News Digest: EU tightens regulations on leverage of private funds
July 25, 2023
The European Union (EU) has decided to clamp down on the fast growing $1.5 trillion private credit market with a new set of rules that seeks to curb leverage and reduce the risks to financial stability, a published report says.
Under the new laws agreed by member states, private debt funds will need to restrict the amount of borrowed money they can invest. Open-ended credit funds that are more liquid than traditional private credit funds, will also be subject to the new restrictions.
The new rules were finalized recently after almost five months of deliberations. While these have not yet been formally published, analysts say this marks a significant ramping up of regulatory oversight around a relatively opaque asset class that’s seen significant growth in the wake of the global financial crisis. Private credit includes a range of strategies such as direct lending for leveraged buyouts and lending to distressed businesses, with the market being monopolized by Wall Street companies.