“If it walks like a duck and quacks like a duck, it’s definitely a duck.” Although initially a debt facility, the debt was converted into equity when it could not be repaid,” Miron said.
He said the incident reveals how important it is to use clear language when it comes to investing, because mixing private credit with venture capital can seriously mislead investors about the real risks involved.
“It is not uncommon for fund managers to use convincing language and jargon to present certain opportunities as private credit, potentially giving the impression of lower risk. In this case, AustralianSuper was the largest investor and probably understood the level of risk involved,” Miron said.
“If the investment sponsor had sought funds from a different pool of Australian investors, the potential for a significantly more negative financial impact on investors would have been much higher.
“This highlights the importance of thorough due diligence in investment decisions and should serve as a stark reminder of the potential consequences of failing to do so.” »
In a broader context, Miron said this debacle highlights a broader problem within the investment industry: the use of the term “alternative assets” to encompass a wide range of investments with varying risk profiles. varied. He says this can mask the varied risk profiles that these assets actually present.
Historically, Miron said, the definition of alternative assets stems from modern portfolio theory from the 1950s, which relegated everything outside of stocks and bonds to that category. However, the complexity of today’s financial products requires a more nuanced approach.
While AustralianSuper’s $1.1 billion write-off may seem like a drop in the bucket compared to its total assets, he warned it is a crucial lesson for all investors.
“Private credit may be very fashionable at the moment, but it is not a homogenous asset class. Investors need to understand what they are investing in and how they can recover their investment if borrowers default.
