The Alternative Credit Council – Written evidence (PMG0014)

The Alternative Credit Council[1], the private credit affiliate of The Alternative Investment Management Association Ltd (“AIMA”)[2] welcomes the opportunity to respond to the call for evidence[3] into the growth of private markets in the UK following reforms introduced after 2008. We welcome the interest in private markets by the House of Lords’ Financial Services Regulation Committee (“the Committee”) and the opportunity to highlight the positive contribution of private credit to the economy of the UK, as well as its relationship with the banking sector.

We have responded to the specific questions where the Committee is seeking evidence but would highlight the following key points from our submission:

 

 

 

 

 

 

 

 

 

 

As with any segment of the financial markets, private credit involves risk. It also offers distinct advantages that contribute meaningfully to economic growth and the overall resilience of the financial system. Our data and that made available by other providers offers helpful insights on how private credit funds manage potential risks, the importance of private credit to UK businesses as well as the changing nature of the credit markets.  We are pleased to also share this with the Committee as it considers these questions.

 

We would be happy to elaborate further on any of the points raised in this letter or our response to the questions raised in the call for evidence which are provided in the annex below.

 

 

 

 

 

 

 

 

 

 

 

 

 

Annex – ACC response to call for evidence questions

 

1.    Has bank lending to the real economy in the UK reduced as a proportion of the total volume of finance provided annually since 2008? If so, to what extent can this change be attributed to the reforms to the UK’s regulation of bank capital and liquidity requirements? To what extent has any reduction led to an increase in finance by private markets?

 

Yes. Decreases in bank lending to the real economy have been evident in the UK[4], US, Europe and many other markets around the globe[5]. While the reforms introduced since 2008 have undoubtedly contributed towards this decline, this trend has been evident since the 1970s in the US and other developed economies[6].

 

While others are better placed to discuss the impact of bank capital and liquidity requirements on bank lending to the real economy, we would highlight that the attractiveness of private credit over the past decades has not been solely driven by banking regulation.

 

Our research estimates that private credit funds had at least £165bn of lent capital outstanding in the UK in 2023[7].  This is based on the firms who provided data for our research and is therefore potentially a conservative estimate. This capital is a key source of finance and support for SMEs and mid-market companies, which are core parts of the economy due to the oversized role they can play in job creation and economic growth.

 

Both borrowers and investors have found great value in private credit markets. Importantly, there remains significant unmet demand for finance and liquidity amongst borrowers.  This undoubtedly stems in part from the bank retrenchment that has occurred within the credit markets, as bank appetite to lend to specific business or via product types has decreased. Private credit funds and others have stepped into this gap and provided finance that has helped UK and global businesses of all sizes grow.  The relevance of private credit for the real economy becomes even more evident considering the recent estimate that the UK has unmet investment needs of £150bn for infrastructure and scale-ups in the next five years[8].

 

 

As well as ensuring that there is more finance and liquidity available to businesses in absolute terms, private credit funds typically offer businesses a wider range of products, often tailored to the specific needs of the borrower. Some key features of the UK private credit market from the perspective of SMEs and businesses would include:

 

•         Bilateral relationships: Private credit lenders will often have a direct rather than an intermediated relationship with the businesses they are lending to. Businesses value having a single lender counterparty, and a direct relationship encourages a strong alignment of interest between borrower and lender.

 

•         Buy and hold: Private credit assets – usually loans – are generally not intended to be traded and will be held to maturity by the original lender. This is important to borrowers who may not wish for their debt to be traded to avoid a situation where the interests of their creditors are not aligned with their own.

 

•         A flexible and tailored approach: Core features of a credit agreement such as repayment terms or covenants will typically be structured to match the unique needs of the borrower. This is important for businesses which may require a more flexible approach to financing - particularly those with innovative business models, embarking on a period of growth or seeking finance during periods of market uncertainty. In addition, private credit lenders are typically able to offer greater speed and certainty of execution when providing finance.

 

These attributes can be very compelling for businesses when seeking finance. Our data on the typical size of the loans made by private credit funds highlights that these attributes are attractive to borrowers of various sizes (see Figure 1). We would also note that the UK private credit market is a competitive advantage for UK business relative to their peers in other markets that do not have access to this type of finance.

