Europe’s systemic risk authority is considering launching a formal inquiry into private credit markets to assess whether the fast-growing asset class could pose emerging risks to the European Union’s financial system, according to a report by Barron’s.
The potential review comes as private credit—particularly loans linked to private equity buyouts—has expanded significantly across Europe, attracting scrutiny from regulators in both the US and UK, where officials are already examining parts of the sector amid rising investor redemptions and market stress.
The European Systemic Risk Board is reportedly evaluating whether recent volatility in private credit warrants a deeper assessment, according to Richard Portes, an economics professor at the London School of Economics who serves as a scientific adviser to the body.
Portes said discussions remain at an early stage but indicated that a broader review is likely. He noted that while current leverage levels in the sector do not appear excessive, the growing interconnectedness between private credit funds and the wider financial system warrants attention.
Major alternative asset managers including Ares Management Corporation, Blackstone Inc, KKR & Co Inc, and BlackRock, Inc have all expanded private credit operations in Europe as banks have retreated from certain lending markets following post-financial crisis regulation.
The European market for private credit has grown rapidly, encompassing lending to leveraged buyouts as well as infrastructure, data centre development, and energy projects. The sector now represents a significant portion of global private credit activity, which is estimated to exceed $2tn in total assets.
Despite recent investor redemptions in some retail-facing funds, market participants argue that underwriting quality remains broadly stable and that problem loans remain limited across diversified portfolios.
Ares, one of the most established players in European private credit, continues to see strong inflows into its regional funds, with approximately $90 billion in assets under management in Europe. The firm has reported continued demand from institutional investors even amid broader market volatility.
European regulators have increasingly signalled that private credit is entering a phase of closer supervision as its scale and systemic relevance grow. European Central Bank supervisory vice-chair Frank Elderson has previously noted that the sector merits monitoring due to its rapid expansion and increasing role in corporate financing.
Officials suggest that while the industry may not yet pose systemic risks on the scale of past financial crises, its growing linkages to insurers, pension funds, and banks could amplify vulnerabilities if market conditions deteriorate.
The proposed inquiry reflects a broader regulatory trend of “catching up” with non-bank lending markets, as policymakers seek to ensure oversight keeps pace with the shift of credit intermediation away from traditional banking channels.
If launched, the review would aim to assess whether additional safeguards or regulatory adjustments are needed to manage risks without constraining the sector’s role in financing European economic growth.
