It is dangerous thinking that one asset class or sector is going to be the gold mine for a portfolio.

Co-founder and fund manager Paul Miron joins the Fear and Greed podcast to discuss some of the biggest risks he is watching in markets right now – including investor expectations.

He warns that investors will need to accept income, or returns on capital, are going to be squeezed even further, unless there is an event in the next 12 months or so.

Listen below:

Disclaimer:

Msquared Capital Pty Ltd ACN 622 507 297 AFSL 520293. The information provided is general in nature and reflects the views of the speaker at the time of recording.  Forward-looking information is inherently uncertain, and actual results may differ materially from projections. The information has been prepared without taking into account your objectives, financial situation or needs, and does not constitute personal financial product advice, investment advice or a recommendation. Before making any investment decision, you should consider whether the information is appropriate to your circumstances and seek independent financial advice.

 

Commenting on all asset classes soaring to record highs, Co-Founder & Fund Manager Paul Miron explores the bizarre flood of liquidity into gold and growth assets simultaneously.

ABC Bullion was based in my building before it moved to Martin Place. Thankfully, they moved, otherwise I would have to use 12 flights of stairs to get into the office each day.

This is a recent phenomenon gaining unbelievable momentum. In the past two weeks demand has skyrocketed with the queues getting longer to buy physical gold each day, which has never occurred in my living memory. Demand for gold often surges when markets dip or became volatile. This is exceptionally unusual.

Never in my 30 years in markets have I witnessed such an abundance of capital with all asset classes being at their peak; gold, equites, property and all other types of alternatives such as crypto currencies and exotic investments.

Have canaries taken a liking to gold mines?

It seems there is no end in sight. The next interest rate move is even more uncertain. Unemployment has spiked and at the same time inflation is rearing its head again.

This backdrop supports a further appreciation of asset prices; it also creates a paradox: margins are being squeezed further, leaving both investors and businesses to navigate one of the most unusual environments in recent decades. What are the consequences? And where to from here?

Perhaps this a reminder of the Greek myth of Icarus offers a timeless warning: fly too close to the sun, and the consequences can be severe.

Equities: Low margins, high prices, even higher concentration

Equity markets are scaling new highs. Consumer stocks, in particular, have enjoyed an earnings boost, and management teams across multiple sectors are issuing more optimistic forward guidance. Yet, beneath the surface, the reality is more sobering: only one in five companies actually meets or beats expectations.

For years, the bar for listed companies has been set remarkably low, and the current rally reflects sentiment more than genuine earnings strength. Dividend yields across the ASX 200 have compressed to around 3.2%, leaving little appeal for income-seeking investors, particularly when compared with bond yields and private credit opportunities. Meanwhile, valuation metrics are stretched: price-to-earnings multiples are soaring, and the Shiller CAPE ratio suggests equity markets are among the most expensive they have ever been.

For investors, this represents a dilemma: participate in the rally at the risk of paying inflated valuations, or step back and accept lower relative returns from traditional equities.

The Shiller CAPE ratio very rarely surpasses 30

Source: Yahoo Finance

Concentration risk is now a defining feature of equity markets. In Australia, the top 10 companies account for an extraordinary 56% of the ASX 200, while in the US, the top 10 represent around 36% of the S&P 500. Such dominance means investor returns are increasingly tied to the performance of a narrow cohort of large-cap names, amplifying both risk and volatility.

Property: Supply scarcity meets political pressure

Property markets have staged a remarkable turnaround. For the first time in years, prices across all Australian capital cities are rising in unison. With supply at generational lows and migration at historic highs, most forecasts predict further gains of 5%–15% across major cities in the coming year.

What might appear to be a cyclical upswing is, in reality, a deepening structural imbalance. The private sector overwhelmingly drives Australia’s housing supply, and developers must reconcile the complex realities of project feasibility with the bureaucracy of planning systems. Despite attempts at reform, construction costs remain stubbornly high, and productivity in the building sector continues to decline. The result: projects do not stack up, pipelines shrink, and undersupply worsens.

We’re watching a structural issue quickly become a political fault line. There is pressure to commit to a substantial pipeline of infrastructure in the coming years – but our construction sector lacks the capacity to see these plans through without causing further supply constraints to the residential property market. Calls to pause or cap migration are gaining traction, framed as a means to allow the market to “catch up.”

Yet restricting migration risks curtailing broader economic growth and addressing only the symptoms, not the root causes, of Australia’s housing crisis.

Private markets: A rising tide, yet dangerously misunderstood

While equities and property continue to dominate the headlines, private markets are steadily emerging as the quiet beneficiaries of today’s environment. Margins have compressed, valuations stretched and the correlation between equities and bonds continues to rise. Investors are increasingly drawn to alternatives that can deliver genuine income, exhibit lower volatility, and provide diversification through low correlation to traditional assets.

Yet the appeal of private markets comes with an important caveat: the way risk is assessed here is fundamentally different. Applying an equity-market lens to private credit or private equity can be misleading, even hazardous. The lack of transparency, limited liquidity, and bespoke nature of these instruments mean that regulators are monitoring the sector closely.

