The U.S. Treasury Department plans to hold discussions with insurance regulators over instability in the private credit market. The move is drawing attention as the government has stepped in directly to address concerns raised by parts of the private sector. In particular, money invested in private credit through individual pensions and retirement accounts such as 401(k) plans is expected to be on the agenda.
Reuters reported on Thursday, citing sources, that the Treasury will convene a meeting with domestic and international insurance regulators within weeks. "The first meeting date will be announced as early as June 1," an official said. "Since January, Treasury Secretary Scott Bessent has planned regular, ongoing consultations with insurance regulators in the second quarter."
Concerns over liquidity, transparency and lending regulations have recently rattled investor sentiment in the $2 trillion private credit market. Some private credit fund investors have requested redemptions equivalent to 5% to 11% of fund assets. Managers scrambling to meet the surge in requests have either capped redemptions at half or sold fund assets outright to return investor capital.
At the upcoming meeting, Treasury officials will hear assessments from insurance regulators on the rise in borrowing to secure fund capital, inconsistencies in private credit ratings, the use of offshore reinsurance and industry-wide liquidity in private credit funds. The Treasury and regulators will determine next steps based on the meeting's outcome. Regulators also plan to develop measures to enhance supervisory transparency over the private credit industry. Insurance regulatory bodies from all 50 U.S. states are expected to participate.
Bessent, a former hedge fund manager, said at the Dallas Economic Club in February that "the Treasury steps in" when assets move from private credit fund managers — which face lighter regulation — to regulated financial institutions such as pensions, banks and captive insurance companies affiliated with financial groups.
"It concerns me to watch how this affects the regulated financial system," he added, referring to the potential fallout when problems previously hidden at private fund managers come to light through oversight of banks and insurers that invested in them.
He noted that private credit helped fill funding gaps both when regulators tightened controls on banks after the 2008 financial crisis and when bank lending froze during the pandemic. Still, he said he wanted to verify how carefully fund managers have managed their borrower companies.
"I want to gauge what impact this could have on the broader economy," Bessent said. "So far the impact has been mixed, but I want to prevent contagion effects on the regulated system and contain any losses."
Bessent said individual investors should be able to access private credit funds through their pensions and 401(k) retirement accounts. However, he warned that "the Trump administration will not tolerate American workers' savings and investment accounts becoming a 'dumping ground' for 'junk assets.'"