By Bill Alpert
Europe's systemic risk overseer is considering an inquiry into private-credit investing, with an eye toward any risks those loans may pose to the European Union's financial system.
Individual investors have crowded the exits of funds that lend to private equity buyouts, and market overseers in the U.S. and the U.K. say they are examining that half trillion dollar piece of the private credit industry. Europe is newer to such leveraged buyouts, but the zone has become an important growth area for credit fund managers like Ares Management, Blackstone, KKR, and BlackRock.
The European Systemic Risk Board Advisory is contemplating whether private credit's recent perturbations merit study, Barron's has learned from Richard Portes, an economics professor at the London School of Economics, who is a scientific advisor to the board.
"It's still in the committee room," says Portes. "But I'm quite sure that we will go ahead with a significant exercise."
Portes says that the debt loads at credit funds don't seem extreme, and he believes their issues are unlikely to trigger the sort of financial crisis seen in 2008. But the funds get most of their capital from insurers, pension funds and banks.
"Those of us who work on financial stability issues...we worry about leverage and interconnection," he says. "The leverage appears not to be very high in this sector, but the interconnections are very substantial."
Loans for leveraged buyouts helped launch the U.S. private credit industry. Now they comprise just a part of the $2 trillion lent by credit funds to investment grade borrowers, data center builders and power companies. And despite redemptions by some individual investors, buyout lenders say that problem loans remain rare in their diverse portfolios.
The funds for European buyout loans are relatively young at BlackRock and KKR, but Ares is well established in the euro zone. Investment inflows at Ares' European funds were surprisingly strong in the March quarter, said CEO Michael Arougheti on the recent earnings call. The firm now manages about $90 billion in those funds.
But private credit is growing fast in the EU, and now bears watching, said Frank Elderson, the vice chair of the European Central Bank's supervisory board, in an interview last month.
Credit funds stepped in to make the loans that banks avoided, after banks became better regulated in the wake of the financial crisis, Professor Porters tells Barron's. If Europe find that it needs to regulate private credit, it has the requisite powers, he said.
"Europe tends to catch up with the U.S.," Portes says." We're trying to move ahead of the wave and eliminate any excesses."
Write to Bill Alpert at william.alpert@barrons.com
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(END) Dow Jones Newswires
May 14, 2026 15:40 ET (19:40 GMT)
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