An international financial watchdog has expressed concern about the “substantial” risks to investors in private credit markets. It is clear that approximately 40% of the funds are not taking any risk themselves.
The Bank for International Settlements (BIS) announced last week that it wasannual economic reportAccording to , many asset managers avoid investing their own funds, which creates “incentive misalignment.” There is a risk that industry players will prioritize their own interests over investor returns.
Private credit increased to $2.1 trillion (about 338 trillion yen) after banks pulled back from some loans in the wake of the financial crisis, according to BIS estimates. Regulators and supervisors are increasingly concerned about the sector’s impact on traditional financial institutions.
Concerns about valuation are also growing, with only 40% of private credit funds using third-party valuations and reporting data to the Securities and Exchange Commission.
The Performance of Private Credit Managers is Significantly Dispersed
The IRR percentage is much wider than it is for active closed-end funds
According to the BIS report, approximately 78% of private credit trading volume in the United States goes to companies owned by private equity (PE) investment firms. European regulators and supervisors will seek improved transparency regarding shadow bank interactions.
Original title:Private Credit Funds With No Skin In A Worry Game: Weekly Credit(excerpt)