Limit exposure of ordinary Americans’ savings to private market assets
Private credit and other private investments—also known as alternative investments—should be excluded from, or remain an extremely limited option for, most 401(k) plans. And investment plan managers and advisers should remain fully liable for any breach of fiduciary duties, without the safe harbor that the Trump administration has proposed.
Employer-provided retirement saving plans receive special tax treatment under Internal Revenue Code Section 401(k) and were created in order to promote the public policy of encouraging Americans to save for their retirement. Wages deposited in a 401(k) are not taxed until they are distributed to the employee at retirement, and employers also receive tax benefits, such as a deduction for providing matching contributions to their employees’ 401(k)s. Thus, 401(k)s provide taxpayer-subsidized benefits to both workers and their employers as the federal government forgoes taxes that otherwise would have funded other government programs and expenses.
Congress expressly created BDCs to facilitate investment of capital in private small and midsize companies, including by retail investors. As of the second quarter of 2026, nearly 10 percent of debt investments by the largest BDCs were associated with distressed borrowers, and the valuations of loans to their portfolio companies have been questioned by banks, investment firms, and others. Thus, investments in BDCs are typically high-risk and not appropriate for most 401(k) plans. Other private credit funds, as well as private equity funds and other private assets, are not fully transparent and by definition are not publicly traded; thus, they are not subject to market discipline. Allowing any of these high-risk investments in 401(k)s could end up squandering taxpayer dollars by introducing unjustified risks into taxpayer-subsidized savings and undermining the financial security of Americans’ retirement savings.
Require all private credit funds to disclose key information about themselves and the companies they finance
When shares of private credit funds are offered to ordinary investors, whether accredited, suitable under state law, or neither, the funds should provide full and fair disclosure to those investors. Such disclosures should include more granular and verifiable detail about the valuations of companies to which private credit funds loan, along with supporting data and data on the number, industry, and financial condition of companies in their portfolios. Disclosures should also include full disclosure of fees, including incentive fees, charged to investors, since such fees can consume returns. Any restrictions on redemption of shares should also be clearly disclosed and explained to investors.
While the U.S. Securities and Exchange Commission (SEC) requires publicly traded and even nontraded BDCs to make many of these disclosures, it does not require the same of private BDCs and other private credit funds. Yet the latter may take advantage of Regulation D or other securities offering exemptions to offer shares to ordinary investors, some of whom may not even qualify as accredited investors, without having to publicly register the offering or file public reports. But they should have to comply with public registration and disclosure rules when they offer shares to ordinary investors, even those who qualify as accredited. One way to do that may be to require all private credit funds to comply with the filing requirements of Form N-2, just as public BDCs do, whenever they are offering shares to ordinary investors. Alternatively, it would be reasonable to prohibit these other private credit funds from offering shares to ordinary investors entirely, since the lack of public trading of these funds’ shares, even with such disclosures, prevents the kind of price discovery upon which ordinary investors normally rely.
Where insurance companies are concerned, state insurance regulators could require the public disclosure of private credit ratings on which insurance companies’ capital requirements are based, thereby leveraging the collective knowledge of the market to assess valuations of the portfolios of the private credit funds in which those insurance companies invest.
Disclosures are the cornerstone of U.S. securities laws. The Securities Act of 1933 requires companies offering securities to the public to provide full and fair disclosure about the securities as well as the risks associated with investing in them. Likewise, the Securities Exchange Act of 1934 requires ongoing periodic reporting by companies with securities trading in public markets. This market transparency helps investors make sound investment decisions, enables other market participants to price risk, and helps public authorities police securities fraud.
The default of certain private credit portfolio companies in 2025 precipitated investor concerns about the quality of their private credit investments, including whether valuations put forth by private credit funds were reliable and whether the funds had conducted adequate due diligence. Concerns have also arisen about the future of private credit fund loans to software companies in light of the threats these software companies face due to rapid advances in artificial intelligence (AI). These concerns are compounded by the fact that many loans to software companies are coming due between now and 2029 and will need to be refinanced.
