Two regional Fed banks to launch pilot survey of private credit market

• The survey will segment the market by borrower size: upper middle market (over $100M EBITDA), middle market ($30M-$100M EBITDA), and lower middle market (under $30M EBITDA)
• Regulators have struggled to assess private credit risks due to lack of data and inability to force disclosure from the unregulated industry
• Investor redemptions from business development companies have accelerated in 2024 amid concerns about competition, falling returns, and AI's potential impact on financed software businesses

Summary: Federal Reserve Banks to Launch Private Credit Market Survey

The Dallas and New York Federal Reserve banks will launch a pilot survey of the $1.3 trillion private credit market after Q3, with findings expected in Q1 2027. This marks a significant regulatory effort to address transparency concerns in this rapidly growing, largely unregulated sector.

Key Market Details:

The private credit market emerged after the 2008 financial crisis when traditional bank financing contracted, initially funding private equity buyouts before expanding to provide debt financing for riskier businesses. The sector has attracted substantial capital from yield-seeking investors but remains small compared to traditional banking.

Survey Structure:

The survey will segment the market into three categories based on borrower EBITDA:

• Upper middle market: >$100 million
• Middle market: $30-100 million
• Lower middle market: <$30 million

Regulatory Rationale:

Regulators have struggled to assess systemic risks posed by private credit due to limited data availability and the sector's unregulated status. The New York Fed stated the survey will provide insights into credit availability, lending standards evolution, and implications for the broader economy and monetary policy.

Market Concerns:

The sector faces growing scrutiny over lending quality and transparency. Investor redemption requests from business development companies (a type of private credit fund) have accelerated in 2024 amid concerns about increased competition, declining returns, and AI's potential disruption of software businesses they finance.

This survey represents the Fed's first major effort to systematically gather data on private credit, signaling heightened regulatory attention to shadow banking risks.