Darren Connolly

Ongoing tensions across the Middle East continue to raise questions among Australian investors about what it could mean for markets and whether portfolios need to change.

Australian markets have shown renewed volatility in recent weeks, with the ASX experiencing sharp swings as investors react to concerns around potential oil supply disruptions through the Strait of Hormuz, one of the world’s most important energy transit routes.

During periods of market volatility, InvestmentMarkets typically sees increased investor interest in lower‑risk or more diversified strategies on its platform as investors reassess portfolio risk.

It’s a familiar pattern. When global events dominate the news cycle and markets turn red, commentary quickly shifts towards how to minimise losses. But knee‑jerk reactions to geopolitical developments can sometimes create more problems than they solve.

Darren Connolly, CEO of InvestmentMarkets, said moments like this mean investors, like everyone else, focus heavily on the latest headlines and ‘noise’ rather than the broader picture.

“When a conflict or major global event emerges, the first instinct for many investors is to adjust their portfolio immediately,” Connolly said.

“Markets can be very volatile in the short term, but geopolitical shocks are something markets have experienced many times before. In most cases they don’t fundamentally change the long‑term forces that drive investment returns.”

Connolly said investors should remember that markets are constantly processing a wide range of issues and risks at any given time, from economic conditions and interest rates through to political developments around the world.

“Geopolitical tension can certainly create periods of uncertainty, but it’s only one factor in a much bigger system,” he said. “Trying to reposition a portfolio every time a global event unfolds can lead investors to make reactive decisions that don’t always align with their longer‑term objectives.”

Instead, Connolly said the focus should remain on maintaining a disciplined investment strategy, particularly during periods of heightened uncertainty.

“A well‑diversified portfolio is designed to manage exactly these kinds of events,” he said. “Diversification across sectors, asset classes and geographies helps smooth out shocks when markets become unsettled.”

Connolly said investors should aim to build a “sleep‑well portfolio”, one that is structured to withstand periods of market stress without forcing investors to react to short‑term noise.

“If investors feel compelled to act every time markets become volatile, it’s often a sign the portfolio isn’t properly diversified,” he said. “One of the biggest risks during periods of market noise is panic selling. When investors sell, they may crystallise losses and miss the rebound when markets recover.”

While global events can create market movements in the short term, Connolly said investors who maintain perspective are often better positioned to navigate periods of uncertainty.

“Periods like this are a reminder that investing is a long‑term exercise,” he said. “Volatility is the price of admission and the fundamentals of diversification, discipline and patience matter most during these times.”

The post Why investors shouldn’t panic during geopolitical shocks appeared first on AdviserVoice.

Darren Connolly

With geopolitical conflict driving energy prices higher, bond yields rising, tariff uncertainty persisting and artificial intelligence reshaping entire sectors, Australian investors are navigating one of the most complex environments in recent memory.

InvestmentMarkets has brought together views from 10 leading fund managers, market strategists and sector specialists across equities, fixed income, property, private credit and global macro to cut through the noise – each offering a distinct perspective on where the risks and opportunities sit heading into the second half of 2026.

Rather than a single house view, this collection captures the diversity of approaches investors are weighing – from global macro positioning and contrarian equity strategies through to unlisted property, mortgage funds and the new yield alternatives emerging on the ASX – highlighting why discipline and diversification matter more than ever.

Darren Connolly, CEO, InvestmentMarkets: “Most investors think they’re diversified, but true diversification means more than holding a few different stocks. It means exposure across asset classes, geographies and income sources – and it means having parts of your portfolio where the cash flows aren’t driven by market sentiment at all. That’s the gap we see most often, and it’s the one that hurts most in periods like this.”

Michael McCarthy, CEO, Moomoo ANZ: “I’m seeing signals from bond markets, currency markets, cryptocurrency markets, and share markets that are all lining up with the same message – growth is slowing and interest rates are headed higher. The best time to prepare for volatility is at the beginning when you devise your strategy. The next best time is when markets are going well. The third best time is now, because it’s never too late to act.”

Rudi Filapek-Vandyck, Founder, FNArena:“The share market outside of a very small selection of winners is now basically becoming a value proposition for investors who can look beyond the immediate headwinds. The whole AI narrative is a very long-term story. It’s going to change the world, have no doubt but the way it does is open for debate.”

