The chief credit officer of the UK’s largest retirement fund expects to see more regulatory scrutiny of the possibility of systemic risk in private credit, although she does not expect it to impact the industry’s growth.
Michela Bariletti (pictured), chief credit officer and head of global investment research at UK pension giant Phoenix Group, noted the shift of credit from highly regulated banks to less regulated managers, which she said was piquing the regulators’ attention.
She suggested that GPs could soon hear more from regulators seeking to understand whether or not certain types of investment instruments are suitable for all types of investors.
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She said that some regulators are already looking at issues such as how to ensure that a new systemic risk is not created in the system due to the potential lack of liquidity.
“I think we will hear more from regulatory bodies on their views in terms of a potential build-out of the systemic risk,” she said.
“And that is going to be interesting to see how it’s going to play out. But at this stage I don’t see it as a risk to the volume or to the outlook of the development of private credit.”
Phoenix Group classifies itself as a ‘buy and maintain’ investor with an investment horizon of up to 60 years. Approximately £10bn of the pension fund’s assets are held within illiquid strategies.
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Bariletti added that the credit market has been “fairly benign” over the past few years, particularly post-Covid, but she is mindful of the possibility of stressors to come.
“Going forward, the expectation is that there might be some stress happening, particularly on the private side,” she said. “So it’s extremely important that when you play in the space, you know what you’re doing.”
She added that a knowledge gap persists among pension investors when it comes to private credit investing, and pension investing in general.
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“There is a lack of advice that is currently in the UK market,” Bariletti noted. “There is a very small portion of the population that gets advised, and that advice is quite expensive.”
While Phoenix Group cannot provide financial advice, Bariletti said that the company is doing a lot of work to understand how it can better support its investors and close that knowledge gap.