Unlike the public equity and bond markets — where real-time pricing, efficient price discovery, and abundant liquidity are taken for granted — private markets operate on the opposite end of the spectrum. They can offer superior risk-adjusted returns with lower volatility, but this opportunity comes at a cost. Investors must accept greater responsibility for conducting thorough due diligence and ensuring that investment decisions are made with a complete understanding of the risks involved.

Fly too close to the sun and the consequences can be severe

In today’s markets, two schools of thought have emerged around risk and resilience.

On one side are those who downplay the prospect of major downturns. They argue that structural changes in capital markets, combined with proactive regulatory oversight, have reduced the likelihood of events akin to the Global Financial Crisis. As an economist at a major Australian financial institution remarked: “Don’t worry about Lehman Brothers moments or Minsky moments. We have a significant amount of capital available; regulators are proactive. Thursday, something happens, by Monday morning, it’s all fixed.”

The other perspective — and the one I subscribe to — aligns more closely with Howard Marks and his recognition of cycles. Market behaviour is not dictated solely by fundamentals but also by “animal spirits”: the collective mood and psychology of investors. When confidence is absolute and the prevailing belief is that markets will never fall, it is precisely the time to be cautious. One of my favourite reminders is that when genuine opportunities become scarce, that in itself is a warning sign.

For the past two years, I have been uneasy about the disconnect between market fundamentals and valuations, compounded by significant geopolitical events that have reshaped the global landscape. As a private credit fund manager, I accept that being conservative may sometimes mean being early — or even wrong — in anticipating a correction. But in this business, prudence is rarely punished; it is the cornerstone of long-term success.

Private credit stands out in this regard. Traditionally a floating rate returns tied to the cash rate, plus a fixed margin, ensure that income rises in lockstep with interest rate changes. Unlike equities, where yields are falling, or property, where affordability is eroding, private credit offers stability and predictability — qualities that investors increasingly value in times of uncertainty.

Disclaimer:

Msquared Capital Pty Ltd ACN 622 507 297 AFSL 520293. Information contained in this article is general in nature and has been prepared without taking into account your objectives, financial situation or needs. It does not constitute personal financial product advice, investment advice or a recommendation. Before making any investment decision, you should consider whether the information is appropriate to your circumstances and seek independent financial advice.

Co-Founder & Fund Manager Paul Miron explores why ASIC’s report was no surprise, the focus areas the industry will need to rise to meet, and takeaways for investors and advisers.

ASIC released REP 814, an extract from a report prepared for ASIC which examines Australia’s fast-growing private credit market. The timing is significant: private credit has expanded rapidly in recent years, driven by strong borrower demand – filling the funding gap left by traditional banks – and by investors seeking an asset class that offers diversification from shares and bonds, while delivering attractive income and capital-preservation qualities.

Alongside this report, ASIC also issued a series of high-profile stop orders, placing the sector under greater scrutiny and prompting an important moment of reflection. It is worth stressing that REP 814 is not a binding rulebook, nor an audit of the private credit sector, but a discussion paper. Its purpose is to flag concerns, increase oversight, and foreshadow potential regulatory intervention should the industry fail to demonstrate adequate transparency, governance, and maturity.

One of the challenges highlighted is that private credit is not a single, uniform asset class. It encompasses a broad spectrum of lending products with vastly different risk profiles. These range from loans secured against residential or commercial property, to construction and development finance, corporate and small-business lending (sometimes secured only against goodwill or equipment), and even more specialised or exotic forms of debt or equities. This diversity makes standardised regulation complex, as the risks vary greatly across different asset types.

ASIC’s sharpest warning was directed at the concentration in construction and development lending. The regulator noted: “This exposure is characterised by significant investment in higher-risk real estate construction and development and, concerningly, involves a concentration of less experienced investors.”

Why the report was no surprise

As a fund manager in this space with over three decades of market experience, I was not surprised by ASIC’s findings. In fact, many of the concerns raised echo themes I have consistently highlighted in media commentary and presentations over the years. At Msquared Capital, these lessons have directly shaped how we structure our product offering, with an emphasis on governance, independent oversight, and transparent disclosure.

The report is a timely reminder that all investing involves risk — and private credit is no exception. Investors cannot afford to be lulled into complacency by the attractive returns on offer. Instead, ASIC’s scrutiny, along with media coverage, should serve as a checklist for investors and advisers to ask sharper questions before committing capital.

Key issues

ASIC’s report highlights several critical risks and structural concerns within the sector:

• Remuneration & fees: Misalignment of interests where borrower-paid fees may incentivise managers; lack of transparency in net interest margins.
• Related-party transactions: Lending to affiliates, holding both debt and equity in the same entity, and transferring assets between funds without adequate disclosure.
• Valuations: Inconsistent methods, independence, and frequency of valuations.
• Conflicts of interest: Limited transparency around conflicts and how they are managed.
• Liquidity & distributions: No clear liquidity management frameworks; some funds pay distributions from capital without disclosure.
• Investment reporting: Insufficient detail on portfolio composition, loan performance, and risk metrics.
• Definitions & clarity: Inconsistent and sometimes misleading use of terms such as “senior secured” private credit – often confused with a loan backed by physical property.
• Concentration in real estate: Over-exposure to construction and development loans, flagged as the most significant systemic risk. Regulators concern that investors underappreciate the potential risk with these types of opportunities.
• Retail investor exposure: Concern as to whether retail investors could fully appreciate the nature of private credit exposure based on disclosed information.