Simon Raubenheimer, Director, Contrarius Investment Management: “It is tempting to get excited about shares that are down 70 to 80 per cent in a short space of time, but there’s a serious risk of buying a value trap. Our challenge is to be extremely disciplined in avoiding companies that face existential risks, even if they look cheap in the rearview mirror.”

Marc Jocum, Product and Investment Strategist, Global X:“The current dividend yield on the Australian share market is around 3.2 per cent, the lowest it’s been for decades. We are heavily weighted into financials and materials, which make up 50 to 60 per cent of the market, and significantly underexposed to the sectors projected to grow earnings at double digits. Don’t forget that earnings drive the majority of share market returns.”

Michael Saba, Portfolio Manager, Arculus Funds Management:  “The landscape has changed dramatically. Hybrids are being phased out, but that doesn’t mean they’re dead, there are still 38 issues and around $37 billion outstanding. What’s exciting is the range of new yield products emerging. It’s a sector that has just reached adolescence – it’s going through growing pains, and that’s good, because it will sort itself out.”

Nick Alcock, Australian Secure Capital Fund (ASCF): “Since October 2021, APRA has maintained a 3 per cent mortgage serviceability buffer. The unintended consequence is that we now see situations where hopeful refinancers can’t even service with their current lenders. Borrowers still need funding and projects still need finance, but the traditional banking system is no longer willing to provide it in some cases and that’s the gap private lenders have stepped in to fill.”

Vaughan Hayne, Managing Director and Co-Founder, Exceed Capital: “We’ve seen rents on the Gold Coast increase 40 per cent in two years, with A-grade office vacancy under 1.7 per cent, the lowest it’s ever been. Some of our A-grade buildings have moved from $460 to $650 per square metre. Construction costs and labour costs are at record highs, which means less new supply – which is generally a good thing for existing commercial property owners. Less supply, more demand, pushes up rental prices.”

Michael Fazzini, Sales and Distribution Executive, Capru: “The biggest insight in property development that most investors don’t realise is that most of the profit comes from what you pay for the land. Market price for land in our world isn’t the last transaction of a similar site or per square metre, it’s working backwards from what the finished product is worth, the build costs, and the minimum return needed to make the project viable. Get that wrong and no amount of execution can save you.”

Marcus Cleary, Head of Distribution, Oreana: “Volatility is a pricing problem, not a cash flow problem. Whether it’s tariffs, tech selloffs or oil shocks, the price volatility and breadth of that volatility isn’t seen within the direct asset class because the cash flows we deliver are linked to CPI and backed by long-term leases. Regardless of the economic environment, families are still sending their kids to childcare.”

Richard Collier, CFO, Heartland Bank: “Australians aged over 60 hold more than $3 trillion in property, yet less than 1 per cent of that available equity has been unlocked. The total reverse mortgage market is only around $5.5 billion against an addressable market of around $600 billion. With superannuation balances of just over $4 trillion across the entire system not sufficient to fund the lifestyle Australians expect in retirement, this is the largest store of value that remains untapped.”

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Darren Connolly

Self-directed investors have dramatically shifted their focus away from income-generating assets in just a few months, according to new platform data released by InvestmentMarkets.

The analysis, which covers four months of investor traffic on the InvestmentMarkets platform to mid-March, shows ETFs have become the most popular investment category, accounting for around 21% of total traffic. Global equity funds are a close second, at 20%, having leapt from fifth place to second – a striking shift for a platform where income-focused assets had previously dominated.

Just a few months ago, property funds, mortgage funds, diversified income funds, and private credit occupied four of the top five spots, and with bond funds also in the Top 10, they collectively represented over 50% of all platform traffic. That picture has changed markedly.

The shift does mirror a broader national trend. Industry data shows Australian ETFs attracted a record $53 billion in net inflows in 2025 – 76% above the prior year’s record – with international equities the single most popular category at $20.9 billion. The Australian ETF industry is now forecast to surpass $400 billion in funds under management in 2026, up from $330 billion at the end of last year.^[1]

“Investor behaviour on our platform tends to be a leading indicator of broader sentiment shifts. The move towards a more global orientation, irrespective of structure isn’t a huge surprise, but the speed of the rotation – and the sharp decline in private credit in particular – suggests investors are making some significant calls in a short period of time,” said Darren Connolly, CEO of InvestmentMarkets.