Managers of pension funds, managers and trustees of 401(k) plans and the consultants they hire, and the investment officers of insurance companies all qualify as accredited investors, but Congress should recognize that they all need adequate information to make sound decisions and that those decisions affect the millions of Americans who entrust their savings to them. Congress should also note that in some instances investment advisers’ strategies may pose risks to participants in the retirement plans they manage or to retirees whose annuities they manage. As the private credit market grows and pension funds and insurance companies invest more intensely in these funds, transparency is needed to ensure that investment decisions involving the savings of average Americans are protected from lack of transparency and the risks it can hide.
Expand financial regulators’ sight into debt owed by private business borrowers and how that debt is linked to other players in the financial system
Given the complexity and interconnectedness of today’s financial system and the growth of largely opaque private markets, it is increasingly difficult for financial regulators to monitor the web of credit risk in the financial system. Both traditional banks and private credit funds should be accountable for providing information that financial regulators need to monitor those risks.
Require more detailed information about private credit linkages in bank call reports
One source that financial regulators use to assess risk in the financial system is banks’ quarterly call reports. Banks should be required to provide more detail on the private credit funds to which they loan, including information about the loan portfolios of those funds and any other direct or indirect linkages the bank has to private credit funds, including loans that the bank may have to the funds’ major investors.
Require private credit funds to file confidential reports with the Federal Reserve
To assist banking regulators in carrying out their statutory duties, Congress should require private credit funds (including BDCs) to confidentially report on a quarterly basis to the Federal Reserve information needed to assess risks to regulated banks and to the financial system as a whole. This reporting generally should include private credit funds’ connections to private equity funds, insurance companies, and other nonbank institutions; credit lines that private credit funds have with regulated banks; and basic information about the funds’ loans to private companies. This reporting should be required of all private credit funds regardless of size or structure, but the details and process could be scaled depending on the size of the fund. In particular, Congress should require more extensive information from the larger private credit funds—for example, those with assets of $10 billion or more. Finally, as they do with traditional banks, financial regulators should be required to report to Congress on a regular basis their assessment of private credit risks beyond those directly connected to traditional banks.
Regulators need insight into private credit funds to monitor the financial system effectively
While bank regulators have monitored risks faced by individual institutions since the 1860s, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act established the Financial Stability Oversight Council (FSOC) to identify and reduce risks across the financial system. As private markets, including private credit funds, continue to grow, the potential is growing for financial regulators to develop blind spots.
The Federal Reserve regularly researches and monitors data on many aspects of the financial system and creates financial accounts—a set of statistics that tracks the flow of money through the economy, including who holds that money. These statistics are released quarterly. As the financial system becomes more complex, the Fed must update these accounts to avoid any gaps that are created in its map of the financial system.
U.S. bank loans to nondepository financial institutions—or shadow banks—had grown to $1.2 trillion as of June 2025, about $300 billion of which was to private credit providers, which include private credit and private equity funds that in turn make loans to private companies—up from about $10 billion in 2013. Those private fund borrowers are interconnected with other private equity firms, insurance companies, and asset managers. As more capital flows into these funds and more private company debt migrates to these darker corners of the financial system, private credit funds’ underwriting standards may be deteriorating. The FSOC reported that default rates among companies that have received private credit loans totaled 5.5 percent in the second quarter of 2025, compared with 3.8 percent and 1.3 percent for leveraged loans and high-yield bonds, respectively.
Because loans are often a bank’s largest asset class, default by borrowers or counterparties is perhaps the greatest risk that most banks face. Thus, they are required to provide important information on a quarterly basis in call reports to financial regulators about their assets and liabilities, which include the loans they make and receive. The Federal Reserve includes the information in these call reports in the data it uses to create the financial accounts for monitoring financial stability.
