In an analysis published on InvestorDaily, Paul Miron, managing director at Msquared Capital, said the fund’s investment in Pluralsight, initially labelled as a private credit loan, turned out to be more akin to a venture capital gamble.
“If it walks like a duck and quacks like a duck, it is undoubtedly a duck. Despite initially being a debt facility, the debt converted to shares when it could not be repaid,” Miron said.
He said this incident reveals just how important it is to use clear investment language, as mixing private credit with venture capital can seriously mislead investors about the real risks involved.
“It’s not uncommon for fund managers to use persuasive language and jargon to present certain opportunities as private credit, potentially giving the impression of lower risk. In this case, AustralianSuper was the largest investor and likely understood the level of risk involved,” Miron said.
“Had the investment promoter sought funds from a different pool of Australian investors, the potential for a significantly more negative financial impact on investors would have been much higher.
“This underscores the importance of thorough due diligence in investment decisions and should serve as a stark reminder of the potential consequences of not doing so.”
In a broader context, Miron said this debacle points to a wider issue within the investment industry – the use of the term “alternative assets” to encompass a wide range of investments with varying risk profiles. This, he believes, can mask the varied risk profiles these assets actually carry.
Historically, Miron said, the definition of alternative assets stems from the Modern Portfolio Theory of the 1950s, which relegated anything outside of stocks and bonds to this category. However, today’s complex financial products demand a more nuanced approach.
While AustralianSuper’s $1.1 billion write-off might seem a drop in the ocean relative to its total assets, he cautioned that it serves as a critical lesson for all investors.
“Private credit may be very fashionable currently, but it is not a homogenous asset class. Investors need to understand what they are investing in and how they can recover their investment when borrowers default.”
