October 1, 2023MFA Report
Primer: What is private credit direct lending?
Fueling Small and Midsize Business Growth
Private Credit
What is private credit?
Private credit refers to capital that private funds loan to businesses through direct lending or structured finance arrangements. Private credit is an important part of U.S. and European capital markets, providing vital funding to businesses of all sizes. It also provides diversified returns to investors, which include pensions, foundations, and endowments.
Regulation:
In the U.S., regulatory oversight is shared among:
- SEC: Advisers to private credit funds under the Investment Advisers Act; many file Form PF.
- CFTC: When derivatives are involved or for funds registered as CPO/CTA (Form PF joint filings).
- State regulators: Adviser registration for smaller advisers; nonbank lending and usury licensing.
- Federal banking regulators (Fed/OCC/FDIC): Supervise banks’ exposures to private credit.
- FSOC/Fed/GAO: Monitor market-wide risks, including potential systemic risk.
Types of private credit include:
Key resources
Key resources
October 17, 2024MFA Report
White paper: Private credit data is readily available and fit for purpose
October 3, 2024MFA Report
Primer: Introduction to significant risk transfers
October 28, 2023MFA Report
Primer: What are collateralized loan obligations?
October 25, 2023MFA Report
The Rise of Private Credit
October 1, 2023MFA Report
Primer: What are syndicated loans?
October 1, 2023MFA Report
Primer: What is private credit direct lending?
Who benefits from private credit?
Private credit provides much-needed capital to companies of all sizes, enabling businesses to hire and retain talent, invest in long-term projects, conduct research and development, and build facilities. It also serves as a stabilizing force for the U.S. economy, aiding businesses in all market conditions. This is in contrast to banks and other traditional lending institutions, which historically have withdrawn or ceased to issue financing during periods of market stress, such as the onset of the COVID-19 pandemic or the Global Financial Crisis (GFC).
Unlike banks and other traditional lending institutions, which often pull back during stress (e.g., GFC and early COVID-19), private credit continued lending and helped fill the gap when bank capital rules constrained small- and midsize-business lending. Today, private credit provides over $1 trillion in capital to businesses of all sizes in every industry.
By the numbers: how does private credit benefit your community?
Private credit supports job creation, research and development, and economic growth in all 50 states.
The returns generated by private credit funds also help pensions, endowments, and foundations that invest in these funds to support retirement plans, academic scholarships, and numerous charitable causes.
BILLION
$
10
California
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10
New York
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10
Pennsylvania
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10
Texas
Who are the regulators that cover private credit markets?
Advisers to private credit funds are registered with and regulated by government agencies, such as the Securities and Exchange Commission (SEC) in the U.S. These funds and their managers are held to the same robust disclosure and reporting regulations as other alternative asset managers, preventing fraud and mitigating systemic risk.
| Regulator | What they cover | Applies to private credit because… |
|
SEC1 |
Investment Advisers Act; private fund advisers; Form PF |
Most private credit managers are SEC-registered advisers; many must file Form PF |
|
CFTC2 |
Derivatives oversight; joint Form PF for CPO/CTA advisers |
If a credit fund uses derivatives or has CPO/CTA registration |
|
State regulators3 |
Adviser registration (smaller advisers), lending/usury licensing |
Nonbank commercial lending and some adviser licensing are state-level |
|
Fed/OCC/FDIC4 |
Bank safety & soundness; exposures reporting |
Banks’ exposures to private credit are supervised |
| Fed/FSOC/GAO5 |
Market-wide risk monitoring |
Assess whether private credit poses systemic risk. |
Private credit is stable
Historical evidence and the structural design of private credit funds indicate that:
- Limited liquidity risk: Most funds are closed-end with multi-year investor commitments and no on-demand redemptions, which are structured to limit potential runs compared with deposit-taking banks.
- No direct government exposure: Private credit funds are not backstopped by the federal government, meaning taxpayers are not liable if funds experience losses.
- Low risk of contagion: Losses from a private credit fund are generally confined to that fund and its investors. Historical experience and fund structures suggest these losses rarely ripple across other funds or the broader financial system.
A May 2023 Fed Financial Stability Report found that private funds’ lending activities have not threatened financial stability. These findings mirrored those in a 2020 Government Accountability Office report. Private credit default rates are generally limited due to the strong debt structure, contractual provisions that minimize default, and underwriting that protects the fund, as lender, and the sophisticated institutions that are invested in the fund.
Myth vs. Fact: Private Credit Regulation & Benefits
Myth: There’s a single federal regulator for private credit.
Fact: Oversight is shared: FSOC and the Federal Reserve watch system-wide risks; the SEC regulates private fund advisers (with some CFTC involvement through Form PF); federal banking regulators supervise banks’ exposures; and states handle certain adviser registration and nonbank lending/licensing.
Myth: Private credit mainly benefits large corporations.
Fact: Private credit finances small and midsize businesses—supporting hiring, research & development, and facility investment—and also delivers diversified returns to pensions, endowments, and foundations that back retirees, scholarships, and charities.
Myth: Private credit is a systemic risk to the economy.
Fact: Private credit is not currently assessed as a systemic risk on par with deposit-taking banks. Funds lack runnable deposits and federal backstops, so losses are absorbed by investors—not taxpayers—limiting system-wide spillovers.
References
- “Private Fund Advisers,” SEC.gov, 2024.
- “CFTC Approves a Join Final Rule to Amend Form PF,” CTFC.gov, 2024.
- “State Financial Regulation 101” CSBS.org, 2023
- “Us Banking Regulators Finalize Nonbank Lending Reporting Requirements” mayerbrown.com, 2024
- “Financial Stability Report”, federalreserve.gov, 2023
Private credit in the news
Letter: Don’t use bank crisis as stalking horse to regulate credit funds
We are the voice of the global alternative asset management industry. As the authoritative voice of the industry and premier platform for networking and training,
Private Credit Doesn’t Put the Economy at Risk: Bryan Corbett
We are the voice of the global alternative asset management industry. As the authoritative voice of the industry and premier platform for networking and training,
Private Credit Firms Are Muscling Into Consumer Lending
We are the voice of the global alternative asset management industry. As the authoritative voice of the industry and premier platform for networking and training,
Learn more about how private credit supports small- and medium-sized businesses in all 50 States
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New white paper shows data on private credit direct lending available to regulators