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 1: What is the typical target loan size that you make with your private credit strategy? (Source: Financing the Economy 2023)

 

A graph of blue and black bars Description automatically generated

A second driver of private credit’s growth has been its attractiveness to investors, who have been increasing their exposure to private credit assets over the past decade. Private credit firms have offered investors attractive and consistent returns for several years, outperforming similarly positioned public credit market investments for the vast majority of them. These steady returns mattered even more during the long period of low interest rates, providing much needed income for savers, retirees and other institutional investors such as insurance companies. We would also highlight that private credit provides an important mechanism by which institutional investors and capital markets can directly support the real economy.

 

A third key element of the global and UK private markets over the past decade is that their growth has remained consistent during periods of severe economic and political challenge (see Figure 2). This suggests that the growth of the private credit market is structural rather than something driven by short-term market conditions or changes in the broader regulatory environment.

 

 

 

 

 

 

 

 

 

Figure 2: US$bn private credit capital deployment by Financing the Economy survey participants (Source: Financing the Economy 2024)

 

A graph with numbers and text Description automatically generated

 

Despite the continued growth of private credit, and some instances where private credit and banks compete directly, we believe that it has not led to private credit lenders substituting the banking sector substantially or at a structural level. The growth of private credit has primarily succeeded in providing capital to borrowers that would otherwise not be served by the banking sector or other lenders.  This means that the growth of private credit has grown the availability of capital, rather than simply taken market share from banks. A 2025 study from the US Committee on Capital Markets Regulation did not find evidence that private credit borrowing replaces traditional bank loans. Instead, it found that there is a positive relationship between private credit and bank borrowing.[9]

 

As a final consideration, we would highlight that despite the decline in bank lending and the growth of private credit, it is important to remember that private credit continues to be relatively small compared to the total sum of bank lending.  In the UK, £14tn in assets were held by banks (excluding the Bank of England) in 2022[10], which greatly surpasses all estimates for the size of private credit in the UK. Even in the more developed US market we see a similar pattern, where private credit accounted for only 6% of total lending to corporates in the US in 2024.[11]

 

2.    What interconnections exist between the UK’s banking sector and private markets? How have these interconnections changed since 2008, and how do you expect them to continue to develop?

 

There are two key areas where the UK’s banking sector and private credit interact. The first is that both private credit fund managers and banks are seeking to lend to UK borrowers.  This means that they will compete with one another in some markets, and the behaviour of each will have an impact on those markets – for example the price and terms on which finance is made available for certain deals and borrowers.  This dynamic differs across different segments of the credit markets as well as over time.  For example, the large-cap segment of the market, where both banks and private credit firms continue to be present, has shown some convergence across terms and pricing.  This effect is less pronounced in the SME and mid-market segment which find it harder to access bank financing and where private credit activity in the UK tends to be more focused. In both segments and other parts of the credit markets this competition contributes towards well-functioning markets and supports the availability of credit on competitive terms to borrowers.

 

We would also highlight that banks and private credit funds also collaborate with each other in many areas.  Private credit firms often partner with traditional banks, and many have formed partnerships to complement their different risk appetites. For example, many companies financed by private credit have obtained bank financing either prior to or during their involvement with the private credit manager. This reflects the complementary nature of capital sources, where private credit can step in to meet needs that fall outside traditional bank lending parameters—often due to regulatory constraints, sector exposure limits, or timing considerations, rather than borrower credit quality. Furthermore, companies generally seek to diversify their sources of funding and can benefit from accessing the tailored solutions that private credit managers can provide.  A further area of collaboration relates to how banks support clients seeking to invest through their private banking and wealth management businesses. Here banks are increasingly partnering with private credit managers when offering private credit products to their clients.

 

A second key relationship between banks and the private credit sector is the role of banks as lenders to private credit funds.  Banks are the primary source of finance for private credit funds, but they are not necessarily the only option that private credit funds have (see Figure 3), with many private credit funds issuing bonds or obtaining finance from other institutions. The three most common types of finance provided by banks to private credit funds are:

 

While each of these types of finance will have different characteristics and purposes for the credit funds, the bank will still apply a rigorous underwriting process before providing finance and require ongoing monitoring and reporting around the credit facility.

