This report does not constitute a rating action.

Private capital markets are attracting more regulatory scrutiny. S&P Global Ratings thinks this is a positive development. Greater transparency could strengthen investor confidence in these fast-expanding markets, sustaining growth over the longer run.

Indicative of the regulatory trend is the 2024 consultation by the Financial Stability Board (FSB) on financial stability risks related to leverage in private capital markets. Many regional and domestic regulators have likewise been very active in 2024 and 2025 developing new regulations and engaging in market consultations.

The interest of regulators is hardly surprising. Nonbank financial institutions, or NBFIs, are significant in size--now accounting for about 50% of total global financial assets (see "Systemic Risk: Global Nonbank Financial Institutions Press Ahead," Feb. 18, 2025).

Some niches are expanding particularly fast. The global alternative investment funds (AIF) market, which includes private equity, credit, and secondary market activity, has about US$9 trillion of managed assets, according to data provider Preqin. This does not include a further US$3 trillion of capital raised but not yet spent.

Such fast growth could bring financial risks in the event of financial shocks or economic downturns. Further regulation would likely follow trends elsewhere in the financial sector where transparency or other gaps became apparent.

Banks Are Now Better Regulated. Will This Follow For NBFIs?

Banks have become less vulnerable to contagion risks following regulatory changes in in the wake of the 2008 global financial crisis. The sector now has significantly lower problem assets (see chart 1), and it's better capitalized (see chart 2) as a result of a unified effort by the global regulatory community.

Chart 1

Chart 2

Indicative of the sector's stronger standing, recent individual bank stresses remained contained. This included the 2023 Swiss-government engineered acquisition of Credit Suisse by UBS, and certain failures in the U.S. regional bank sector.

In our view, banks' underwriting and risk management criteria have tightened, and their mission, customer and product focus has narrowed over the past 15 years.

But what about NBFIs?

The architecture of the global financial services sector is becoming more fluid and progressively expanding beyond banks, and we believe this trend is likely to continue. Growth has been particularly strong in NBFI subsectors that focus on funds in their various forms (see chart 3).

Investment funds continue to expand in the low double-digits. Furthermore, investment funds, pension funds and insurance companies collectively now account for the majority of NBFI assets.

Chart 3

Asset managers now are the largest financial institutions globally. Behemoth asset managers BlackRock and Vanguard collectively manage more than US$20 trillion in assets. Management of capital is now concentrated in global pension and superannuation funds, sovereign wealth funds, and insurers. And less commercially bankable customers have more options than ever via certain non-bank providers.

These NBFI sectors have progressively become larger, more active, and more innovative over this period. Unsurprisingly, fast growth in less-regulated parts of the financial markets is raising questions for regulators.

Contemporaneously, financial services regulators are becoming more active as private markets continue to grow and evolve. The increasing role and importance of non-bank and funds finance has, in our view, propelled the impetus for financial services regulators and public authorities to shoot for greater transparency and better monitoring.

The Conundrum For Regulating Markets That Are, By Nature—Private

By its nature, disclosure in private markets will be less compared with public markets. But the information gap in some private market segments currently is large. Public authorities face a conundrum.

On the one hand, regulators likely don't want to prevent investors-- including retail end-user investors--from gaining access to the higher returns on offer in private markets, or otherwise overly impede the flow of capital between certain willing users and providers. On the other hand, authorities want to avoid an outcry if private market investments were to sour, especially in pockets where transparency is lacking.

We believe the political fallout could be significant if private market investments were to fail. This would hold anywhere and with any investor class--whether, for example, for retail investors in wealthy Singapore or holders of self-managed superannuation funds in Australia. Public authorities in both Singapore and Australia have market consultations currently in play looking at these very issues, among others.

The failure of Archegos Capital Management in 2021 shone a torch on private market sectors where regulation and reporting are light compared with public market sectors, including large family offices, private credit funds and hedge funds.

Regulations: Balancing The Benefits Against The Burdens

Poor transparency to-date has hardly prevented the surge in assets under management across private capital funds. More so, a top theme globally is the "retailization" of private markets investments with a wave of new exchange traded funds (ETFs) launched or in the pipeline. In our view, this enthusiasm could wane in the event of negative surprises related to transparency shortcomings.

