<\/p>\n
A second Trump administration is likely to break with its predecessor on private credit regulation, turning the focus away from enhanced disclosure requirements, according to Moody\u2019s Ratings.<\/p>\n
US banks face enhanced disclosure requirements starting this year, such as reporting unused lending commitments and disclosures about private credit loans.<\/p>\n
The new administration may shift priorities toward \u201creassessing the existing regulatory framework, with a focus on capital formation,\u201d according to a 2025 private credit outlook report from Moody\u2019s.<\/p>\n
One potential regulatory move flagged by the Moody\u2019s analysts would be a change to the definition of \u201caccredited investor\u201d at the SEC. Under President Trump, the SEC could broaden the definition to allow retail investors greater access to private markets, potentially creating fundraising opportunities for private credit firms.<\/p>\n
The ratings agency forecast that private credit\u2019s focus on retail investors would intensify in 2025. Already, retail private debt AUM is growing at a faster pace than institutional AUM, although it\u2019s still less than 20% of total private debt AUM, Moody\u2019s said.<\/p>\n
Moody\u2019s warned of potential risks for retail investors due to illiquidity and shorter investment horizons.<\/p>\n
\u201cPrivate market illiquidity, which suits institutional investors with long-term horizons, poses risks when applied to retail-focused ETFs, potentially leading to liquidity mismatches and underperformance during market stress,\u201d the report said.<\/p>\n
\u201cPrivate assets require a long-term investment horizon that is often matched with institutional investors\u2019 long-dated liabilities, such as life insurers\u2019 payouts or asset managers\u2019 long-dated lockup periods for their investors. Private assets have thrived, in part, on these structural features that prevent investors from redeeming their investments on short notice.\u201d<\/p>\n
In its outlook, Moody\u2019s also forecast significant growth in private credit\u2019s asset-backed finance activity, which has drawn in alternative asset managers looking for bigger returns.<\/p>\n
Moody\u2019s forecast \u201cat least\u201d $1 trillion in private credit asset-backed finance origination over the next five years, funded by insurance investments, dedicated ABF funds, and banking partnerships.<\/p>\n
\u201cWhile ABF is not new to private credit, managers are focusing more intently on new opportunities such as data centers, where financing demand is soaring,\u201d said Moody\u2019s.<\/p>\n
The analysts said they expect partnership formation between private lenders and banks will continue in 2025, driving the ABF push, \u201cbut the large banks will also make it a strategic priority to further scale up the private credit investment capabilities within their asset management businesses.\u201d<\/p>\n
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