US SEC, Treasury, Fed Launch Sweeping Probe Into Private Credit Market

US financial regulators have launched a sweeping investigation into the private credit market. Attention is turning to whether authorities will roll out tougher rules in response to rising defaults among borrowers and growing investor redemption demands.

The Wall Street Journal reported on Oct. 23 (local time) that the US Securities and Exchange Commission (SEC) has opened several enforcement investigations in recent months targeting major private credit fund managers. The probes, which remain in early stages, focus on how managers value the loan assets they hold, whether they comply with policies disclosed to investors, and whether conflicts of interest arise between institutional and retail investors.

The SEC has been conducting a broad six-month examination of Blue Owl Capital, a major private fund manager. Blue Owl stands at the center of market distrust after receiving roughly $5.4 billion in redemption requests across two large funds in the first quarter. In a speech on Oct. 21, SEC Chairman Paul Atkins said, “We are watching the new pressures facing private credit and exploring ways for ordinary investors to access the market.” He added, “I want to make clear that opacity can be a problem in this area.”

The SEC is not alone in stepping up scrutiny of the private credit market. The US Treasury Department earlier this month requested business-model information from private fund managers and insurers, acting on Secretary Scott Bessent’s determination to prevent private credit risks from spilling over into the regulated financial system. The Treasury also plans to soon convene US and global insurance regulators to discuss emerging risks tied to the private credit industry.

The US Federal Reserve is likewise reviewing banks’ loan exposures related to the sector. The Financial Stability Oversight Council (FSOC) has also begun discussing risk factors in the private credit market. On Oct. 20, the SEC, together with the Commodity Futures Trading Commission (CFTC), proposed easing reporting rules for general private funds while creating a separate category for private credit funds to enhance oversight.

US financial authorities previously conducted comprehensive reviews of bank soundness and derivatives exposures during the 1998 Long-Term Capital Management (LTCM) crisis and the 2008-2010 global financial crisis. The goal was to signal the government’s firm supervisory stance to the industry and preemptively secure relevant data before a crisis.

The global private credit market is currently estimated at around $3 trillion (about 4.45 quadrillion won). The US Office of Financial Research (OFR) last month estimated the combined private credit exposure of banks and non-banks at $410 billion to $540 billion (about 608 trillion to 801 trillion won). The Financial Times calculated that US private credit fund investors requested a total of $20.8 billion (about 30.7 trillion won) in redemptions from managers in the first quarter. Fitch, the global credit rating agency, said in January that the private credit default rate had surged to 5.8%, the highest since it began tracking the figure in August 2024. Blackstone on the same day reported that first-quarter revenue and distributable earnings rose 10.0% and 25.0% year-on-year, respectively, while net returns in its private credit segment stood at 0%.

The WSJ noted, however, that the regulators’ moves do not yet signal an emergency warning of a systemic crisis. JPMorgan CEO Jamie Dimon also argued at the bank’s earnings call this month, “This is not a systemic issue. There may be some pain, but it is not particularly worrying.”