Reputational damage to individual funds or more general market dislocation could cause a surge in redemption requests or investor losses. Better transparency is never likely to be a universal panacea by itself, but we believe it may offer investors more choice in making decisions. More generally, we believe it could be a precursor for more robust and enduring investor confidence across the sector during economic cycles and industry downturns. Better transparency in the private capital funds sector may assist in avoiding a problem that has not yet happened.

Investors and markets do not like negative surprises. Political fallout has been dramatic in past market failures where opacity has been at the epicenter have had dramatic consequences. Regulators, in our view, will be contemplating the past failures of entities such as Enron Corp. and Parmalat SpA, and indeed the knock-on effects from the global financial crisis (GFC), as events where a lack of transparency ended badly for investors and other parties, not the least including taxpayers in the case of the GFC. These events largely played out in public markets where the bar for disclosure, transparency and other standards is higher than for the private capital funds sector.

We believe many regulators are getting on the front foot to scope and understand risks in private capital funds and other NBFI segments. This, in our view, could head off potential problems.

There is a natural "quid pro quo" between more transparency versus higher costs borne by institutions and ultimately by end-user investors. These competing themes--among others--are under investigation by many regulators including in Singapore and Australia where industry consultations are in-progress.

Transparency: Latest Developments And What We Can Expect

While we can hardly expect the same detailed disclosure for private markets as for public markets, recent actions by certain regulators acknowledge that improved transparency in some private capital funds markets is necessary.

Equity and fixed interest public markets are open to "any and all" and daily transaction volumes number in the hundreds of millions or more. By comparison and by their very nature, private capital funds are unlikely to need as an extensive disclosure framework, in our view. The nature of the relationship in private capital funds is often between a single general partner and small numbers of limited partners (by public market standards), and often tends to be “buy and hold”.

As the private capital funds sector has grown in size, regulators are getting more involved. This is not surprising given that retail participation has increased, and some investors are in traditionally higher risk or esoteric industry sectors such as commercial real estate or private equity.

The objective of certain regulators currently seems to be to strike the balance between establishing a minimum level of disclosure and other safeguards for investors--while at the same time allowing a free flow of capital where there is market appetite for alternate assets funded by investors typically looking for higher returns.

Regulators Prepare The Path Forward

Certain regulators and public authorities have been highly active in 2024 and 2025 introducing new rules, conducting in-depth reviews, and engaging in comprehensive public consultations with market participants. For private capital funds, a key focus of these initiatives is targeting improved transparency, and better oversight and reporting.

While the regulatory approaches are idiosyncratic, driven as they are by own-market needs and priorities, the general thrust is towards lifting standards for disclosure, transparency and oversight for private capital funds. This could be an important step toward an enduring improvement in investor confidence.

The private capital industry provides an important source of funding to certain sectors as well as for investors looking to diversify beyond public markets. Further, the typical funding structure of private capital funds (with locked-in investors) is a reasonable match for the type of less-liquid assets that they can hold. While much of the recent focus of regulators in Europe and Asia-Pacific has been on the relative lack of transparency for private capital funds, there are clearly aspects of the sector that contribute positively to the economy and financial stability.

Public Authorities Zone In On Leverage And Shadow Banking

An understanding of the role of the NBFI and private capital funds within the financial-system architecture is important. The connectivity between banks and NBFIs is not a new topic. Banking regulators are interested in the indirect exposures-- as well as the direct exposures--that banks have to NBFIs, and the implications of this for financial system stability.

Recently, the FSB initiated a consultation on the topic of leverage in NBFI (see "Leverage in Non-Bank Financial Intermediation: Consultation report," Dec. 18, 2024).

Under the EU's new banking capital requirement regulations, which came into effect in January 2025, banks must report to supervisors their total exposure to shadow banking entities and the name behind the top 10 largest such exposures. "Shadow banks" are defined broadly as entities that conduct banking activities outside the regulated framework.

