The Quality Of Qualitas

Small Caps | Nov 06 2025

Private credit is growing as an asset class in Australia, and brokers agree fund manager Qualitas stands out as best-practice operator in this field.

-Private credit market in Australia playing catch-up with other Western economies
-Dubious practices in the market have drawn ASIC scrutiny
-Brokers agree Qualitas will benefit as others hit trouble
-Positive views dominate

By Greg Peel

“Private credit, done well, has a valuable role to play in the Australian economy. It can make an important contribution to economic growth. Private credit complements other sources of debt financing for businesses, including banks and public markets.

"Its development has largely occurred since the global financial crisis (GFC) – when prudential regulators increased bank capital requirements on higher-risk, leveraged corporate lending, as well as real estate construction and development financing – and its growth has partly been supported by the growth in superannuation savings.

“The Australian private credit market has grown in recent years and continues to grow strongly. The size of the market is estimated at around $200 billion, approximately half of which is real estate–focused finance.

“The funds with large superannuation and institutional investment, and the best international private credit managers operating in Australia, generally demonstrate sound governance, and transparent valuation and fee practices. Segments of the market targeting wholesale investors using the ‘sophisticated investor’ exemption and retail-based offerings, including platforms, have practices that do not compare favourably against international practice.

“Lenders in these segments are more likely to have conflicts of interest, opaque fee and interest margin arrangements, inconsistent and non-independent valuation methodologies, and ambiguous terminology. These practices are more prevalent in real estate–based funds. We have noted some improvement in practices over the past 12 months, as international managers have invested into local managers.

“Investors in private credit are, in most cases, appropriately rewarded for taking sub-investment grade credit risk and maturity/liquidity risk; however, these risks are not always adequately described in offer documents and subsequent performance reporting.”

--Private credit in Australia, ASIC report REP814, 22 September 2025

The conflicts of interest and other issues ASIC has found with private credit funds came to the fore recently, ahead of the publication of the above report, as Jarden reported at the time.

Investment advisor Lonsec downgraded private credit funds Master Income Trust ((MXT)) from "highly recommended" to "recommended" and the Income Opportunities Trust ((MOT)) from "recommended" to "investment grade".

The key points were: (1) Related-party transactions: Metrics acquired two companies from its fund, paying with Metrics shares instead of cash, so the fund now owns part of its own manager, creating conflicts of interest. (2) Committee conflicts: Lack of separation between debt and equity investment committees, with Metric converting bad loans into equity stakes. (3) Manager loans: Metrics borrowed $58m from its own funds at below-market rates for working capital. (4) Reduced transparency: MOT's growing "other assets" segment dilutes original strategy and reduces visibility.

Jarden’s conclusion was that competing funds troubles and regulatory reviews could be a long-term positive for Qualitas ((QAL)), with it likely benefiting from incremental flow into its funds, potentially at the expense of Metrics, which has been subject to recent negative press and ASIC's private credit report yet to be published at the time.

Late last month Canaccord Genuity initiated coverage of Qualitas.