Market News
UK Scrutinizes How Private Credit Lenders Value Their Holdings - BLOOMBERG
(Bloomberg) -- The UK’s Financial Conduct Authority has been questioning top private credit managers about how they assess the worth of their investments as concerns mount about loans not being effectively valued within the booming $1.7 trillion industry.
The regulator is seeking to understand the oversight and governance over the different methodologies used by private credit lenders, according to people familiar with the matter. It plans to publish its interim findings by the end of the year, one of the people said, asking not to be named when relaying private discussions.
As private credit lenders do not typically trade the debt they provide, the assets are not valued on a marked-to-market basis. Instead, it is up to the lenders to decide what their loans are worth — often with the help of an external valuation firm.
This set-up has led to worry that assets are not being consistently or accurately valued across the industry.
Top financial regulators around the globe have been voicing their concern about private credit valuations and whether lenders are hiding troubled loans. The European Central Bank has asked around a dozen lenders for more information on their private credit exposures, Bloomberg previously reported, while the Bank of England has also warned that the opaqueness of private equity valuations could jeopardize financial stability.
The discussions with the FCA are part of a broader review by the UK regulator into private markets valuations. The private credit industry participants have generally been more forthcoming with information than the regulator had initially expected, according to one of the people familiar with the matter.
As part of its latest discussions, the watchdog is seeking to understand how frequently firms assess the value of their investments as well as the roles and responsibilities of those involved in the process, the people familiar with the matter said.
A spokesperson for the FCA declined to comment.
In the aftermath of the global financial crisis, the private credit industry itself grew rapidly as regulators pressured banks to limit the type of lending that supports leveraged buyouts. In Europe, there is little public disclosures detailing asset valuations, though typically a fund’s investors would get regular updates from the fund manager.