Alternative assets – including commodities, gold, resources, and infrastructure – recorded the strongest growth of any category at 54%, albeit from a smaller base. Mortgage funds and global equities funds also outpaced the platform’s overall 19% growth rate over the comparison window.

By contrast, domestic Australian equities funds saw no growth but managed to maintain a 10% share, while fixed income fell 8% to drop to a 7% share. Private credit saw a particularly sharp fall of 26%, – a reversal Connolly attributes in part to negative media coverage of the sector.

“While it’s still 4% of the overall traffic, this is quite a marked change from our survey last year,” said Connolly. “Investor interest has shifted quite significantly for a number of asset classes.”

While acknowledging the ongoing Middle East conflict is likely to have further impacts on behaviour, Connolly stressed that investors need to remember that markets have weathered such shocks repeatedly throughout history and that the fundamental driver of long-term returns remains corporate earnings, not headlines.

“By the time it’s on the 6 o’clock news, it’s too late to act. Knee-jerk reactions to media headlines can create many more problems than they solve, including the crystallisation of losses,” Connolly said.

“Your portfolio should ideally be what I’d call a ‘sleep well’ portfolio – one that can withstand periods of market stress without forcing you to react to short-term noise. If you feel compelled to act, it’s often a sign your portfolio is exposed in some way,” he said.

Investment Markets hosts more than 700 investment opportunities across 25-plus asset classes on its platform, alongside regular educational content and investor webinars. The platform’s model is explicitly designed to support considered, long-term decision-making rather than reactive trading.

“Diversification across sectors, asset classes, and geographies, combined with discipline and patience is what matters most in times like these,” Connolly concluded.

———

[1] https://www.betashares.com.au/insights/australian-etf-industry-breaks-more-records/

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Darren Connolly

The rise in tensions across the Middle East has inevitably sparked questions in the past week from investors in Australia about what it could mean for markets and whether portfolios need to change.

Australian markets have already shown signs of volatility, with the ASX experiencing its largest single-day drop in almost a year earlier this week before recovering part of those losses the following day. Much of the movement has been linked to concerns around potential oil supply disruptions through the Strait of Hormuz, one of the world’s most important energy transit routes.

During periods of market volatility, InvestmentMarkets typically sees increased investor interest in lower-risk or more diversified strategies on its platform as investors reassess portfolio risk.

It’s a familiar pattern. When global events dominate the news cycle and the markets turn red, commentary quickly shifts towards how to minimise losses. But knee-jerk reactions to geopolitical developments can sometimes create more problems than it solves.

Darren Connolly, CEO of InvestmentMarkets, said moments like this mean investors, like everyone else, focus heavily on the latest headlines and ‘noise’ rather than the broader picture.

“When a conflict or major global event emerges, the first instinct for many investors is to adjust their portfolio immediately,” Connolly said.

“Markets can be very volatile in the short term, but geopolitical shocks are something markets have experienced many times before. In most cases they don’t fundamentally change the long-term forces that drive investment returns.”

Connolly said investors should remember that markets are constantly processing a wide range of issues and risks at any given time, from economic conditions and interest rates through to political developments around the world.

“Geopolitical tension can certainly create periods of uncertainty, but it’s only one factor in a much bigger system,” he said. “Trying to reposition a portfolio every time a global event unfolds can lead investors to make reactive decisions that don’t always align with their longer-term objectives.”

Instead, Connolly said the focus should remain on maintaining a disciplined investment strategy, particularly during periods of heightened uncertainty.

“A well-diversified portfolio is designed to manage exactly these kinds of events,” he said. “Diversification across sectors, asset classes and geographies helps smooth out shocks when markets become unsettled.”

Connolly said investors should aim to build a “sleep-well portfolio”, one that is structured to withstand periods of market stress without forcing investors to react to short-term noise.

“If investors feel compelled to act every time markets become volatile, it’s often a sign the portfolio isn’t properly diversified,” he said. “One of the biggest risks during periods of market noise is panic selling. When investors sell, they may crystallise losses and miss the rebound when markets recover.”

While global events can create market movements in the short term, Connolly said investors who maintain perspective are often better positioned to navigate periods of uncertainty.

“Periods like this are a reminder that investing is a long-term exercise,” he said. “Volatility is the price of admission and the fundamentals of diversification, discipline and patience matter most during these times.”

The post Why investors shouldn’t panic during geopolitical shocks appeared first on AdviserVoice.

