Aymen Mahmoud, co-head of the London Finance, Restructuring and Special Situations Group at law firm McDermott Will & Emery, said:

“The incredible growth of private credit over the last ten years has led to increased supranational focus. It is possible that these are sentiments created by the global financial crises, a belief that earlier regulatory intervention might have staved off some of the damage caused. However, regulators should be careful not to be overzealous here – it is not the growth of an asset class that causes the damage in it, it is the actions taken in the context of that asset class. We have not yet seen meaningful examples of credit-only institutions failing for structural reasons, despite some significant economic pressures in recent years. In fact, the main instances of collapse around private capital are more regularly linked to fraud or malfeasance than poor underwriting skills.”

Steven Haywood, fund formation counsel at law firm McDermott Will & Emery, added:

“Private credit and direct lending funds in their current form arose in response to the withdrawal of readily accessible bank lending immediately post-financial crisis to mid-market companies. Credit funds as a solution to that liquidity withdrawal were in fact promoted by governments – in the UK in particular the Business Finance Partnership which was led by HM Treasury at the time. Since then, there have been multiple calls for restrictions on shadow banking. Despite that private credit funds and their lending activities remains unregulated in the UK and across much of Europe and so if there was a real issue at hand, a systemic risk, you would have expected it to be addressed by now. Essentially, private credit is not a CLO business, the asset class is different, it is increasingly mature and sophisticated in its risk assessment of borrowers. A large majority of private credit funds are not structurally leveraged and they are almost all closed-ended – and so we would expect ‘business as usual’ to continue in fund formation activity with no meaningful changes caused by the implementation of these rules.”