Andrew Palmer, CIO of the Maryland State Retirement & Pension System, thinks that the growing size of the private credit market may invite more regulation.
"I think the SEC's going to look at [the private credit market] because now it's big," Palmer said Tuesday at the Council of Institutional Investors' spring conference in Washington.
"I think there's going to be some more regulation here," he added in a panel discussion titled "The Promise and Peril of Private Credit."
The Maryland State Retirement and Pension System recently disclosed a $35 million commitment to GraMex Investment Holdings, an emerging-markets private credit co-investment associated with Gramercy Funds Management. The fund also previously committed $150 million to Gramercy Capital Solutions Fund III, an emerging-markets private credit fund, earlier in 2023.
In November, Sens. Sherrod Brown, D-Ohio, and Jack Reed, D-R.I., who serve as chair and a member of the Senate Banking Committee, respectively, urged federal regulators to monitor risks that the private credit market may pose to the financial system, as they said there is a lack of regulatory oversight.
"Troublingly, there is insufficient insight into the private credit market's key features, including loan terms, lenders' funding structures and borrowers' financial health," the senators wrote in a Nov. 29 letter to Federal Reserve Vice Chair Michael Barr, Federal Deposit Insurance Corp. Chair Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu.
Andrew Watt, managing director at S&P Global Ratings, said on the panel that while S&P doesn't view private credit as an emerging systemic risk, "We do believe the lack of transparency is a bit of an issue."
Palmer agreed that private credit doesn't pose a systemic risk but said it presents "a portfolio risk [or] a performance risk."
Watt also expressed concern about the fast growth of private credit.
"When you see a lot of appetite for growth in an area, sometimes the discipline is not quite there yet," Watt said, and Palmer agreed.
Ultimately, Palmer suggested, "If you're a long-horizon investor with adequate liquidity, I think [private credit is] something you should be looking at … [as long as] you have the staffing [or] the team available to do the diligence work you need to do."