Some years ago, before Renown Wealth existed, I was shown a competitor’s loan book by an investor who wanted a second opinion. It was a tidy spreadsheet. Thirty-two loans, all first mortgages, average LVR in the low sixties, spread across what the cover page described as “a diversified portfolio of residential and mixed-use projects.”
It took me about twenty minutes with the borrower names and a property search to work out that eleven of the thirty-two loans were to entities controlled by two brothers, that nineteen of the properties were within a few kilometres of each other on the same growth corridor, and that the fund’s manager held mezzanine debt behind at least four of its own senior loans.
The investor asked me whether it was a good fund. I said it was a well-presented one. Those are not the same thing, and the difference is what this piece is about.
The number everyone argues about
I should say up front that I run a private lending group, and that Renown Wealth is a property-secured private credit fund. So when I say that the sector’s exposure to property is not the concentration problem, I am aware of how that sounds.
Here is the number. ASIC’s Report 814, the independent review published in September last year, put Australian private credit at about $200 billion and estimated that real estate is 40 to 60 per cent of it. The reviewers did not mince words. The concentration of the market in “higher-risk real estate construction and development” was, they said, the sector’s “greatest area for improvement,” and they pointed out that construction lending has produced the majority of credit losses in every downturn worth remembering.
They also said something that I think is more important than the percentage. The Australian private credit market, in their words, “has not yet experienced a credit cycle and associated downturn.” A lot of the managers raising money today have never run a book through one. Some of them, the report noted, lack “sector experience and organisational capacity,” and the smaller ones may not have the staff to work out a troubled loan when it arrives.
That is a warning I take seriously. But it is a warning about people, not about bricks. A lender who understands construction, prices it properly, and structures the loan so the exit does not depend on hope is not running a concentrated book just because the security is land. The question is what else the loans share.
Three ways a book becomes one bet
I think about concentration in three layers, and the spreadsheet I described had all of them.
The first is the sponsor. Loans are made to companies, and companies are controlled by people. A fund can have thirty borrowers on paper and five in substance. When one of those five gets into trouble, every one of their vehicles gets into trouble at once, and the fund discovers it has not thirty problems to manage but one very large one. The reviewers recommended that funds report every quarter the share of the book in loans or related borrowers above 5 per cent. I have not met many wholesale funds that do.
The second is the map. Property is local. A fund whose loans are spread across thirty borrowers in one corridor of one city is exposed to one council, one builder going under, one oversupply cycle. When the market in that corridor turns, it turns for every loan at the same time. The report’s suggested reporting template includes a summary of geographic spread for exactly this reason.
The third is the one I find most troubling, because it is almost invisible from outside. If a manager holds the senior loan in a fund you invest in, and also holds mezzanine debt or equity in the same project through another vehicle, then the manager has a reason to keep your senior loan alive that has nothing to do with your interests. Extending the senior facility protects their junior position. The reviewers flagged “holding any combination of senior debt, mezzanine debt and equity positions in the same borrower” as a conflict. I would call it a concentration, because the investor who thinks they hold a 60 per cent first mortgage is in fact funding someone else’s equity bet.
The question is never how many loans. It is how many things would have to go wrong at once.
Why averages lie
The reviewers made a point about credit quality that I think applies to everything in an IM. A fund can quote an average rating of BBB- while its loans range from BBB+ to CCC. The average is true. It is also useless, because a barbell of very safe and very risky loans does not behave like a book of medium ones.
The same trick works with LVR. A weighted average of 62 per cent can hide a handful of loans at 85 per cent that make up a quarter of the fund. It works with tenor. An average term of twelve months can hide three construction facilities that will not see cash for three years. I have learned to treat any average in an IM as an invitation to ask for the distribution behind it, and to notice how quickly it arrives.
The test retail funds already have to pass
There is an irony here that I think wholesale investors should sit with. For well over a decade, retail mortgage funds have had to measure themselves against ASIC’s Regulatory Guide 45, and the third of its eight benchmarks is portfolio diversification. It asks whether the book is spread by size, borrower, type of activity and geography, and whether any single asset or single borrower is more than 5 per cent of the fund. If a scheme does not meet it, the scheme has to say so.
None of that applies to a wholesale fund. The exemption that lets us skip the PDS lets us skip the benchmark too. Report 814 recommended ASIC consider a wholesale version of the equivalent rules, and ASIC has said it will update its guidance. Until then, the 5 per cent test is simply a very good question, and “we are not required to report that” is a revealing answer.
What I would ask, and what we do
If you are looking at a private credit fund, I would ask five things before you look at the return. How many sponsors, not borrowers, are in the book, and what is the largest one as a share of the fund? Where are the properties, by state and by sub-market? Does the manager or any related vehicle hold another position in the capital stack of any borrower? Can I see the distribution of LVR and tenor rather than the average? And what are your concentration limits, who set them, and when were they last breached?
As for us: Renown Wealth lends against property, and I will not dress that up. What I can say is that we set and publish limits on single-borrower and single-sponsor exposure, we map the book by geography and by how each loan is expected to be repaid, and we do not hold mezzanine or equity behind our own senior loans. The asset class is where the risk lives. The structure is what stops thirty loans from quietly becoming one.
The investor who showed me that spreadsheet did not invest, in the end. I heard later that the two brothers’ group ran into trouble about eighteen months afterwards, and that the fund gated redemptions. The thirty-two loans had done exactly what thirty-two loans with that much in common were always going to do.
Sources
- ASIC (prepared by Richard Timbs and Nigel Williams), Report 814: Private credit in Australia, 22 September 2025. https://download.asic.gov.au/media/z2tnnasb/rep814-published-22-september-2025.pdf
- ASIC, Report 820: Private credit surveillance: retail and wholesale funds, 5 November 2025. https://download.asic.gov.au/media/q42bgduw/rep820-published-5-november-2025.pdf
- ASIC, Regulatory Guide 45: Mortgage schemes: Improving disclosure for retail investors. https://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-45-mortgage-schemes-improving-disclosure-for-retail-investors/
This article is general information only and does not take into account your objectives, financial situation or needs. It is not financial product advice and is not an offer or invitation to invest. Renown Wealth products are available only to wholesale clients as defined in the Corporations Act 2001 (Cth). Investing in private credit involves risk, including the possible loss of capital. Seek independent professional advice before investing.
Kalpi Prasad is the Founder of Renown Group Australia, incorporating Renown Lending, Renown Wealth and Renown Mortgages.