Darren Connolly

Investors are navigating one of the most complicated times in recent market history as long-held beliefs about how value is determined and evaluated are called into question by the growth and impact of technology and artificial intelligence (AI) in particular.

InvestmentMarkets CEO Darren Connolly says the current environment requires investors to think deeply and critically about where long-term value is genuinely being built. He notes the need to consider how structural shifts may alter the outlook for individual businesses and entire industries.

“There is a clear need for investors to continue to interrogate the assumptions that sit beneath valuations,” Connolly said. “Periods of rapid change and disruption tend to create both mispriced pessimism and mispriced optimism, and being able to distinguish between the two is important.”

These themes are echoed by Simon Raubenheimer from Contrarius Investment Management, who emphasised that many companies facing technological change display signals that valuation screens rarely capture. “Some of the best opportunities sit where the market feels least comfortable,” Raubenheimer said. “Misunderstood transitions, business model shifts and industries assumed to be in decline can all look very different when you assess them from a different perspective.”

A good example is The New York Times. For years, the company screened poorly on every traditional valuation metric as revenues in its legacy print business halved between 2006 and 2011, leading value, growth and quality investors to write the stock off. Raubenheimer said deeper analysis revealed a small but fast-emerging digital subscription business with far superior economics and a global addressable market – something no quantitative screen captured at the time. “It was tiny, buried inside the numbers, but transformative,” he said. “Once the market recognised what was happening, the share price recovered dramatically.”

AI is playing a growing role in shaping how investors assess long-term opportunities. Raubenheimer believes that while the conversation often centres on whether AI is in a bubble, the more important question may be whether investors are underestimating how far-reaching the technology will be. “We think this is one of the most profound shifts in decades. Many of the companies that will benefit are trading at valuations that don’t fully reflect the scale of what’s unfolding.”

At the same time, he cautions that disruption is not uniformly positive. Companies that appear superficially inexpensive may still be exposed to long-term value erosion. “Historical earnings strength doesn’t guarantee future durability,” he said. “Understanding which businesses are genuinely resilient – and which are vulnerable – requires deeper analysis than price multiples alone.”

Volatility has become a defining feature of current market conditions, often creating confusion about what constitutes genuine risk. Raubenheimer notes that investors frequently interpret volatility as a sign of weakening fundamentals, when in many cases it’s a natural feature of periods marked by innovation and transition. “A sharp drop in sentiment doesn’t always alter a company’s long-term value,” he said. “It can simply bring the price back to a level where it becomes attractive again.”

Reflecting on the past decade, Raubenheimer says one of the most important lessons for investors is to resist the instinct to be pessimistic – particularly when headlines skew negative. “Pessimism is intellectually seductive but financially unhelpful,” he said. “The best investors tend to be those who remain optimistic about long-term progress, even when the short-term noise is overwhelming.”

“Today’s environment really demands a clear eyed view – understanding what is changing, what is not, and where long-term value is actually being created,” Connolly added. “That’s the conversation investors need to be having with themselves as we move into 2026.”

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Darren Connolly

Self-directed investors are shifting aggressively toward income-focused assets, with new data from InvestmentMarkets revealing that property funds, mortgage funds, income funds and private credit funds have captured the vast majority of investor attention over the past 12 months.

Based on more than 300,000 unique product views across 400 investment opportunities in 20 different categories, the data provides a clear indicator of how self-directed, high-net-worth investors are positioning themselves amid market upheaval, renewed inflationary pressures, and uncertainty around the interest rate outlook.

InvestmentMarkets CEO Darren Connolly said the data points to a reorientation toward capital preservation and yield. “Investor attention is shifting in a very particular direction,” he said. “What investors choose to investigate is an early signal of where capital will flow, and right now the focus is overwhelmingly on income, stability and defensive assets. In times of uncertainty people want investments and returns they can rely on.”

One-third of product views were concentrated in commercial property funds and mortgage funds – the strongest indication yet that property remains an anchor for many HNW portfolios, particularly amongst older investors. Engagement with income and private credit funds continued to build throughout the period, with Connolly noting that private credit is “no longer a niche allocation, it’s a core holding for investors who are looking for a consistent income yield without equity market risk.”

The data shows a more complex pattern across equity funds. Interest in global equities began to lift around 12 months ago before moderating recently, potentially reflecting valuation concerns in major markets. Interest in small cap funds surged mid-year before also easing, while large caps experienced clear peaks just after mid, and end of year, reporting seasons. ETFs have had consistent attention, while more niche sectors – from crypto to hedge funds – drew less than 2.5 per cent of total views, indicating relatively limited appetite for more unusual exposures.