 

Figure 3: Who do you use as providers of leverage/financing to your funds? (respondents selected all answers that apply so total will not sum to 100%) (Source: Financing the Economy 2023)

 

A graph of a number of blue squares Description automatically generated with medium confidence

A subscription facility is a typical financing option for private credit funds in their early stages when they have yet to acquire assets or make investments. At this point, most or all of the fund’s capital commitments remain uncalled, meaning the fund has not yet requested the committed capital from its investors. This type of financing typically takes the form of a revolving credit facility, usually from a bank, where the fund can borrow and repay multiple times up to a certain limit. The borrowing base for this facility is entirely secured by the uncalled capital commitments of the fund’s investors. The primary attractiveness of subscription line financing is its ability to allow the fund to make investment opportunities quickly, without waiting for the process of capital calls from investors to conclude.

 

A key factor for a bank when determining the terms and availability of the subscription facility is the creditworthiness of the fund’s investors. Because the facility is backed by these uncalled capital commitments, banks and lenders assess the financial strength and reliability of the investors to ensure that the commitments will be honoured when called upon. Given these investors tend to be large and creditworthy institutions such as pension funds and insurance companies, these facilities are generally seen as presenting a low credit risk for lenders.

Cash flow management facilities are typically used by private credit funds to mitigate shorter term liquidity challenges that arise from the operation of their business, for example, between capital inflows and outflows that might arise in the process of originating loans, covering operating expenses, or supporting capital redemptions by investors. These facilities are typically secured against the funds’ assets and provide short-term liquidity that help private credit funds manage their business efficiently. We provide more detail on how private credit funds are subject to liquidity risk management requirements under the asset management regulatory frameworks that they operate under in our response to question 3.

Investment leverage facilities – i.e. those that support additional lending and increase a fund’s economic exposure – are typically secured against the assets of the fund.  When assessing the creditworthiness of such facilities, banks will undertake extensive due diligence on a fund’s assets as well as the fund manager.  Initial disclosure to the bank is also supported by ongoing monitoring and provisions regarding the ongoing creditworthiness of the fund assets.

 

Our research indicates that the use of investment leverage facilities is relatively modest.  A significant number of private credit funds operate without investment leverage and of those that do, the majority operate between 0—1.5 times on a debt-to-equity basis.  Our research also shows that levels of leverage have remained broadly stable over the past decade (see Figure 4). 

 

 

 

 

 

 

 

 

 

Figure 4: Time series of leverage levels in the private credit market based on responses to historic FTE surveys (Source: Financing the Economy 2024)

 

A graph of a graph with blue and black lines Description automatically generated with medium confidence

 

 

The consistency of this picture during a period of tremendous growth for the private credit market suggests that the structure and dynamics of the market do not incentivise managers to use increasing amounts of leverage. Investor appetite is the primary constraint in this respect, with many LPs continuing to allocate capital to unlevered or modestly levered strategies, in alignment with their risk appetite.

 

Providing finance to private credit funds in this manner creates a very different risk profile for a bank than if the bank was lending directly to the underlying portfolio companies.  From the perspective of a bank, lending against a pool of assets presents lower risks than if they were lending to each underlying borrower due to the diversification involved, as well as the structuring of the finance facilities which places the bank in a senior position. Recent research from KBRA has found that investment-grade rated private credit fund financing facilities, which can represent up to 3x of fund equity, would likely be able to withstand cumulative defaults of the underlying collateral at an average of 62%, assuming an average recovery rate of 58%[12]. Non-investment-grade exposures can withstand defaults at an average of 37%, assuming an average recovery rate of 57%. Both scenarios go far beyond the typical stress or default rates seen within private credit, meaning that there is significant headroom before lenders to such funds would be exposed to any risk of losses on their principal. This also highlights how the risk profile of private credit balance sheets is very different when compared to banking balance sheets. Illustrative examples of this are provided in Figures 5 and 6 below.

 

Figure 5: A typical bank balance sheet

 

A screenshot of a graph Description automatically generated

 

Figure 6: A typical private credit fund balance sheet

 

A screenshot of a chart Description automatically generated

 

While the relationship between banks and private credit funds continues to evolve, we broadly expect these key areas of the relationship to remain, and healthy competition and complementarity between the two types of institution continuing.  While it is prudent to continue monitoring this relationship, we believe that the current relationship is positive for borrowers, who have greater access to liquidity and finance options, as well as for banks who are able to support the financing of the real economy in a form which is well suited to their structure and risk appetite.

