The growth of the private credit market will attract increased regulation, according to a report by Pensions & Investments citing Andrew Palmer, CIO of the Maryland State Retirement & Pension System, who spoke at the Council of Institutional Investors’ spring conference in Washington on Tuesday.
In a panel discussion titled ‘The Promise and Peril of Private Credit’, he said: “I think the SEC’s going to look at (the private credit market) because now it’s big. I think there’s going to be some more regulation here.”
Andrew Watt, a Managing Director at S&P Global Ratings who was also on the panel, said that while S&P Global Ratings does not view private credit as an emerging systemic risk, “we do believe the lack of transparency is a bit of an issue.” He also expressed concern about the fast growth of the private credit market, saying: “When you see a lot of appetite for growth in an area, sometimes the discipline is not quite there yet.”
Palmer agreed that private credit did not pose a systemic risk but said it presented “a portfolio risk (or) a performance risk.” He added: “If you’re a long horizon investor with adequate liquidity, I think (private credit is) something you should be looking at … (as long as) you have the staffing (or) the team available to do the diligence work you need to do.”
Maryland State Retirement and Pension System recently committed $35m to GraMex Investment Holdings, an emerging markets private credit co-investment. In 2023, they also allocated $150m to Gramercy Capital Solutions Fund III, another emerging markets private credit fund.
Last November, US Senators Sherrod Brown and Jack Reed urged regulators to monitor private credit risks, citing a lack of oversight. In a letter addressed to Michael Barr, Vice Chair of the US Federal Reserve; Martin Gruenberg, who chairs the board of the Federal Deposit Insurance Corporation; and Michael Hsu, Acting Comptroller of the Currency, they wrote: “Troublingly, there is insufficient insight into the private credit market’s key features, including loan terms, lenders’ funding structures, and borrowers’ financial health.”