Private Capital Funds Regulatory Trends--Synopsis By Region

The U.S. Securities and Exchange Commission (SEC) has a well-established reporting framework for private capital funds . The SEC has been publicly releasing its conclusions on private capital funds adjunct to its annual examination processes for over 10 years. In part, this reflects the nature of the U.S. capital market--being the largest, broadest, and deepest globally. It also reflects the penchant in the U.S. market for both innovation and detailed disclosure.

While disclosure is traditionally better in the U.S. than other jurisdictions, the conclusions from SEC examinations of the US private funds industry over the past 10-plus years still point to concerns regarding private market risks . These include those concerning conflicts of interest associated with valuations, fees, incentives, and performance measures. The SEC has a form of reporting for funds (for example, its 40 Act for funds that are open to retail investors) hence the low watermark historically is a notch higher in the U.S. compared with other regions.

Under the current U.S. administration, however, we see limited appetite for new or additional regulatory activity affecting funds or other financial services sectors.

Authorities in the EU and U.K. have been very active in the past two years . Our view is that alternative investment fund managers (AIFM)/U.K. guidelines are going in the right direction to address market risks regarding leverage and liquidity, and somewhat improve transparency for regulators and investors on a fund-by-fund basis. The guidelines do not, in our view, materially improve transparency for wider market participants.

The EU introduced new rules in 2024 for alternative investment funds (AIFs). The amendments included important developments to improve transparency and investor protections. These included implementation of:

• improved information sharing between authorities;
• an oversight framework for funds that are making loans;
• better tools for funds for liquidity monitoring and management; and
• measures to improve clarity concerning fees paid by investors.

Better oversight for funds that are making loans is a particularly positive development . Hidden leverage, and its potential negative knock-on effects, are a concern for counterparties to private market participants, and potentially to the orderly operation of markets themselves in the situation of a significant unanticipated event or disruption.

The second important milestone is on the liquidity management tools: the European Securities and Markets Authority (ESMA) published draft regulatory technical standards and final guidelines in April 2025 to be implemented later this year, providing detailed requirements for the use, disclosure, and governance of liquidity management tools by AIFMs.

Prior to recent introduction of new rules in 2024, the European Commission in 2023 embraced a strategy to improve protections and financial literacy for retail investors, including by facilitating access to better information.

In the U.K. , the Financial Conduct Authority (FCA) in 2024 inaugurated a wide-ranging review of the valuation practices of funds for private assets as well as a series of governance reviews. The latter covers valuation committees and board oversight of valuations.

Furthermore, in April 2025, a consultation paper was published proposing a comprehensive reform of the U.K.'s AIFM regime, accompanied by a Financial Conduct Authority (FCA) "call for input" outlining intended regulatory approaches. The main objectives are to make the rules less complex, more proportionate, and more supportive of the U.K.'s role as a global asset management hub. But we understand there is no specific request for a wider market transparency (albeit more so for regulators) and believe any change may take time before being agreed and implemented.

On March 27, 2025, the Monetary Authority of Singapore (MAS) published a detailed consultation paper seeking feedback (via 25 questions) on a proposed regulatory framework for retail investors to invest in private market investment funds. The consultation has a heavy flavor towards exploring views on disclosure, manager-competence, and oversight with a view to establishing a robust regulatory framework from the ground up.

On Feb. 26, 2025, the Australian Securities and Investment Commission (ASIC) published a comprehensive discussion paper on the dynamics in Australia between public and private markets inviting market feedback (via 15 questions). ASIC's key areas of focus include private market risks and confidence, retail investor participation in private markets, and transparency and monitoring. In Australia, retail investors principally face private market risks via the country's exceptionally large (relative to the size of the economy) superannuation (pension) fund investment portfolios.

The consultation theme has likewise been popular in Canada as indicated by the October 2024 release of a consultation paper by the Ontario Securities Commission, the country's largest securities regulator. The commission is specifically seeking market input on a new category for a public investment fund that buys long-term, illiquid assets.

Some other developed-markets regulators have focused only on certain aspects of the private market's ecosystem, if not specifically private capital funds. The Hong Kong Monetary Authority (HKMA) has published two papers exploring the role of banks in the private credit sector, and the potential implications for financial stability.

