Credit Funds: The Year of the Regulator

We are delighted to bring you this edition of Spotlight Magazine, the content of which has come at just the right time, with it becoming increasingly apparent that we are in the midst of a global regulatory refresh of the private funds market.

Since the financial crisis, private markets and the use of leverage has grown significantly with private credit funds having ridden the wave of bank-induced liquidity and plummeting interest rates to significantly outperform the public markets and fixed income products. This success has caused an expansion of the investor base looking into private funds as a source of income, with retail investors increasingly set to ride the wave.

It was only a matter of time before this success caught the attention of the regulators. In recent months, a flurry of new rules and regulations have been put in place which primarily focus on ensuring that adequate risk management practices are in place, with the powers that be fearing how this previously untouched market may now feed back into other parts of the financial system and ensuring early stage protection for the retail market.

Our first article takes us through the new financial landscape for private funds adopted by the SEC, which according to the regulator seeks to enhance the regulation of private fund advisers and updates the existing compliance rules.

We will then travel across the Atlantic and cover the changes imposed by AIFMD II. While the introduction of AIFMD a decade ago imposed what were, at the time, substantial changes to the regulation of alternative funds, the AIFMD II text specifically hits credit funds requiring important changes to loan originating AIFs.

We will then turn from the macro to the micro and make a pit stop in Luxembourg to grab an update on ELTIF 2.0. ELTIFs are the only type of funds dedicated to long term investments that can be distributed across borders in the EU to both professional and retail investors. With the recent uptake of the retail market, our third article sets out how Luxembourg is paving the way for the rise of the ELTIF in 2024.

The rise of ESG over the last few years has provoked continued debate, with the SEC continuing to expand its remit and oversight with regards to ESG investing. Our fourth article summarises the SEC’s new proposals on advertising, disclosure practices and greenwashing, as well as the anti-ESG pushback, which seems to be simultaneously sweeping the market.

In the year of the regulator, it would be remiss of us not to devote some time and attention to those areas of the private fund market which currently remains in the shadows of the regulator. We discuss the emergence and rapid expansion of the private secondaries credit market, questioning whether it will follow in the footsteps of its big brother and will soon be subject to increased regulatory oversight.

Finally, we look at global trends in infrastructure investment, noting that the industry is pivoting towards digitisation and technology, a fast moving, and as of yet, largely unregulated asset class. We summarise the key considerations when investing in this growth market, particularly as these strategies often make for a riskier offerings, than more traditional and dare we say it, regulated investments.

We hope you enjoy this edition, and please feel free to reach out to any of our contributing authors on the topics covered.

Click here to read this edition of Spotlight: Credit Funds