Self-directed investors must own their decisions

Investors and advisers cannot entirely outsource to regulators the vigilance needed around private credit funds, according to the chief executive of Investment Markets, Darren Connolly.

He said fixed income had long been seen as the conservative cornerstone of investment portfolios, but recent market events have exposed a more danger truth = not all fixed income products are created equal and some can hide complex and illiquid exposures.

Connolly said it was in these circumstances that self-directed investors needed to be reminded to take responsibility for their own decision-making.

“The vast majority of actors in the eco-system are passionate about doing the right thing for their investors,” he said. “Unfortunately, there have always been a few bad apples and, to mitigate the possibility of being on the receiving end of an adverse outcome, self-directed investors need to always dig a little deeper, ask sharp questions, and really understand what they’re investing in.”

The rise of financial technology is amplifying this challenge. Digital platforms are opening the doors to a much wider range of investment opportunities. For most investors this is empowering, but with more access comes greater responsibility.

“The sheer choice of funds is exciting, but it can also feel daunting for investors,” Connolly explains. “Education and engagement are vital, and understanding risks from liquidity to governance and valuations is critical to making informed choices.”

The need for due diligence is particularly prevalent in Australia’s booming private credit market. The Reserve Bank of Australia estimates the sector is managing $40 billion, which accounts for 2.5% of total business debt.^[1] At a retail level, ASIC notes that private credit funds have increased substantially from $600 million under management in 2014 to $2.8 billion in 2024, a 240 % increase.^[2]

However, the sector’s explosive growth has put pressure on regulatory guardrails. Many private credit funds lack standardised reporting or the robust oversight and governance investors need and expect. ASIC and APRA have recently shifted their focus to the trustees overseeing these funds. And there’s an expectation that they will require trustees to make further improvements in their gatekeeping role in the coming years.

But Connolly warns that investors and advisers can’t entirely outsource the vigilance required in the decision-making process to the regulators. “Trustees are going to face greater scrutiny, and advisers should expect tougher questions from their clients,” he says. “Both are a good thing, and transparency should improve across the whole investment chain. Ultimately however, investors must always do their own due diligence.”

For self-directed investors, the main takeaway is that education and active engagement are the best defence, not blind trust in fund ratings or the regulators. That means understanding whether fund managers have meaningful capital invested alongside their clients, clarifying redemption terms, questioning valuations and never investing in something you don’t fully understand.

Connolly sums it up: “The old adage still applies. The higher the return, the higher the risk. Being willing to walk away when you don’t fully understand something, is just as important as knowing when to invest. While there are no guarantees, the more informed you are the better investment decisions you are likely to make.”