 

While we will continue to review REP 814 to see if we can further enhance our existing robust processes, we are confident that our high standards of governance and transparency stand us in very good stead for any forthcoming regulation.

Lessons for investors and advisers

So, what should investors take away?

An economics lecturer I studied under nearly 30 years ago was obsessed with a paper written by Farma and French. Their research underscored that as markets mature, transparency and information efficiency increase, shifting power from insiders to investors.

Private credit, by comparison, is still immature and opaque; however, it is also evolving and will improve over time driven by investor usage, increased knowledge base and increased scrutiny.

Investors with deep expertise in equities and bonds can fall into the trap of applying the same analytical lens to private credit; however, this approach is often dangerous and misleading. For example, justifications such as “this fund is too big to fail,” or “property always goes up in value,” are disingenuous at best and reckless at worst.

It is primarily due to differences in risk assessment. Before investing in debt, you consider the worst-case scenario, seeking only to understand the downside risk. With equities, you are more focused on the upside and look at your investments as a wider portfolio.

When I present to financial advisers about our funds, they sometimes share their frustrations about recommending products across asset classes.

If they recommend direct shares or equities products that fall in value, the market is often blamed. It takes a great deal of underperformance for an equities manager to be considered a poor choice.

But in private credit, the pressure is greater. If a loan goes bad, the blame falls squarely on the private credit fund – and the advisers’ choice of manager.

That is why governance, external custody and trustee, combined with a mix of non-executive credit committees and boards, and transparency, irrespective of fund size, make a great difference.

Investors should understand the quality of the security as an investment, and transparency is vital for long-term success and to avoid unnecessary, unwelcome surprises. They protect investors and ensure accountability beyond the fund manager’s own assurances.

Secured private credit: different loans carry different risks

While ASIC as regulator will play a key role, the even more critical role in shaping the private credit market will ultimately be played by investors themselves. The most critical lesson is that investors who are considering in investing in real estate-based funds must take responsibility for understanding the types of mortgages and loans being funded, as well as each manager’s underlying philosophy towards risk.

Not all secured private credit loans are created equal. There is an inevitable dislocation in how risk is priced and understood across loan categories:

• Second mortgages – higher risk, typically subordinated to a first mortgage, often with attractive yields that mask the genuine risk of capital loss.
• Construction & vacant land loans – inherently complex, highly cyclical, and sensitive to both property market downturns and cost inflation.
• Rural properties & agricultural lending – exposed to commodity cycles, climate events, and less liquid collateral.
• Specialised securities – bespoke arrangements that require deep expertise and due diligence.

 

Investors cannot rely solely on labels such as “secured” or “first mortgage” without interrogating the details. For example, a “secured private credit” loan backed only by corporate receivables is fundamentally different from one secured against a completed residential property.

With a bit of homework and education, investors can still gain an “unfair advantage”, achieving superior returns at lower risk by choosing managers who:

• Apply strict governance and external oversight,
• Disclose clearly how risk is assessed,
• Maintain discipline in loan selection and diversification, and
• Avoid over-exposure to speculative construction finance and sectors.

 

In short, the maturity of the private credit sector will depend on investors demanding higher standards and allocating capital to managers whose practices align with their own risk tolerance.

Investor education is the path forward

Ultimately, the key to a healthier private credit market is investor education. Regulators can monitor, but investors must drive standards through the questions they ask and the decisions they make.

Every investment should be interrogated:

• Are fees and margins transparent?
• Are there any apparent conflicts of interest?
• What security is provided against loans?
• How diversified is the portfolio beyond property construction, second mortgages, and types of property?
• What is the composition of the loan book, gearing and arrears?
• Will the manager allow you to have see-through rights into the fund’s portfolio?

 

Private credit has the potential to provide superior, risk-adjusted returns with lower volatility – but only when investors understand the underlying risks and rewards associated with it. With proper due diligence, governance, and discipline, investors can still achieve strong outcomes, avoiding the complacency that ASIC warns against.

Disclaimer:

Authorised by Msquared Capital Pty Ltd ACN 622 507 297 AFSL 520293 (“Msquared Capital”). The information contained in this article (“Information”) is general in nature and does not constitute personal financial product advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the Information in light of your own circumstances and seek independent financial advice before making any investment decision.

The Information may include forward-looking statements or predictive content that is subject to assumptions, known and unknown risks, and uncertainties. Actual outcomes may differ materially from those expressed or implied. Msquared Capital and its related entities make no representation or warranty as to the accuracy, completeness or reliability of the Information and accept no liability for any loss or damage arising from reliance on it.

This article does not constitute an offer or solicitation to invest.