News Digest: European Union sets stricter rules around private credit

February 20, 2024

News Digest:

Private credit funds operating in Europe would be governed henceforth by a set of stricter rules proposed by the EU over increasing concerns around their potential risks. Governments are set to sign off a regulatory update for managers of alternative investments, says a report.

These include caps on leverage for private credit funds and other restrictions that market analysts believe could be tough on the business. Private credit asset managers in the US and Europe are already subject to guide rails for funds available to retail investors. The new rules will set standards for funds aimed at professional investors as well.



The EU’s new directive, which will be voted next by member governments on Wednesday, would introduce a cap on leverage for closed-ended loan origination funds of 300% of their net asset value, with that level falling to 175% for open-ended vehicles. It will also require funds to retain 5% of the value of each loan they originate and diversify their risks and limit exposures if the borrower is a financial institution.

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