Korea 's asset managers are set to increase their investment in private credits. The national pension fund established a dedicated team to invest in private credits and the Korea Investment Corp., a sovereign wealth fund, set a separate benchmark performance rate for private credits in 2024, reflecting growing asset allocation to these segments.

Meanwhile in Japan, life insurers have been more vocal than banks or other sectors concerning investing into private credits. The Japanese national pension fund limits alternative investments (including private credits) to no more than 5% of its portfolio. The Bank of Japan raised risk awareness in its financial stability report published in April, pointing to potential risks to the Japanese financial system from the enlarged presences of nonbanks, including private credit fund--and the rising exposure of Japanese institutions toward them.

Related Research

S&P Global Ratings research

• Systemic Risk: Global Nonbank Financial Institutions Press Ahead, Feb. 18, 2025
• Systemic Risk: Global Bank-Nonbank Nexus Could Amplify And Propagate Market Shocks, Feb. 18, 2025
• Systemic Risk: U.S. Banks' $1 Trillion In Loans To Nonbanks, Like Private Credit, Creates Risks And Rewards, Feb. 18, 2025
• Systemic Risk: Private Credit’s Characteristics Can Both Exacerbate And Mitigate Challenges Amid Market Evolution, Feb. 18, 2025
• Systemic Risk: Global Banking Regulation At A Crossroads, Feb. 18, 2025
• Private Equity Draws On Continuation Funds To Tackle Liquidity Drought, March 31, 2025, Mar. 31, 2025
• How We Rate Alternative Investment Funds, Sept. 23, 2024

Regulatory Information Sources (*)

• MAS Proposes a Regulatory Framework for Retail Private Market Investment Funds, March 27, 2025
• Assessing the role of banks in the private credit sector: evidence from bank loans provided to private credit lenders (hkma.gov.hk), January 2025
• Leverage in Non-Bank Financial Intermediation: Consultation report, Dec. 18, 2024
• Ontario Securities Commission, Opportunity to Improve Retail Investor Access to Long-Term Assets through Investment Fund Product Structures, Consultation Paper, Oct. 2024.
• The financial stability implications of the private credit sector in Asia-Pacific (hkma.gov.hk), April 2024

• FCA, Portfolio Letter: Our Asset Management & Alternatives Supervisory Strategy – interim update, March 2024;
• ASIC: Australia's evolving capital markets: A discussion paper on the dynamics between public and private markets, Feb. 26, 2025
• European Council of the European Union, Capital markets union: Council adopts new rules on alternative investment fund managers and plain-vanilla EU investment funds, Feb. 26, 2024

(*) This list excludes the Bank for International Settlements and IMF.

Primary Contacts:	Gavin J Gunning, Melbourne 61-3-9631-2092; gavin.gunning@spglobal.com
	Lisa Barrett, Melbourne 61-3-9631-2081; lisa.barrett@spglobal.com
	Thierry Grunspan, Columbia 1-212-438-1441; thierry.grunspan@spglobal.com
	Philippe Raposo, Paris 33-14-420-7377; philippe.raposo@spglobal.com
	Nicolas Charnay, Paris 33623748591; nicolas.charnay@spglobal.com
	Matthew B Albrecht, CFA, Englewood 1-303-721-4670; matthew.albrecht@spglobal.com
Secondary Contacts:	Daehyun Kim, CFA, Hong Kong 852-2533-3508; daehyun.kim@spglobal.com
	Kensuke Sugihara, Tokyo 81-3-4572-6202; kensuke.sugihara@spglobal.com
	Ivan Tan, Singapore 65-6239-6335; ivan.tan@spglobal.com
	HongTaik Chung, CFA, Hong Kong 852-2533-3597; hongtaik.chung@spglobal.com
	Osman Sattar, FCA, London 44-20-7176-7198; osman.sattar@spglobal.com
	William Edwards, London 44-20-7176-3359; william.edwards@spglobal.com
Research Contributor:	Priyal Shah, CFA, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai ;