The US Government Accountability Office (GAO) is set to assess the systemic risks posed by the $1.7tn private credit sector, highlighting growing regulatory scrutiny of the industry that has become an increasingly important source of financing for PE-backed companies, according to a report by Bloomberg.
The review, requested by Senators Elizabeth Warren and Jack Reed, is expected to produce a draft report this spring. It will examine the sector’s interconnectedness with the broader financial system and evaluate how federal agencies monitor and mitigate risks to financial stability.
Private credit funds have surged in popularity with private equity sponsors as a flexible alternative to traditional bank lending, enabling leveraged buyouts, growth capital, and opportunistic deals. The GAO’s assessment will include interviews with federal regulators, market participants, banks, investors, and credit rating agencies.
Concerns over the potential overvaluation of private credit instruments have intensified, with lawmakers questioning whether some ratings agencies may be inflating assessments of private debt. In July, Senator Warren sent letters to several rating firms seeking clarity on their methodologies for evaluating private credit.
