The US Treasury Department is moving to address concerns over the private credit market in coordination with insurance regulators. The initiative stems from worries that retirement pension assets are being funneled into private credit funds through insurers, potentially affecting ordinary individual plan participants.
Treasury Secretary Scott Bessent plans to launch regular meetings between the Treasury and insurance regulators starting in the second quarter of this year, Reuters reported on the 29th (local time). The meetings will focus on separate borrowing used to boost fund returns, credit ratings of private credit, use of offshore reinsurance, and liquidity of private credit investments. Reuters reported that the schedule for the regular meetings could be announced as early as next month.
Bessent, a former hedge fund manager, said in a February speech at the Dallas Economic Club, "When assets from private credit managers migrate to regulated financial institutions such as pension funds, banks, and insurers, the Treasury will step in." He added, "I want to make sure they have been prudent in managing their loan portfolios."
He specifically warned, "Individuals should be able to access private credit assets through pensions or 401(k) retirement plans, but the Treasury will regulate that process." He added, "The Donald Trump administration will not allow American workers' savings and investment accounts to become a dumping ground for 'rotten' assets."
The 401(k), a flagship US retirement plan, often invests in funds managed by stable insurance companies. Many large US insurers are affiliates of private credit fund managers, and until recent problems emerged, private credit was classified as a stable product yielding 10%, leading many non-affiliated insurers to invest as well.
The US private credit market has tripled since 2015 to reach $1.3 trillion (approximately 1,970 trillion won), according to PitchBook. Private credit funds, which raise capital primarily from institutional investors and high-net-worth individuals to lend to low-credit companies, have not been subject to regulation by the Securities and Exchange Commission (SEC) or the Federal Reserve.
A particular concern is that private credit funds have borrowed separately from banks, beyond their fund capital, to boost returns. Through the "synthetic risk transfer (SRT)" structure, a fund borrows from one bank while taking on the credit risk of another bank. The International Monetary Fund (IMF) has estimated that SRT has been used to transfer risk on approximately $1 trillion (approximately 1,516 trillion won) in private credit assets globally. If borrowing companies collapse, losses could spread to private credit funds, banks, and other transaction participants.
Meanwhile, distressed asset funds view the current situation as the best investment opportunity since the 2008 financial crisis. Companies' weakening debt repayment capacity is pushing loan assets onto the market at discounted prices. John Aylward, founder of Soni Asset Management, said, "Capital outflows from private credit funds due to redemption requests have reached a tipping point," adding that "forced selling by managers will create opportunities."
