Does a slowing economy increase the risk of loan defaults in private debt?

Well-run private debt funds use rigorous scenario testing and real-time monitoring to mitigate risks. Historical net write-offs by banks peaked at just 0.68% during the GFC and were 0.04% in September 2024, demonstrating strong resilience across economic cycles.

Does a loan default always result in a credit loss?

No. Private debt investors are protected by their seniority in the capital structure. Senior debt holders get repaid first, before subordinated debt, preferred equity, and common shareholders. Covenants and controls act as early warning signals allowing lenders to engage with borrowers to mitigate financial loss.

Are all private debt managers the same?

No. Private debt managers differ significantly in scale, credit skills, and experience. Quality managers need sizable assets under management, bank-level credit skills, extensive networks, and the ability to directly originate and diversify loans across borrowers to achieve optimal outcomes.

Does commercial real estate debt put capital at risk in a property downturn?

Property owners face greater risk than lenders. With typical loan-to-value ratios of 60%, owners' equity acts as a buffer. Even if property values fall significantly, lenders can compel borrowers to restore their position or pursue asset sales to maximize recovery without necessarily incurring losses.

Are non-bank lenders lenders of last resort?

No. Competent private debt managers lend to quality companies and often compete with banks or work alongside them in lending syndicates. Post-GFC regulations requiring banks to hold more capital have created financing gaps that private debt fills for established companies with sound fundamentals.

Metrics launches NZ fund

Metrics Credit Partners has launched a private debt fund for wholesale investors in New Zealand with a target annual return of 3.25% over the RBNZ cash rate.

The Metrics Multi-Strategy Private Debt (NZ) Fund marks the Pinnacle boutique’s first investment product designed specifically for New Zealand investors.

The fund is an open-ended Portfolio Investment Entity (PIE) and offers exposure to a portfolio of directly originated loans to New Zealand and Australian companies, aiming to provide monthly cash income.

Metrics managing partner Andrew Lockhart said fund was sparked by increased demand from New Zealand investors along with the launch of an Auckland office in early 2020.

“Given our commitment to the New Zealand market, we wanted to look for opportunities not only to lend to New Zealand companies but also to create innovative investment products for New Zealand investors,” Lockhart said.

The fund invests in loans to a wide range of borrowers such as including public and private companies, infrastructure providers and project finance groups.

“The fixed income and credit investment choices available for New Zealanders in their local currency have been quite limited, so it is fantastic to provide investors with the option to capitalise on the growing opportunity in the corporate loan market,” Lockhart said.

Metrics plans to launch a similar fund for retail investors in New Zealand later in the year.

In July 2020, Metrics launched the Metrics Direct Income Fund in Australia which acts as a wholesale investor in a sub-trust that invests in other wholesale funds managed by Metrics.

The fund diversifies its lending in Australian corporates by industry sectors (excluding banks), across projects in both public and private sectors.

Financial Standard, 3 March 2021. To read the official media release prepared by Metrics, click here.

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