 

3.    What are the implications of the growth in private markets, and interconnections with the wider financial services sector, for lending to the real economy and the UK’s financial stability?

 

The growth of private credit has been very positive for the UK economy.  Private credit lenders have boosted the availability of capital for SMEs and the real economy and have increased liquidity in UK corporate debt markets. As noted above, our research estimates that private credit funds currently invest £165bn in UK businesses[13].  This capital is essential for the development of UK SMEs, mid-market companies, real estate, infrastructure and defence projects – all critical areas for the broader health and competitiveness of the UK economy. Furthermore, private credit provides a key investment channel for institutional investors such as pension funds and insurers to directly support the real economy, and the strength of the UK private credit market also enhances the UK’s competitiveness as a global financial centre.

 

The growth of private credit has brought a commensurate interest in how this affects the overall stability of the economy and the financial system.  With respect to the economy, there is consistent evidence that private credit supports economic resilience through the cycle.  For example, having investors with different risk appetites to banks increases the availability and diversity of capital available to businesses - particularly those seeking to grow or invest for the future.  We also see benefits during downturns or times of uncertainty, with private credit lenders being a dependable source of capital during periods of stress.  Figure 7 below shows that private credit firms continued to lend during the period of interest rate rises in 2022 while bank lending reduced, with similar patterns observed during other periods of economic uncertainty.

 

Figure 7: US Broadly Syndicated Loan and Private Credit activity during past 12 months (Source: LSTA)

A graph of a graph with blue and black bars Description automatically generated with medium confidence

 

It should be noted that there is often give and take between the private credit and bank lending markets, with borrowers moving from private credit to banks where appropriate for their needs and circumstances. Again, this suggests that having multiple providers of finance and liquidity is positive for UK businesses.

 

With respect to how the growth of private credit may affect financial stability we believe there are a few key areas that merit consideration:

 

The regulatory framework for private credit fund managers:

Private credit managers are subject to robust oversight from regulators that covers almost every aspect of their business.  While the precise framework differs depending on their location or the location of their investment it typically involves authorisation or registration as an investment or asset management business and ongoing supervision or regular reporting on the following key areas:

 

 

In addition, regulators and supervisors routinely monitor and assess how a private credit manager is managing its business and any potential risks arising from its lending activity. A private credit firm is required by law to disclose information regarding the performance of its risk management function. The current regulatory framework therefore addresses any potential issues around the conduct or underwriting practices of private credit funds when lending, or structural matters relating to how they manage their business.

 

In an increasingly competitive international market for capital, the UK needs to make itself an attractive investment destination. Government and regulators need to work closely with industry to identify and address economy-wide regulatory, fiscal and financial barriers to business growth in the UK. It is also important to ensure the UK protects its existing strengths. Work by the UK regulators on, for example, oversight of the private credit market must be proportionate and recognise the importance of private credit to UK business lending.

 

Transparency:

Private credit funds provide regular and detailed reporting to their investors on the performance of the fund and its assets. Our data indicates that three quarters of investors receive quarterly reporting and just under a quarter receive monthly reporting (Figure 8). This shows that investors in private credit receive regular reporting to support their portfolio monitoring and risk management functions. Transparency is often cited as a key consideration for investors when considering where to allocate their capital, with this dynamic supporting investors’ ability to receive the information they need for their own portfolio monitoring purposes.

 

Figure 8: How often do you report on your portfolio to your investors? (Source: Financing the Economy 2024)

A graph of a bar chart Description automatically generated with medium confidence

We would note that regulators also have good transparency into private credit from the reporting required under the existing regulatory rules at national or regional level.  While this has some shortcomings in terms of seeing a consolidated picture, we believe that this can be addressed by regulators converging on consistent reporting standards.  There is also an increasing amount of data on private credit being made available by providers across the market that ensures both supervisors and regulators are able to compare and cross reference this to gain a more accurate picture of the market.

 

Liquidity

The stable funding structures of private credit funds mean that the sector does not suffer from the type of liquidity mismatches found in traditional banking or market volatility associated with bond markets. This reduces the risk of a liquidity squeeze or funds becoming forced sellers during periods of stress. Private credit funds’ access to stable, long-term capital and the direct, proactive relationships they have with borrowers, also means they are able to provide finance and liquidity on a consistent basis.  This contrasts with other lenders who may reduce their lending activity when economic conditions deteriorate and helps ensure that borrowers have greater access to liquidity during periods of stress.

