Exclusive: Stricter rules are top risk for industry, say COOs
Tougher regulation is seen as the top risk facing the alternative credit industry by senior operational executives, an exclusive survey by Alternative Credit Investor can reveal.
The survey, conducted at the Alternative Credit Investor COO Summit last month, found that the regulatory climate was most commonly cited as one of the top three key risks facing the sector.
Macroeconomic conditions and the interest rate environment came joint second, followed by rising default rates and reputational risk.
The Alternative Credit Investor COO Summit took place on 15-16 May 2025 at Chewton Glen Hotel & Spa, bringing together senior operational executives from a range of alternative credit fund managers to share valuable insights.
Most respondents – mainly holding the chief operating officer and chief financial officer titles – predicted that default rates will “increase slightly” across the industry over the next 12 months.
The industry’s push into the retail space has also raised concerns. Survey respondents unanimously said that this expansion presents operational challenges. They cited hurdles including liquidity management, drag on performance, reputation risk, education and compliance.
“It is not surprising that stricter rules are seen as a key risk by the industry’s senior operational leaders, given that regulators on both sides of the Atlantic have been vocal about the need to tighten oversight of the market,” said Suzie Neuwirth, founder and editor-in-chief of Alternative Credit Investor.
“The macroeconomic climate is also a worry, amid continued US policy uncertainty. It will be interesting to see how this plays out, potentially dampening M&A activity and fundraising.”
The alternative credit space has attracted increasing regulatory scrutiny in recent times, with watchdogs citing concerns over opacity of valuations and default rates.
The UK’s Financial Conduct Authority (FCA) has conducted a review into private markets valuations which found room for improvement.
And the EU’s revised Alternative Investment Fund Managers Directive (AIFMD) incorporates rules for loan origination funds for the first time, meaning that private credit fund managers will need to comply with stricter requirements.
“The private credit industry is understandably concerned about the risks posed by the current and upcoming regulatory environment for loan originating funds,” said Matthew Keogh, investment funds partner at Linklaters.
“Increased compliance and operational costs will add barriers to entry for new participants and increase fund expenses which will be borne by investors and affect sponsor performance; more restrictive rules on the use of leverage and risk retention requirements could reduce capital flexibility, reducing available returns to investors in comparison to non-EU competitors and potentially affecting capital available for borrowers; restrictions applied to open ended funds will increase structuring uncertainty, especially for the new generation of hybrid evergreen funds and semi liquid products, potentially reducing the range of products in the market; certain lending restrictions could hamper the growth of fintech credit platforms and stifle related innovation.
“Industry participants are keen for a proportionate approach to new regulation which balances appropriate investor protection with the need to maintain competitiveness and foster continued growth in this important area of the market.”
Read more: Room for improvement? Special report on valuations
However, some legal experts suggested that there may be benefits from the increased regulation.
Simon Crown, partner at Clifford Chance, said that the revised AIFMD “will open up the market for non-bank lending to EU borrowers, even if that does come at a cost (e.g. leverage limits).” He also noted that the EU framework will not apply in the UK and said that the FCA’s proposed reforms aim “to streamline the framework rather than tighten it.”
White & Case partner Gareth Eagles, head of private credit and direct lending, added: “The regulatory landscape is as critical to alternative credit as it is to broader asset management, and it is as critical to broader asset management as it is to all other industries, but that is not a cause for worry or alarm. Alternative credit has demonstrated solid alignment with corporate and wider economic interests and so one should expect regulation, and regulators, to support its continued growth and development.”
