A specialist fund manager has recommended SMSF trustees have a good understanding of the different structures and characteristics of private credit offerings before committing a portfolio allocation to one.
CFMG Capital general manager Andrew Thomson confirmed trustees must make a choice between a pooled structure or a contributory scheme before investing with a private credit manager.
“When choosing between a pooled or contributory scheme, and interestingly adviser networks and ratings agencies do prefer the pooled schemes, it comes down to your trust in the manager and your knowledge of the particular asset,” Thomson told delegates at SMSF Trustee Empowerment Day 2025, recently co-hosted by smstrusteenews and the SMSF Association.
“A pooled scheme, as it is labelled, consists of a pool of assets that sit in a fund. It can be open ended or can have a lock-up period, but with a pooled scheme you don’t know exactly what assets you are investing in.
“There will be an investment mandate for the manager and as long as they are sticking within that mandate, hopefully without any mandate creep, you’re putting your trust in that manager to manage assets within that mandate.”
By contrast, he pointed out, a fund using a contributory approach will allow individuals to know the specific asset or assets in which the offering is invested.
“So it’s your position whether you choose to trust the manager or trust your knowledge or interest in that asset,” he said.
According to Thomson, SMSF investors must also understand the level of security they will be provided with an allocation to a private credit fund.
“Basically there will be a waterfall of security, so you’ll have your first mortgage, second mortgage, mezzanine-level funds,” he noted.
“It’s certainly important to know your rank in that order and typically the return will tell you. But generally speaking you need to understand the differences between those first mortgage, second mortgage, mezzanine-type funds.”