Private credit’s push into 401(k) retirement accounts could be slowed by the Democrats’ capture of Congress in the US midterms, while scrutiny of the sector and its role in financing the AI infrastructure boom could also intensify.

Over the past two years, the Trump administration has pushed through changes with little resistance from a Republican-controlled Congress.

For private credit, the administration has sought to widen access to 401(k) retirement accounts. Alternative asset managers have since seized on the shift, launching new products and striking partnerships to tap the near-$14tn (£10.5tn) market.

This week, the Democrats won control of both chambers of Congress in a midterm landslide, flipping historically Republican states such as Kansas and Texas.

Robert Wolfe, CFP, CBEC, managing director at Apollon Wealth Management, told Alternative Credit Investor that the results would mostly affect how fast retail access moves, by which route and under how much scrutiny, but are unlikely to decide whether it happens.

“The simplest way I’d put it: the midterms changed the referees, not the rulebook,” he said.

Wolfe said there are two routes into the retail market and politics only reaches one of them. The wealth channel, which covers evergreen, interval and non-traded BDC vehicles sold through advisers, “runs under existing SEC rules and I would expect it to continue to be largely insulated from Congress”.

“The 401(k) door is the exposed one, because it depends on the Labor Department’s fiduciary safe harbor [rule], which is still a proposal,” he added.

With a new Congress seated in January, Wolfe said he expected the department to push hard to finalise the rule before the end of the year. Congress could not easily undo a final rule, he said, because a Congressional Review Act disapproval would face a presidential veto.

“But plan sponsors don’t adopt just because a new favourable rule exists,” Wolfe said. “I believe they would most likely adopt because they believe it will still exist in 2029 and beyond.

“A safe harbor that could be reversed after 2028 could look a lot less safe to a fiduciary committee, and those committees are the real gatekeepers.”

It comes as Elizabeth Warren, the Democratic senator for Massachusetts, has repeatedly called on the Treasury Department and other financial regulators to stress test the private credit market, citing its opacity, its ties to banks and insurers, and the risk to retirement savers.

Read more: SEC opens door further to retail private credit push

AI scrutiny 

The Democrats’ success could also add to pressure for greater scrutiny and regulation of private credit’s growing role in financing the AI infrastructure boom.

“Democrats are likely to take a more interventionist approach to regulation, and there could be renewed calls for greater transparency around lending practices, valuations and the risks building up outside the traditional banking system,” Susannah Streeter, chief investment strategist at Wealth Club, told ACI.

“This is particularly relevant given that some of the enormous data centre build-out underpinning the AI revolution is being propelled by debt issuance, including borrowing through private credit markets.”

Anant Kumar, global investment strategist at Benefit Street Partners, also struck a cautious note: “If the election results slow or complicate federal support for data centre construction, including energy infrastructure and permitting, that could affect one of the biggest sources of new credit demand.”

One potential positive for private credit is the inflation outlook. Oil prices have fallen sharply this week as traders bet the Democrats’ sweep will increase pressure on the White House to end the war in Iran.

However, some have warned that a divided government could make it harder to tackle the fiscal deficits that are helping to keep inflation and long-term borrowing costs elevated.

Read more: The AI build-out frenzy