USA – ILLINOIS Trends and Developments Contributed by: Beth Vogel, Mayer Brown
Regulation The Securities and Exchange Commission (SEC) already plays a key role in regulating private credit through its oversight of private funds and the implementation of rules surrounding inves - tor protections, transparency and disclosure. The SEC’s rules require private credit funds to register as investment advisers under the Invest - ment Advisers Act of 1940 if they manage more than USD100 million in assets. This registra - tion mandates certain reporting and disclosure requirements, which help increase transparency and provide investors with greater insight into the fund’s activities. The Federal Reserve and the Department of the Treasury also monitor the potential systemic risks posed by the private credit market, especially in times of economic stress. However, private credit funds are subject to significantly less regulation than traditional banks that make loans and there have been rumours of additional regulation being applied to private credit funds to protect investors in the asset class. As private credit funds increase the number of retail dollars under management, regulators may take a closer look at regulations designed to protect less sophisticated inves - tors in the asset class. Potential changes are the imposition of more comprehensive disclosure by private credit funds, including detailed informa - tion about their portfolios, risk exposures and investment strategies, as well as more details on valuation of their assets. There has also been talk of limiting excess leverage and requiring suf - ficient capital buffers, similar to what is currently required by traditional banks. It is unclear wheth - er any of these types of regulations will actually be implemented, as regulators want to protect investors and protect financial stability, but they don’t want to limit innovation or the growth of the market.
ate runs on the funds if investors exit en masse and fund managers can’t sell their investments fast enough to pay out redemptions. Open-end funds In an open-end structure, investors can buy or sell shares in the fund at any time, and the private credit manager adjusts the investment portfolio as needed. These funds may offer more liquidity compared to closed-end funds, but they also have certain restrictions on trading, such as redemption fees or limits on withdrawal amounts. ETFs In early 2025, the first private credit focused exchange-traded funds (ETFs) started to public - ly trade with additional asset managers filing to register similar products. ETFs were historically not used for private credit funds as ETFs are required to invest in liquid assets, to allow for fre - quent trades and flexibility by investors, but that has changed in recent months. ETFs can either invest in other listed instruments that focus on private credit, like BDCs or collateralised loan obligations, or, as has started to happen more recently, hold the private credit investments directly. For the latter, recent filings have pro - posed that asset managers will offer the assets to the ETF and also agree to buy them back at the request of the ETF. Concerns have been raised overwhether these assets are truly liquid and how retail investors can easily withdraw funds from an ETF with a large concentration of illiquid assets. There is not yet enough informa - tion to determine how the liquidity question will play out as the ETF matures. These structures have also raised additional concerns over the valuation risk referenced above and the risk to investors of holding an ETF with private credit assets that are not easily valued.
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