through a sustained increase in supply, and that is a challenge likely to take “the better part of a generation” to resolve.16
To put it bluntly, you do not increase the supply of something by taxing it more heavily. As the Housing Industry Association’s chief economist has put it, “we cannot tax our way out of the housing affordability problem.”17 The gap is stark: Australia needed more than 250,000 new homes last year simply to keep pace with demand, and started around 196,000.18 Former RBA economist Peter Tulip reaches the same conclusion from a different direction – this is a supply problem, and governments keep reaching for the wrong lever.19
This is simply supply and demand, and it applies whether you own property, lend against it or are trying to buy your first home. The fundamentals have not changed. If anything, this cycle is a reminder of how firmly they still hold.
Our track record
Amidst all of the noise, La Trobe Financial will continue to construct the same high-quality, ultra-diversified portfolios that we have done for decades. Since first offering investment products to individual investors in 1989, La Trobe Financial has navigated recession, the global financial crisis, COVID-19, the Silicon Valley Bank dislocation and repeated property cycles.
Across that period, including the 2008 episode described above, we have never frozen, gated or restricted redemptions in any of our portfolios. Every withdrawal request has been met on time and in full, in accordance with the terms of the relevant product. And no investor in any of our pooled portfolios has ever lost a single cent of their capital.^
That record reflects choices made long before any particular borrower entered the headlines.
We lend against quality assets, take genuine security, maintain conservative LVRs and diversify across thousands of loans. We keep debt as debt, hold liquidity before it is needed and communicate plainly with investors.
The takeaway
This cycle will produce difficult borrower outcomes. Lending involves risk, and every credit cycle throws up loans that need active management.
A borrower coming under pressure does not, by itself, define the quality of a manager. The real test is whether one problem can determine the outcome for investors.
That answer was settled before the problem arrived: in the size of the exposure, the security taken, the recovery options available, the liquidity framework established and the quality of the reporting.
The cycle does not create those protections. It reveals whether they were ever there.
^Past performance is not a reliable indicator of future performance.
La Trobe Financial is regulated by the Australian Securities & Investments Commission (ASIC) and holds the requisite regulatory AFSL and ACL to operate managed investment schemes, place RMBS issuances, and provide credit services. La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321 and the La Trobe US Private Credit Fund ARSN 677 174 382.
Advice is general advice only and does not consider your objectives, financial situation or needs. Consider the PDS before deciding to acquire or to continue to hold an interest in La Trobe Financial’s funds.