 

Private credit funds typically raise capital via long-term commitments from institutional investors which are generally aligned with the similarly long-term nature of their investments. Most private credit funds are structured as closed-ended vehicles with long-term commitments, typically 5-7 years. In such closed-ended funds, investors commit capital upfront, but such commitments are drawn down over time as investments are made. This means that unlike banks, private credit funds do not engage in significant maturity transformation which can be a key source of risk or instability. Instead, they often match the duration of their investments with their funding, reducing the risk of sudden liquidity crunches that could trigger a cascade of counterparty defaults. 

 

Some private credit funds are structured as semi-liquid or evergreen funds.  While there is no single definition of semi-liquid or evergreen fund, they typically involve structures which permit ongoing and regular subscriptions but impose limitations on the redemption rights of investors.  This distinguishes them from closed-ended funds – which typically will not take new subscriptions after the fund closes and offer no rights to redemption prior to maturity – and from open-ended funds – which will have few or no restrictions on either subscriptions or redemptions. 

 

Where private credit fund managers use semi-liquid funds, the investor liquidity provisions are typically designed to match the liquidity profile of the fund’s portfolio with the needs of the investors. This is achieved by using liquidity risk management tools, which may include some or all of the following:

 

 

Nevertheless, despite the increase in the availability of liquidity for investors in recent years (see Figure 9), it is important to note that the majority of private capital is still managed within closed-ended structures with few or no liquidity features, as seen in Figures 10 and 11.

 

 

Figure 9: What proportion of your private credit funds provide some type of liquidity to investors by allowing a right to redemption? (Source: Upcoming paper – Fund Structuring Trends in Private Credit 2025)

 

 

Figure 10: Estimated percentage of private credit assets managed within different investment structures (Source: Financing the Economy 2023)

 

A graph with numbers and a bar Description automatically generated

 

 

 

 

 

 

 

 

 

 

 

 

Figure 11: Private credit assets managed within commingled structures – estimated percentage of assets managed within open and closed-ended fund structures (Source: Financing the Economy 2023)

 

A graph of a bar chart Description automatically generated with medium confidence

Leverage:

As discussed in our earlier response to question 2, levels of leverage used by private credit fund managers remains modest and have not changed significantly during a period of significant growth.  Any lending to private credit managers by banks is also subject to the banks underwriting criteria which itself is subject to regulation and oversight by the Bank of England and its peers around the world.

 

Market Growth:

Private credit may have grown but the size of the market is also a limiting factor in any potential financial stability considerations. Our research estimates that the global market size of private credit is at least US$3tn[14].  While this is clearly significant, particularly so given the market was generally considered to be ~US$0.5tn only 10 years ago, it remains small compared to the global stock of loan assets, which is estimated to be approximately US$125tn[15].  We would also highlight that private credit funds are not integrated into the broader economy or financial system in the same way that banks are.

 

Taken together we believe that the most obvious potential challenges to the stability of the financial system arising from the growth of private credit are currently addressed through a combination of the existing regulatory framework, investor requirements and market-led practices. 

4.    How transparent are the valuations, price discovery mechanisms, and structure of ownership of assets adopted by private markets? Does the Bank of England have sufficient visibility in non-bank finance, and what changes, if any, should be made to address this?

 

Private market valuations follow international standards, including the IPEV Guidelines, relevant accounting standards and a detailed market-standard methodology for establishing fair value. Moreover, sophisticated investors scrutinise valuations and auditors ensure the valuation process is robust and delivers fair conclusions. The level of governance, scrutiny and information made available to investors around private market valuations is comparable, and in some respects, beyond that available to investors in public markets. There are also very widely adopted international standard valuation methodologies that build on accounting standards such as IFRS and GAAP. The methodologies and processes underpinning valuations are subject to regulation and annual external audits, and are undertaken at a frequency to meet the demands of investors. These sit alongside high levels of scrutiny from investors and auditors to ensure the valuation process is robust.

 

UK regulators have recently undertaken supervisory work looking at valuation practices in private markets. We would highlight to the Committee the findings of the Financial Conduct Authority’s (“FCA”) Private Markets Valuation Review, which assessed valuation practices across private equity, private credit, venture capital, and infrastructure. The FCA “were encouraged to find many examples of good practice in firms’ valuation processes, including the quality of reporting to investors, documenting valuations, using third-party valuation advisers to introduce additional independence and expertise, and consistent application of established valuation methodologies.”  While the FCA also identified some areas where firms should make improvements, we believe the industry is well-positioned to address these issues.