In 2026, the Federal Reserve revised their financial accounts to better integrate private credit. They used data obtained from a new federal requirement as of the fourth quarter of 2024 for banks to include private credit they have extended in aggregate reporting to regulators on loans to shadow banks. But disaggregated details about private credit loans are not required to be provided in these disclosures. Moreover, the other sources of the data the Fed uses also may not be reliable or complete. For example, the Fed relies heavily on Form PF, which investment advisers registered with the U.S. Securities and Exchange Commission (SEC) are required to file. Yet as even the Fed has acknowledged, details of private debt are not explicitly identified in this form, and many private funds provide limited information on it or do not file it at all. In 2024, the SEC and the Commodity Futures Trading Commission (CFTC) revised Form PF with a view toward collecting more detailed information about private funds, but those amendments were never implemented. Then, in April 2026, under the current administration, the SEC and the CFTC proposed rolling back many of those requirements and substantially reducing the number of funds required to file the form. In another example, the Fed acknowledges challenges in measuring and identifying the borrower characteristics of non-BDC private credit loans.
In opaque private markets, the detailed information needed to adequately assess risk may be difficult for banks to collect and analyze on their own. Yet banks need a comprehensive view of the potential correlations and concentrations among all these counterparties and portfolio company loans, not fragmented data or a narrow analysis of an individual loan to the fund.
For all these reasons, it is time for this rapidly growing source of credit risk—private credit funds—to provide information directly to the Federal Reserve. Experts at the Federal Reserve, the Financial Stability Board, and the International Monetary Fund, as well as other financial experts, have all noted the vulnerabilities of private credit funds and the need for more transparency and supervision as the sector grows. In order for bank regulators to supervise individual banks for adequate risk management and to determine the potential for risk to the financial system, they need a more comprehensive map of the types of credit and counterparties linked, directly or indirectly, to banks’ activities and to the financial system as a whole. As a recent Financial Stability Board report stated, without this type of information, investors and other stakeholders “may only have partial information and understanding of correlations and concentrations” across loan portfolios and markets. This suggests that risks may be mispriced and that vulnerabilities may go undetected. Bank regulators responsible for monitoring and warding off threats to the stability of the financial system cannot do their job if a large segment of the potential credit risk is hidden from view.
Require regulators to investigate conflicts of interest among private credit funds and private credit rating agencies, and require public disclosure of private credit ratings when ordinary Americans’ savings are at risk
The SEC should investigate and report to Congress on the potential conflicts of interest in the private credit industry as a whole and the credit rating agencies that provide ratings of their portfolio companies. In comments about private credit in an April 2026 speech, SEC Chair Paul Atkins said that “opacity in this space can be an issue” and that “valuation, transparency, and credit quality are key.” Increasing linkages between opaque private credit firms, institutional investors, and other market participants can raise concerns about conflicts of interest among the parties to a deal. Even as BDCs have grown rapidly, many BDC portfolio companies have either defaulted on their loans or sought payment-in-kind arrangements, where loan payments are deferred and added to the base loan amount. Some market experts and policymakers have questioned whether the valuations of those companies were exaggerated in the first place by credit rating agencies that may have had conflicting relationships with the private credit firms seeking credit ratings or with their large investors. These kinds of relationships could exist across the private credit sector.
Regardless of potential conflicts, whenever the savings of ordinary investors are exposed directly or indirectly to private credit, private credit ratings and the methodologies on which they are based should be publicly disclosed. For example, insurance companies that administer retirement annuities and invest in private credit funds should publicly disclose related private letter ratings. State insurance regulators could mandate this for life insurers licensed in their state, as proposed by Robert Pozen, distinguished senior lecturer at the Massachusetts Institute of Technology. The National Association of Insurance Commissioners could establish a platform for posting this public information.
Especially where the savings of average Americans are at risk, public disclosure of information needed for sound investment decisions and the market discipline that results can benefit Americans and the financial system alike.
Conclusion
Addressing risks that could jeopardize Americans’ savings or lead to instability in the financial system is prudent and possible. The hard part is spotting the risks and acknowledging the need to act before it is too late. The Trump administration’s proposed rule that would further expose ordinary Americans’ savings to risky private credit and other private market assets only expands the danger. Congress can help allay the risks lurking in private credit funds through straightforward statutory measures that enable regulators to see into the linkages between traditional banks and shadow banks and that provide essential transparency to protect the savings of ordinary Americans.