Securities and Exchange Commission Chairman Paul Atkins confirmed this week that the agency is actively investigating the private credit sector for potential fraud, even as he downplayed immediate systemic risks. Speaking at the Milken Institute's Global Conference in Los Angeles on Monday, Atkins stated that the SEC is coordinating with the Treasury Department and the Federal Reserve. "We're monitoring it carefully with our colleagues at the Treasury and elsewhere – the Fed and whatnot," Atkins said, as reported by Barron's. "We're taking it seriously."
The private credit market has swelled to nearly $2 trillion in global assets, drawing heightened attention from regulators. Recent turmoil includes rising loan defaults, falling stock prices among alternative asset managers, and redemption restrictions. Blue Owl Capital, for instance, temporarily halted capital returns to investors amid a surge in redemption requests. The SEC is examining several fund managers as part of routine supervisory operations, while the Financial Stability Oversight Council has not yet deemed the sector a systemic threat, according to Atkins.
The Financial Stability Board, comprising G20 central bankers and regulators, published a report Wednesday warning that private credit's growing ties to banks, insurers, and investment managers create untested vulnerabilities. The FSB flagged $220 billion in drawn and undrawn bank credit lines to the sector, though commercial data suggest the actual figure could be twice as large. It also highlighted risks from complex funding structures, opaque valuations, and a lack of standardized data. "This includes riskier fund portfolio financing, banks providing revolving credit facilities to companies that are simultaneously borrowing from private credit funds, and private credit-focused partnerships between banks and asset managers becoming more common," the FSB said.
The watchdog noted a rise in payment-in-kind loans, where borrowers defer cash interest payments, as a potential sign of deteriorating credit conditions. Leverage is concentrated in technology, healthcare, and services—sectors largely untested under sustained economic stress. The market's evolution from mid-sized company lending after the 2008 financial crisis to financing larger corporations has also opened doors to retail investors through vehicles like business development companies and non-traded REITs. This democratization has introduced liquidity mismatches, as seen in recent redemption pressures driven by individual investors seeking rapid withdrawals from structures not designed for them.
Financial advisors are now grappling with evaluating liquidity risk in this opaque market. The redemption pressures at several large fund complexes underscore how mismatches between investor expectations and fund structures can lead to operational crises, even without credit deterioration. European banks are also facing scrutiny. Barclays disclosed approximately $20 billion in private credit exposure, Deutsche Bank reported roughly $30 billion (about 2% of its loan book), and BNP Paribas disclosed around $25 billion (about 3% of its loan book). The European Central Bank and the Bank of England have flagged systemic risks, with the latter conducting stress tests and raising concerns about asset quality and valuation discipline.
The FSB called on national regulators to strengthen supervisory frameworks, improve risk management sharing, and tighten scrutiny of liquidity mismatches. Atkins' comments come amid a broader SEC repositioning, focusing on actual fraud rather than technical violations. The agency's recent sweep of private credit disclosures at 14 funds and a class action against FS KKR Capital over allegedly misleading disclosures highlight the intensified oversight. As regulators sharpen their focus, the private credit industry faces a reckoning that could reshape its practices and investor protections.