Connolly said investor behaviour on the platform showed a notable rise in time spend on product information. Investors are spending more than two minutes per each individual product page. “That level of engagement is meaningful,” he said. “When investors are effectively acting as their own CIO, they scrutinise everything, PDS’, TMDs, IMs. Every single piece of information is consumed.”

He said the data underscores a broader shift in investor mindset, that is, independence paired with heightened caution. “Investors want control, but they are also wary,” he said. “They’re filtering noise, interrogating information, and taking the time to understand the products they’re considering.”

He said the past 12 months of data pointed towards a retreat from complexity and volatility and doubling down on income, tangible assets, and strategies aligned with long-term resilience. “The behaviour is consistent and deliberate,” Connolly said. “Investors are moving on from momentum chasing; they’re investing to be able to withstand whatever the next phase of the cycle brings.”

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Darren Connolly

A decade of heavy passive fund inflows has reshaped Australia’s equity market, concentrating capital in a handful of large-cap names, leaving many smaller companies and listed investment companies (LICs) behind.

Commenting on the surge of passive capital, InvestmentMarkets CEO Darren Connolly said, “More than $160 billion is now invested in ASX-listed ETFs – up five-fold in 10 years – a trend that we don’t see stopping any time soon. This has led to lower liquidity in other market segments.”

Connolly added, “Against this backdrop, being contrarian, and investing where the weight of money isn’t, may be a productive strategy.”

Affluence Funds Management founder and portfolio manager Daryl Wilson concurs: . “There’s never been a better time for active investors to consider small caps and LICs. Institutional money has largely exited, sentiment is weak, and yet the fundamentals are sound. History shows that when the fair valuation gap is this wide, the long-term returns can be exceptional.”

Affluence, which manages four multi-manager funds, is seeing LICs trade at average discounts of 25-27 per cent to their net asset values – the steepest since the pandemic. “You’re effectively buying a dollar of assets for 75 cents,” Wilson said. “Even if the NAV discount never closes, the underlying portfolio can still compound at attractive rates. If it does close, investors enjoy an additional benefit.”

He added that the same dynamics are evident across small-cap and micro-cap stocks, where the retreat of super-fund mandates and the surge in benchmark-tracking capital have created what he calls a “once-in-a-cycle dislocation.”

Connolly notes investor behaviour on the InvestmentMarkets platform reflects this shift: “We’re seeing self-directed investors pair low-cost ETFs for their core exposure with specialist managers for alpha and income. It’s a simple strategy but the specialist satellites are where value now resides.”

Wilson believes patience and selectivity will be rewarded: “We’re overweight small caps, selective REITs and discounted LICs, and underweight U.S. large-cap tech where we believe valuations have been stretched by AI. The market eventually re-prices excessive optimism and pessimism. Investing early in undervalued assets takes nerve, but we expect it to pay off over a three-year horizon.”

Both agree that investor behaviour, not just macro conditions, will shape returns in 2026. “If 2025 was the year of private credit and chasing yield, 2026 could well be the year of rediscovering value,” Connolly said. “Investors who look beyond the noise might well find attractive opportunities hiding in plain sight.”

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Darren Connolly

The FY25 reporting season has delivered a clear reminder for investors: strong governance and honest communication matter just as much as the numbers. Confidence in the market is holding up, but results from some of Australia’s biggest companies have shown that without transparency and careful risk management, even solid profits can leave shareholders uneasy.

Darren Connolly, CEO of InvestmentMarkets, said the shift is evident across the investor community. “What we’re seeing is a strong expectation that companies do more than just deliver results. Investors are looking at leadership, governance structures, and the way risks are communicated. Less spin and more honesty,” he said.

Rachel Waterhouse, CEO of the Australian Shareholders’ Association (ASA), said three themes stood out this reporting season: optimism about the market outlook, sector-specific surprises such as CSL falling short of forecasts, and growing unease about disclosure. “Healthcare caught investors’ attention with CSL missing expectations, which was reflected in the immediate share price reaction,” Waterhouse said. “But the bigger issue is around communication. At James Hardie, for example, the gap between forecast and actuals raised serious questions about when the company knew and whether it could have told investors earlier.”