 

There are also other industry-led initiatives to improve valuation standards, of which AIMA’s ‘Guide to Sound Practices for Valuation of Investments’[16] is a key example.  This guide and other initiatives promote sound practices among market participants and ensure investors have the information they need. The industry is constantly evolving and refining its processes to support investor confidence in valuations. As noted in our response to earlier questions, transparency around valuations and portfolio performance is being primarily driven by LPs who increasingly demand regular valuations and external validation (see Figures 12 and 13) from their private credit managers.

 

Figure 12: How often are loans in your portfolio valued? (Source: Financing the Economy 2024)

A graph with blue and black bars Description automatically generated with medium confidence

 

Figure 13: How often do you employ external valuation expertise? (Source: Financing the Economy 2024)

 

A graph of blue and black bars Description automatically generated with medium confidence

 

While regulators, including the Bank of England, already have considerable transparency into private credit from the reporting that asset managers in their respective jurisdictions provide to them on a regular basis, as well as the explosion in coverage of private markets by data providers, a common refrain is that they lack a global view or at least a consolidated view of private credit activity in their own jurisdiction. The shortcomings of the current regulatory frameworks in this respect mean that policymakers only see part of the market – specifically that related to managers established or regulated in their jurisdiction. This limits the usefulness of this data for the purposes of financial stability monitoring because the industry deploys significant amounts of capital on a cross-border basis. This issue would be best resolved by global regulators improving convergence in reporting standards and data exchange.

 

The ACC and our members regularly share our data and market intelligence with the Bank of England and other regulators to support their understanding of private credit and help them to interpret the data they collect.  There are also now considerable amounts of data on private markets available publicly or behind paywalled private databases, which provide great insight into the market. Lastly, the Bank of England also gets considerable amounts of data from the banking sector on its exposure to private credit funds and other parts of the private markets which helps support its supervision and oversight of the financial system. 

 

5.    Are there systemic risks that the Bank of England should be aware of regarding non-bank financial intermediation? If so, how can these risks be mitigated?

 

We have highlighted the net positive impact that private credit has for overall financial stability in other parts of this response, but it is important to reiterate the different roles that private credit, other types of Non-Bank Financial Intermediation (NBFI) and banking play in the economy when considering potential systemic risk implications of private markets.

 

The term NBFI groups together a diverse range of entities – insurers, investment funds, hedge funds, private credit and private equity funds – regardless of their obvious differences in structure, position within the capital markets and key activities. We would also highlight that these entities and their markets are also subject to regulation and ongoing supervision in the UK and any other markets in which they are active within.

 

While private credit funds and other entities within the NBFI umbrella term may carry out similar activities to banks in some markets, none operate under a business model which combines retail deposit-taking, liquidity and maturity transformation, as well as high levels of leverage. Banks also play several significant roles with consumers as well as non-financial businesses – providing essential safekeeping, deposit-taking, consumer and small-business lending, corporate cash management, payments intermediation and other services. These are critical to the proper functioning of the economy that even a temporary interruption of services would have a significant negative impact on the real economy.

 

Thus, while banks are inherently systemic given their deep connections with nearly every aspect of the real economy and financial markets, private credit funds and other NBFIs have a much more limited and easily substitutable role.  As noted in our earlier comments, we also believe that the structure of private credit funds and the fund managers also mean they do not present significant systemic risks and would highlight, the Federal Reserve’s May 2023 Financial Stability Report[17]  which found that the financial stability risks of private credit “are likely limited.”

 

We believe it is important for the private credit sector to continue engaging with the Bank of England and other regulators to support their understanding of the market, as well as monitor potential emerging risks. At this stage, sharing data, market intelligence and insights is an appropriate response to the growth of private credit.

 

6.    How has demand for finance from businesses changed since 2008, and how do you expect this will develop?

 

In 2014, the National Audit Office[18] estimated that UK companies faced a finance gap of at least £22bn, with the true gap potentially much higher. More recent estimates by the City of London Corporation suggest that the UK has unmet investment needs of £150bn for infrastructure and scale-ups in the next five years[19]. 

