Research houses divided on Metrics' private credit funds

Zenith Investment Partners has reaffirmed its ratings across Metrics Credit Partners’ suite of funds, a week after rival research house Lonsec downgraded several of the private credit manager’s vehicles.

In an investment note seen by Money Management’s sister brand InvestorDaily, Zenith said its conviction in Metrics remains underpinned by the quality of the investment team – led by Andrew Lockhart and three other managing partners – and their hands-on involvement in all debt and equity decisions.

“Zenith has covered Metrics’ strategy since the initial launch of the Metrics Master Income Trust (ASX: MXT) in 2017 and continues to maintain a strong qualitative view of its investment team, process and risk management function,” Rodney Sebire, head of alternatives and global fixed income at Zenith, said.

Sebire pointed to Metrics’ heavy investments in loan management, portfolio risk management and fund accounting functions.

While acknowledging the additional complexity created by Metrics’ expansion across both debt and equity strategies, the investment head said the manager has demonstrated an ongoing commitment to evolving its governance framework in line with asset growth and regulatory expectations.

“Metrics’ commitment to evolving its corporate governance function has been ongoing and subject to detailed review by Zenith,” Sebire said.

“In our opinion, the separation of investment teams, governance role of external responsible entities (separate for debt and equity interests), use of external valuation agents and the inbuilt protection mechanisms in typical lending transactions (e.g. inter-creditor deeds, role of quantity surveyors), ensure that all funds are managed in the best interests of unit holders with any potential conflicts carefully managed.”

Zenith, Sabire assured, continues to work with all its rated managers to ensure that their operational and governance processes keep pace with their respective asset growth and the regulatory environment.

According to the note, the three Metrics funds Lonsec downgraded last week maintain their high ratings with Zenith – Zenith rates the Income Opportunities Trust as “recommended”, and both the Master Income Trust and the Metrics Direct Income Fund as “highly recommended”.

On the other hand, Lonsec downgraded the Income Opportunities Trust to “investment grade” and both the Master Income Trust and Metrics Direct Income Fund to “recommended”.

Lonsec’s move last week lent weight to concerns first raised by Count Financial earlier this year. Namely, back in March, Count advised its 550 advisers to sell out of the ASX-listed Metrics Master Income Trust and Metrics Income Opportunities Trust, as well as the unlisted Metrics Direct Income Fund, warning of risks in private credit.

At the time, the decision raised eyebrows, particularly given the high ratings assigned to the funds by Lonsec and claims that Count made the call without meeting with Metrics – something InvestorDaily understood to be a standard step in any due diligence process.

These developments come as the corporate regulator continues to monitor private credit and private markets more broadly.

Just last month, the corporate watchdog signalled it will not sit on the sidelines as private markets boom, declaring it is “not a passive observer” and will not take a “wait and see” approach.

InvestorDaily understands the regulator is preparing to release a progress report on private credit next week, with further detail on surveillance findings to follow later in the year.