Longwave Capital is an Australian equities fund backed by Pinnacle Investment Management. The firm manages approximately $4 billion. Its recent review of private credit revealed a “surprisingly sanguine industry” underestimating risks to property developers, a concern heightened by last month’s collapse of Sydney residential real estate giant Bathla. This prompted Longwave to divest its only exposure to the sector, ASX-listed property investor Centuria Capital. Longwave Chief Investment Officer David Wanis stated, “Having seen this movie before, we have come to expect a high degree of confidence from Australian property market operators. We decided our research pointed to fundamental problems no confidence could overcome.”
Centuria Capital is an ASX-listed property investor. It has frozen redemptions in some of its private credit funds exposed to Bathla, holding $278 million secured across six Bathla developments. Bathla, a large Sydney affordable housing developer, rapidly expanded with over $3 billion in private credit loans. Other major private credit funds are also exposed; RMBL Investments claims $319.5 million, and Ray White Capital claims $216.8 million. Mr Wanis cautioned that risks extend beyond Bathla, suggesting more entities in the property development market could be on the brink, exacerbated if investors retrench from private credit funding.
The broader market implications are evident, with investor confidence waning. In July, SQM Research downgraded the Centuria Bass Credit Fund after changes to its investment guidelines, prompting Morningstar to warn of potential platform removal and new inflow challenges. Shares in Centuria have plunged over 30 per cent this year, while other lenders like MA Financial are down 54 per cent, and HMC Capital and Pinnacle are both down 20 per cent, partly due to private credit concerns. MST Marquee analyst Hasan Tevfik anticipates increased ASIC regulation will likely raise costs and reduce returns for private credit issuers, potentially hindering recovery for these securities.
