Core Insights - Metrics Credit Partners, one of Australia's largest non-bank lenders, faced a downgrade from influential advisory firm Lonsec, which raised concerns about the company's governance issues [1][4] - The downgraded products include the Metrics Income Opportunities Trust (MOT) and Metrics Master Income Trust (MXT), both of which provide retail investors with exposure to corporate and real estate credit [1][2] - Metrics manages assets totaling AUD 30 billion, making it the ninth-largest lender to businesses in Australia [1] Fund Ratings - Previously, Lonsec rated the Income Opportunities Trust as "recommended" and the Master Income Trust and Direct Income Fund as "highly recommended" [2] - The Income Opportunities Trust's rating was downgraded to "investment grade," with Lonsec noting the need for improved governance despite the product's strong credit record [4] - The Master Income Trust was downgraded to "recommended" [4] Governance Concerns - Lonsec highlighted several areas for improvement in governance, including a lack of separation between the debt and equity investment committees [4][5] - The expansion of the "other assets" category in MOT has reduced transparency and diluted confidence in its original investment philosophy [4] - Concerns were also raised regarding Metrics' internal lending practices, which were deemed excessive for identifiable fundraising costs [6] Market Context - Private credit is increasingly significant in the credit market, with an estimated AUD 205 billion as of last year, accounting for approximately 17% of commercial real estate debt [5] - Rising construction costs and higher financing costs have led to the loss of feasibility for many development projects, resulting in more problem loans and lower returns for private credit funds [5] - Metrics has adopted a "takeover" strategy on some problem loans, acquiring ownership of troubled companies [5] Regulatory Scrutiny - The Australian Securities and Investments Commission (ASIC) is reviewing the private credit industry, with results expected later this year [7] - Metrics and other firms received questionnaires from ASIC in March, requiring disclosure of business conditions [7]