Metrics funds suspended after delayed KPMG audit prompts value cuts and exposes private credit risks

More than $160 million has been stripped from the reported value of three funds run by private credit heavyweight Metrics Credit Partners after findings from KPMG’s delayed audit prompted a tougher assessment of their investments.

The cuts follow a sector-wide June warning from the corporate watchdog that private credit valuations could fail to reflect worsening conditions for borrowers, giving investors an inflated picture of what their holdings are worth.

Trading in all three funds, two of which have WA property exposure, was suspended on Monday, preventing investors from buying or selling their units on the Australian Securities Exchange.

Monday’s cuts revise the funds’ June 30 asset values, published on August 31 with a warning they could change. Perpetual, the funds’ responsible entity, said KPMG had delivered its key findings but had yet to finish the audits.

It was reported earlier this month that Metrics had privately blamed the audit delay on the death in April of a KPMG auditor assigned to its account. Former KPMG auditors reportedly said the firm should still have been able to complete the work on time.

In reassessing property investments, Monday’s disclosures said “greater weight was given to downside scenarios and less favourable potential outcomes”.

The biggest hit was to the Metrics Real Estate Multi-Strategy Fund, whose expected asset value fell 12.2 per cent to $2.22 per stapled unit. The Metrics Income Opportunities Trust fell 10.1 per cent to $1.93 a unit, while the Metrics Master Income Trust fell 2 per cent to $1.96.

Shares in Pinnacle Investment Management, which owns 35 per cent of Metrics’ holding company, tumbled as much as 7.7 per cent to $12.16 before recovering some ground.

Property stakes accounted for almost all of the real estate fund’s markdown, making up 30¢ of its 31¢ reduction.

In the Income Opportunities Trust, private equity and similar holdings accounted for 13¢ of the 22¢ cut, with property equity accounting for another 5¢. Higher provisions for possible loan losses drove the Master Income Trust’s reduction.

Metrics, whose wider group says it manages about $40 billion, lends investors’ money to businesses and property developers outside the banking system. It also takes ownership stakes in developments.

Many of those investments have no ready market price. Their reported values depend on judgments about future repayments, construction costs and what completed properties will fetch.

Metrics and Perpetual said the adjustments did not represent realised losses. All three funds’ Friday closing prices were already below even the revised June asset values.

Perpetual expects to lodge the audited accounts on Wednesday and receive audit opinions without qualifications. It and Metrics are also assessing if the valuation changes require adjustments to fees and costs.

In its June warning, the Australian Securities and Investments Commission singled out property developers facing rising costs, delays, weak presales and difficulty refinancing.

The regulator also cautioned that products described as stable or low risk could perform very differently under pressure, particularly those heavily exposed to construction lending.

“Market participants should not wait for formal defaults before reassessing asset values and related risks,” it said.