Private credit: What to look for in an asset manager

With private credit garnering plenty of media attention lately, it’s important for investors to understand the underlying variations across this asset class. Here we discuss some key points about private credit funds and how they work, as well as some key differences between them.

Private credit has been attracting significant attention lately, with the AFR reporting that firms are set to “storm” the market, as banks curtail their lending appetite and investors seek out attractive yields. [1]At the same time, the media has also highlighted calls for investor caution as regulators examine ways to improve transparency and inter-connectedness to the wider financial system.

With as many as 600 registered and licensed non-bank lenders in Australia, private credit investments have become increasingly popular with investors as an income generator over recent years.

In an ASIC paper released in February 2025, Australia’s evolving capital markets: A discussion paper on the dynamics between public and private markets, the regulator noted the opportunities that private markets present.

“Private markets offer portfolio diversification to investors and opportunities for those raising capital, and are an essential complement to public markets,” the paper says.

However, ASIC’s paper also recognises that “like investment risks in all markets, an investor’s capability in identifying, managing and mitigating the risks is important for investing success”.

“Private capital funds are not all the same and, in particular, the underlying asset class will influence their operation and the features attractive to investors.”

Here are some straight forward ways you can break through the noise and more thoroughly research options and associated asset managers before deciding to invest.

Know your asset manager

While the recent media interest might have given the impression that private credit is a new investment class, it has in fact been around for decades. So, a good place to start is to look at the performance history and management of the fund, including their governance, independent oversight and investment process.

For example, Thinktank’s Income Trust  has been running since 2017, and has an established pedigree in mortgage secured credit management and portfolio performance. Thinktank as a business, is particularly proud that in nineteen years of operation and having originated $14 billion in lending to Australian borrowers, we have never missed a scheduled interest or principal payment to our funders or investors.

This has been possible through retaining our core focus on mortgage lending secured by standard residential and commercial properties located in major urban areas and staying away from more volatile securities often associated with private credit involving construction, development and land banking.

Furthermore, the founders and executive management team of Thinktank are all highly experienced banking and property professionals with specific expertise in identifying and managing credit risk –with those skills honed through numerous economic and credit cycles going back to the 1980’s.

And, because we operate with a range of major domestic and global  institutional investors, such as superannuation funds, insurance companies, investment funds and banks, we have a similar governance and compliance structure to them, with independent auditors (Ernst & Young,) trustees (BNY Trust Company) and back-up servicer (AMAL Asset Management).

Finally, investors can look for credible external research which will provide objective information on the fund, its structure, underlying assets, performance and management. SQM Research has recently rated Thinktank’s Income Trust Fund ‘favourable’ and its report gives investors extensive information on our philosophy and investment processes. In addition, our $9.2 billion of Mortgage Backed Securitisation capital markets deals are independently rated by Standard and Poor’s with the RMBS transactions also rated by Fitch (AAA tranche only).

Understand the income stream

While one reason investors are drawn to private credit funds is yield, this is something to approach carefully. If you want to invest for a regular income stream, then it is important to invest in underlying assets that do produce a regular and reliable income stream.

Some private credit investments are exposed to assets under development that have not yet  generated returns. Therefore, it’s counter-intuitive to expect regular income from them with investor income then dependent on successful completion of a residential or commercial property project or sale.

By contrast, a credit fund that invests in income-producing assets such a mortgagebacked securities portfolio is 100% tied to a regular income – being mortgage payments from the individual and small business borrowers.

Thinktank’s Income Trust fund has a foundational policy that all investments must be income-producing and only invests in commercial and residential mortgages managed directly by Thinktank. The Income Trust is not exposed to construction or development finance or land banking loans. The result is the regular and orderly production of income for our investors.

Be aware of the risks

There are always risks in any investment, but it is vitally important to understand and minimise them.

A good starting point is to look at how much diversification the fund has across loan, borrower and asset type along with geographic location as this does help minimise risk. Thinktank’s entire $6.7 billion portfolio is comprised of 11,048 loans with an average loan size of $607,568 and the Income Trust loan portfolio of $95.4 million is exposed to 130 loans with an average loan size of $733,484 (as at 28 February 2025).

You should also consider the average loan-to-value ratio (LVR) of the mortgage loans within the fund. For example, Thinktank’s loans have an average loan to value ratio of 65.91% (as ot 28 February 2025) with a maximum LVR of 80% – which is considered to be conservative among our bank and non-bank peers.

Private credit has been gaining popularity, and while it can be a great way to generate income, it’s important to do your research.

Look for an asset manager with a strong record, credentials and processes, while also being aware of the fund’s income-generating assets, and its risk profile. That way, you can get the benefits of this asset class while minimising unnecessary risks.