Metrics Credit Partners $9b fund freeze|$170m writedown without KPMG sign-off?

A cut that settled nothing

Metrics Credit Partners has frozen withdrawals from funds holding more than $9 billion, after a $170 million writedown. The Financial Review reported the cut was made as Metrics sought agreement with auditor KPMG, yet KPMG still would not sign. Metrics manages around $40 billion. The writedown landed on three of its funds listed on the ASX.

The two unlisted funds now closed to withdrawals are more than fifty times the size of that cut. KPMG had been due to sign off the accounts by 30 September. It told Metrics and Perpetual, which oversees the funds, that it could not meet that deadline. No new date was given. The first move came on Monday, 28 September, before the market opened. Metrics asked the ASX to suspend three funds.

They are the Metrics Master Income Trust, the Metrics Income Opportunities Trust and the Metrics Real Estate Multi-Strategy Fund. Those funds had published full-year figures on 31 August. Those figures were unaudited, and still subject to the audit. Based on information from KPMG, Metrics said certain amounts in the audited report would differ.

What KPMG weighed differently

Metrics described the gap as a matter of choices. In its filings, it said KPMG had made “different decisions” on inputs and probability weightings. That matters because private-market assets have no readily observable market price. Their values are assessed periodically using expert judgement, rather than set by trading.

Metrics told investors: “In finalising the audited results, greater weight was given to downside scenarios and less favourable potential outcomes.” It listed what changed. Expected cash flows, discount rates and capitalisation rates. Development timeframes, end sale values and development costs. The preliminary report had been prepared using information provided by Metrics, the funds' manager.

So the manager's assumptions went in first. The heavier weighting on bad outcomes came with the audit. The cuts were not even. The Real Estate Multi-Strategy Fund's net tangible assets fell 12.16 per cent. Per unit, that is $2.53 down to $2.22. The Income Opportunities Trust fell 10.08 per cent, to $1.93 a unit. The Master Income Trust fell just 1.99 per cent, to $1.96.

In dollars, the real estate fund went from $388 million to $340 million. That is $48 million from one fund. Across all three, about $169 million was stripped from reported value. Metrics said the real estate fund's cut came mostly from a lower fair value for unlisted interests. It said KPMG disagreed with how fair value was calculated for unlisted commercial real estate equity.

At the Master Income Trust, the change was about loans. Individually assessed provisions for credit losses went up, while collective provisions went down. The Income Opportunities Trust had both. Loan provisions rose, and its private equity and commercial property stakes were marked lower. The deepest cuts, then, fall where property equity meets a valuer's judgement.

Why a listed audit locks $9 billion

Once the revised values were out, Metrics said the audited report would be lodged on Wednesday, 30 September. Perpetual had expected KPMG to sign off that day without qualification. The Financial Review had called it a months-long clash with the auditors. Perpetual expected Wednesday to close it. On Wednesday, Perpetual told the ASX that had changed.

It said KPMG “would not be in a position to provide its audit opinion on the financial report by 30 September 2026”. Perpetual added: “No other change to that announcement is required other than the revised timing for the release of the Audited Financial Report.” So the responsible entity is standing by Monday's revised values. What is missing is KPMG's opinion.

Until the audited report reaches the ASX, trading in all three listed funds stays suspended. Then the freeze moved beneath the listed funds. The Financial Review first reported that Metrics had stopped processing redemptions from its $6 billion MCP Wholesale Investments Trust. It also halted redemptions from its $3.3 billion real estate debt fund, which is mainly exposed to property loans.

Together, that is about $9.3 billion. New applications were stopped too. And the funds are no longer publishing their asset values for now. The link is structural. The three listed trusts are feeder funds. Their values are set by the net asset value of the unlisted funds underneath. Perpetual said Monday's changes stemmed from adjustments recognised in those unlisted wholesale funds.

The $6 billion wholesale trust feeds into the Master Income Trust. The listed funds hold more than $3 billion in assets. Perpetual said the underlying suspension was due to the same matters behind the revised values. So the unsigned opinion reaches the wholesale money beneath them. New Zealand's National Business Review also reported a 90-day pause on new lending.

Who the pause protects

The sector's best-known failure this year was Bathla. The property developer went into administration owing $3 billion to some 40 lenders. Metrics said it has no exposure to Bathla. Its cuts land instead on an issue the regulator had already raised. In June, ASIC warned that private credit valuations could fail to reflect worsening conditions for borrowers.

That, it said, could give investors an inflated picture of their holdings. On 22 September, ASIC commissioner Simone Constant said: “We're now beyond warnings; the sector should prepare for enforcement action.” An earlier ASIC surveillance of 28 private credit funds found most lacked adequate separation between those approving loans and those independently assessing their value.

The prudential regulator, APRA, has also warned that Australia's $4.5 trillion retirement pot faces heightened risks from private credit. The freeze is the step with the most direct cost to investors. Perpetual said redemptions in the underlying funds “have now been suspended temporarily”.

According to the Financial Review, the trustee's letter said the pause would let liquidity be provided in an orderly way, balancing the interests of all investors. S&P Global Ratings then placed four Metrics funds on CreditWatch with negative implications. The list includes the wholesale trust and the real estate debt fund. S&P backed the pause.

It said: “Temporarily halting redemption requests as permitted by the terms of the fund should support funding and liquidity.” But it set a condition. It warned that “any structural shift in investor sentiment that dampens new applications or accelerates outflows on a longer-term basis could affect our assessment of funding stability”. S&P also said a CreditWatch placement does not necessarily lead to a downgrade.

Both voices call the pause temporary. Neither gives it an end date. Metrics gave no date for lifting the suspension. And the notice that stopped withdrawals also stopped new applications. That is one of the two flows S&P said could affect its view. S&P expects the trustees not to honour redemptions if that would disadvantage other unitholders. So the pause shields investors who stay.

It also shuts off new money for as long as the audit stays unsigned.

What settles it

Metrics took about $170 million off three listed funds while it sought agreement with its auditor. KPMG has still not given its opinion. More than $9 billion of wholesale money is waiting on it too. The thing to watch is the audited financial report reaching the ASX with KPMG's opinion attached. Only then do the three listed funds trade again. Perpetual has said only the timing needs to change.

If the signed report confirms Monday's values, listed unitholders get a market price back. The $170 million then stands as the measure. If the signed figures differ, Monday's cut was not the final word. The listed trusts take their value from the funds beneath, so any difference would reach wholesale investors too. Perpetual had expected an opinion without qualification.

Whether KPMG gives one is the first answer the frozen money will get.

Informational only, not investment advice. Figures and quotes come from the linked reports.