 

The growth of private credit in the UK over recent years has been beneficial to SMEs and mid-market companies who were previously unable to access the finance they need. Many of these borrowers have financing needs that fall outside the typical risk appetite of the banking sector, despite being viable businesses. Private credit lenders with tailored underwriting procedures, or who specialise in certain business sectors, provide these borrowers with a new way to access capital. This allows these businesses to invest in their future, create jobs and compete in a global marketplace. UK SMEs and mid-market companies also benefit from there being higher and more diverse availability of financing compared to competitors in other markets that may not have access to the same financing options.

 

We would note that the value of the type of long-term finance provided by private credit funds is well recognised by both UK businesses and policymakers. The Bank of England, HM Treasury and the FCA have convened industry working groups in the past to facilitate investment in ‘productive finance’, which is defined as investment that expands productive capacity, furthers sustainable growth or makes an important contribution to the real economy.

7.    How has the regulation of bank capital and liquidity requirements affected the ability and willingness of banks to provide lending to the real economy? Are there disincentives in regulation that inhibit businesses’ ability and willingness to access finance through banks?

 

We have no comments on this question as other organisations are better placed to comment on how banking regulation impacts the ability of banks to lend.  However, we would like to highlight, as we have outlined above, that the appeal and growth of private credit has not been solely driven by changes to banking regulations. 

 

8.    To what extent do private markets have a competitive advantage over the banking sector to provide finance to businesses; if so, why? To what extent are any competitive advantages regulatory in nature?

 

The competitive advantage of private credit fund managers stems from them being able to provide loans on competitive terms to borrowers while also providing investors with attractive returns.   These features are structural, rather than regulatory in nature.

 

From the borrower’s perspective, obtaining credit through private credit lenders offers three key advantages compared to other finance providers:

 

 

 

 

 

From the perspective of investors, private credit offers considerable advantages around yield, preferences for longer-dated assets and greater portfolio diversification.  This is reflected in the increasing demand for private credit assets and growth of the market during the past decade. The ability of private credit managers to meet (or exceed) investors’ return targets over this period, alongside the relatively low volatility of the returns they are providing, has been a compelling argument for investors either looking to allocate or increase their allocation to private credit. Private credit firms have offered investors attractive and consistent returns for several years, outperforming similarly positioned public credit market investments for the vast majority of those years. These steady returns mattered even more during the long period of low interest rates, providing much needed income for savers, retirees and other institutional investors such as insurance companies.

 

In this regard, the competitive advantage is not solely regulatory in nature even though the regulation of banks has undoubtedly had an impact on their appetite to participate in certain parts of the credit market. We would also repeat our earlier comments that private credit fund managers and their activities are subject to a comprehensive regulatory framework that accounts for the characteristics of this market and the risks that their funds and activity present. As outlined above, the structure, activity and investor base of private credit funds and asset management firms generally are different to those presented by the banking sector but still subject to a rigorous regulatory framework.

 

9.    What, if any, reforms to bank capital regulation could be implemented to increase the risk appetite of the banking sector to provide lending to the real economy?

 

We have no comments on this question.

 

10.     What can the UK learn from other jurisdictions, in particular the US and the EU?

 

The US market shows the value of private credit to business growth and job creation.  Private credit is estimated to have supported 2.5 million US jobs and contributed over US$370bn to GDP in 2024[20]. In this regard, the US offers the most successful example of how capital markets can be connected to the real economy. In the UK, policymakers have already sought to replicate some elements of the US capital markets by implementing the LTAF, which is comparable to Business Development Companies (“BDCs”) in the US and should support the development of the private credit market in the UK.

 

A second area where the UK can learn from the US would be the securitisation market.  In the US this plays a more prominent role in the corporate finance markets than in the UK. If the securitisation market in the UK could achieve similar levels to those which exist in the US, this would increase the availability of finance and liquidity to UK businesses.  We believe this could be achieved through the following reforms to the UK Securitisation Framework:

 

 

 

 

 

Regarding the EU, we believe that while there are many similarities between the development of the UK and EU private credit markets, the UK market has been able to develop at a faster pace to date. One reason for this difference has been the EU regulatory framework which has made it harder for private credit firms to develop their business.  Key examples would be difficulties around cross-border lending within the EU, restrictions around lending by funds, as well as the broader impact of creditor protection regimes on investor appetite to lend in certain markets.  While the EU is seeking to address these issues, for example by updating the ELTIF Regulation and through changes to the AIFMD rules, it is unclear if such approaches would be necessary in a UK context. We would highlight that the EU has actively sought to promote the growth of private capital both at the EU and member state levels in other ways, for example, the recent proposals to reform the EU’s securitisation regulatory framework.  We believe that it is important for the UK to also reform the securitisation framework to avoid being at a disadvantage to the EU, as well as the US, market in this regard.

