The Quality Of Qualitas

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This story features METRICS MASTER INCOME TRUST, and other companies.
For more info SHARE ANALYSIS: MXT

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.

Qualitas is an asset manager across the private credit asset class. It is an Institutional fund manager predominantly exposed to commercial real estate lending but also has exposure to Industrial, Office, Retail and Social Infrastructure asset lending (collectively about 20%).

Canaccord believes Qualitas has a strong foundation with excellent people, processes and culture.

In the broker’s view that foundation, coupled with likely increased asset allocation to credit, continued reduction in traditional lender’s market share and improving residential apartment construction starts will lead to continued above market growth rates in the medium term and further multiple expansion.

Supportive Environment

Australia has a growing but still lagging asset allocation to private credit in other Western economies. While Canaccord does not expect that experience to be mirrored exactly, the broker does expect allocations to move closer to those experiences over the medium and long term.

Canaccord also expects the combination of continued reduced market share by traditional lenders [eg banks, due to Basel 1-4 regulation] and higher system credit growth for residential mortgages (where traditional lenders prefer to deploy capital) to provide an environment for continued structural growth over multiple timeframes.

Qualitas is considered a beneficiary in the short and medium term from cyclical factors as we begin to see empirical data supporting improvement in residential apartment construction starts.

Also supporting cyclical improvement is a reduction in interest rates, the expansion of the Federal Government’s home deposit guarantee, continued high immigration, housing starts coming off a low base, and a stabilisation in construction costs.

What’s in a Name?

Founded in 2008, Qualitas has demonstrated an exceptional track record, Canaccord suggests, through different market cycles and in credit risk/return understanding and investment.

Qualitas was established and remains an institutional grade fund manager, which the broker believes will benefit it in the long term as it continues to grow funds under management, but also in the short term as the industry comes under greater scrutiny as part of regulatory review (as evidenced by ASIC’s report above).

In Canaccord’s view, regulatory change will provide greater opportunity for institutional grade managers and some increased pressure on those managers typically operating in retail markets. The broker also believes private credit won’t be indexed and come under the same fee pressure we have seen with equity fund managers.

ASIC had (prior to the above report) previously discussed having an increased focus on (among others): exposures, transparency, and “equity-like” deals labelled as credit. This is likely to drive deeper due diligence from investors, Jarden suggests, which could help “best-practice” Qualitas increase its win rates.

Also, increased focus on exposure could be helpful for Qualitas, Jarden believes, which maintains strict lending limits (circa 66% weighted loan-to-value ratio in 2023).

Jarden does not consider the particular issues facing peers Shield, First Guardian, and Metrics as structural issues for the industry, affecting private credit investment performance.

It’s a Wrap

Macquarie Group ((MQG)) has already frozen new allocations to four Metrics funds on its wrap platform, albeit only from superannuation investments.

While investments from investor directed portfolio services (non-super) can still be made into the Metrics funds, this conservative stance may expand to its IDPS, and other wrap platforms may adopt Macquarie’s stance.

This could benefit Qualitas, which has recently launched a wholesale fund, the Qualitas Private Income Credit Fund, that is available on BT, Netwealth Group ((NWL)) and Mason Stevens platforms and is soon to be on Hub24 ((HUB)).

Qualitas could also benefit from winning prospective or current Metrics institutional mandates, Jarden suggests, (which is the majority of its funds under management), which may see the consistent negative news flow as a catalyst to review their positions.

Jarden suggests potential regulatory actions (eg increased focus on exposures, valuations, retail distribution, transparency, conflicts, fair treatment, and “equity-like” deals labelled as credit) are likely to have a minimal impact on Qualitas.

While negative private credit press may present a minor fund-raising headwind, Jarden sees the best-practice Qualitas potentially winning a higher proportion of flows as a result.

Positive Views

Back in August, Qualitas announced FY25 net profit after tax growth of 36% year on year, with committed funds under management up 6.5% to $9.5bn and base management fees advancing by 31%. Morgans viewed these as another “great” set of results for Qualitas.

Morgans believes Qualitas is well positioned to retain its share of the growing market for private credit-funded, multi-unit metro residential developments, as the big four banks move back from this sector.

Management has a funds under management target of $18bn by FY28, with a lower reliance on performance fees and build-to-rent underpinning future growth.

Morgans retained an Accumulate rating on Qualitas, with a price target of $4.00 (last traded price yesterday $3.71).

In late September, Macquarie increased valuations and target prices for the majority of its listed property sector coverage on stronger income fundamentals, together with improved access to and cost of capital.

Macquarie noted commercial real estate transactions rose 19.1% year on year to $28.7bn in the year to June, with retail the standout, up 56%. This broker highlighted equity inflow in some sectors beat expectations.

Macquarie retained an Outperform rating on Qualitas with a $3.98 target.

Also reporting in late September, Jarden retained a Buy rating and $4.26 target.

Canaccord Genuity has initiated coverage of Qualitas with a Buy rating and $4.25 target.

Note: Metrics operates under the broad umbrella of financial businesses grouped together by Pinnacle Investment Management Group ((PNI)).

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