Qantas also remains under scrutiny, reporting a record profit and a record fine in the same period. For investors, the combination highlights both the strength and the risks of relying on brand reputation. “It’s not just about profits, it’s about governance and culture,” Waterhouse said. “Companies need to show they are investing in people, in their fleet, in systems and processes that build long-term trust.”

Connolly said this sentiment is important for self-directed investors. “Governance is front and centre. Investors are well aware that reputational risks can quickly turn into financial ones,” he said.

Broader policy concerns are also weighing on investors, particularly the proposed Division 296 tax on superannuation balances. The ASA has warned the measure undermines confidence, with Waterhouse noting that taxing unrealised gains “simply doesn’t make sense.” She said the change raises serious questions about how investors are expected to pay a tax that has no cash impact, and called instead for a holistic review of the tax system rather than piecemeal reforms.

For retail investors, the challenge extends beyond policy to whether their voices are being heard in a market dominated by institutions, ETFs and superannuation funds. Waterhouse said hybrid AGMs, direct engagement and proxy voting remain critical tools. “Companies that engage meaningfully with retail shareholders build stronger long-term support,” she said.

Connolly said demand for transparency and engagement is an ongoing theme. “Investors want to know not just the numbers, but the risks, and the issues too. They don’t expect everything to go perfectly all the time, and companies that are upfront with the bad news too, are the ones that attract long-term investor support,” he said.

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Darren Connolly

Australia is experiencing a structural shift in how credit is provided, with non-bank lenders playing an increasingly significant role as banks scale back certain types of lending. For investors, that shift is turning private credit from a niche allocation into a mainstream income strategy.

InvestmentMarkets CEO Darren Connolly said this change is creating both opportunities and challenges for investors. “In the US, around 70% of credit is provided by non-banks. In Australia, the share is smaller but growing quickly,” Connolly said. “Private Credit has been the most popular asset class on our platform year-to-date. The growth is providing investors with greater choice but also a greater need to interrogate the risks and rewards of each opportunity.”

Speaking as part of InvestmentMarkets’ recent ‘Insights Series’, Andrew McVeigh, Managing Partner at Remara said that while the sector has faced challenges in the past year, particularly in real estate lending, the broader market fundamentals remain strong.

“Real estate loans have attracted headlines, often because they involve larger obligors and slower work-outs when things go wrong. But when you look at the broader credit environment, Australians are holding up remarkably well,” McVeigh said. “Consumers are meeting their obligations, defaults are low, and well-structured credit continues to deliver consistent returns.”

McVeigh explained that securitisation and diversification remain key to creating investor confidence. “Our portfolio has over 27,000 loans, with most exposures under $10 million. That diversification, coupled with securitisation and genuine manager co-investment, means the risk of any single obligor impacting outcomes is very slim,” he said. “We put our own capital on the line first. That’s a structural safeguard that resonates with investors.”

For conservative investors, McVeigh said it’s important to match private credit exposure with their own liquidity and risk appetite. “It can be difficult to compare credit funds on the surface. Investors need to ask: what’s in the underlying pool? What’s the rating profile? How liquid is it? If you’re a conservative investor, investment-grade securitised pools with monthly liquidity can deliver steady cash-based returns without high volatility. For those further up the risk curve, diversified or opportunistic funds can deliver higher returns, but investors need to be aware of the additional risks they are taking on.”

Both Connolly and McVeigh see long-term tailwinds supporting the growth of private credit. “Private credit removes the day-to-day noise of markets,” McVeigh said. “It’s about steady, compounding returns over time and we’re only at the beginning of its growth in Australia. With a $3.8 trillion credit market and a superannuation system hungry for yield, there are clear tailwinds behind the sector.”

Connolly added: “The demographic bulge of retirees and the next generation of investors are both searching for income substitutes. Private credit is well placed to meet that need but it’s essential investors look beyond the headline returns and do their homework.”

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Darren Connolly

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

For Darren Connolly, CEO of InvestmentMarkets, these events serve as a stark reminder that self-directed investors need to always 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,” Connolly says. “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.”

———

Notes:
[1] https://www.rba.gov.au/publications/bulletin/2024/oct/pdf/growth-in-global-private-credit.pdf
[2] https://download.asic.gov.au/media/44hh5ctv/australia-s-evolving-capital-markets-a-discussion-paper-on-the-dynamics-between-public-and-private-markets.pdf

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