 

We would therefore encourage UK policymakers to focus on the UK’s existing market structures, and how any reforms can enhance its existing competitive advantages relative to the US and EU markets. The City and the financial sector play a critical role in the UK economy and private credit is becoming a more important part of the UK’s overall attractiveness to investors around the world.  It is essential for the economic growth of the UK that its financial sector remains competitive.

 

18 September 2025

 

 

27

 

[1]  The Alternative Credit Council (ACC) is a global body that represents asset management firms in the private credit and direct lending space. It currently represents 250 members that manage over $2tn of private credit assets. The ACC is an affiliate of AIMA and is governed by its own board which ultimately reports to the AIMA Council. ACC members provide an important source of funding to the economy. They provide finance to mid-market corporates, SMEs, commercial and residential real estate developments, infrastructure as well the trade and receivables business. The ACC’s core objectives are to provide guidance on policy and regulatory matters, support wider advocacy and educational efforts and generate industry research with the view to strengthening the sector's sustainability and wider economic and financial benefits. Alternative credit, private debt or direct lending funds have grown substantially in recent years and are becoming a key segment of the asset management industry. The ACC seeks to explain the value of private credit by highlighting the sector's wider economic and financial stability benefits.

[2] AIMA is the world’s largest membership association for alternative investments managers. Its membership has more firms, managing more assets than any other industry body and, through our 10 offices located around the world, we serve over 2,000 members in 60 different countries. AIMA’s mission, which includes that of its private credit affiliate, the Alternative Credit Council (ACC) is to ensure that our industry of hedge funds, private market funds and digital asset funds is always best positioned for success. Success in our industry is defined by its contribution to capital formation, economic growth, and positive outcomes for investors, while being able to operate efficiently within appropriate and proportionate regulatory frameworks. AIMA’s many peer groups, events, educational sessions, and publications, available exclusively to members, enable firms to actively refine their business practices, policies, and processes to secure their place in that success.

[3] https://committees.parliament.uk/call-for-evidence/3695/

[4] https://www.bankofengland.co.uk/speech/2024/january/lee-foulger-keynote-address-at-the-dealcatalyst-afme-european-direct-lending; https://journals.sagepub.com/doi/pdf/10.1177/002795011422800103

[5] https://www.nber.org/papers/w32176

[6] https://www.carlyle.com/sites/default/files/2024-05/Carlyle_2024_Credit_Market_Outlook.pdf

[7] See Financing the Economy 2024

[8] https://www.theglobalcity.uk/PositiveWebsite/media/Research-reports/Investor-Landscape-report.pdf

[9] https://capmktsreg.org/wp-content/uploads/2025/09/CCMR-Private-Credit-Study-2025.pdf

[10] https://researchbriefings.files.parliament.uk/documents/SN06193/SN06193.pd

[11] https://www.apolloacademy.com/private-credit-is-a-small-share-of-total-lending-to-corporates/

[12] https://www.kbra.com/publications/HszPknkq/private-credit-funds-in-picturessafety-

in-numbers

[13] See Financing the Economy 2024

[14] https://www.aima.org/compass/insights/private-credit/financing-the-economy-2024.html

[15] https://www.fsb.org/uploads/P161224.pdf.

[16] https://www.aima.org/compass/practical-guides/valuation/guide-for-valuation-of-investments.html

[17] https://www.federalreserve.gov/publications/files/financial-stability-report-20230508.pdf

[18] https://www.nao.org.uk/wp-content/uploads/2013/10/10274-001-SMEs-access-to-finance.pdf

[19] https://www.theglobalcity.uk/PositiveWebsite/media/Research-reports/Investor-Landscape-report.pdf

[20] https://www.investmentcouncil.org/new-report-private-credit-strengthens-u-s-economy-with-more-jobs-and-higher-pay-for-american-workers/