/>iOn May 19, 2025, newly appointed SEC Chair Paul Atkins signaled a regulatory shift that could expand retail investors’ access to private credit, a space previously reserved for institutional investors and high-net-worth individuals. Atkins announced plans to reconsider existing guidance that restricts how much registered closed-end funds (funds with a fixed number of investors that trade publicly) can invest in private funds, which include funds that issue private credit. If adopted, this change could allow publicly traded closed-end funds to invest significantly in private credit funds, enabling retail investors to gain exposure to these potentially high-performing asset classes while continuing to enjoy liquidity through trading their fund shares on exchanges. On the downside comes the inherent risks of investing in the unregistered private market — risks that are arguably better born by high-net-worth investors and pooled investment funds.
What is Private Credit?
Private credit refers to the practice of lending money outside of the formal banking system. As a means of financing business activity, it dates back to ancient times. In modern financial markets, businesses typically raise capital through several channels: issuing equity (stock), offering corporate bonds (debt), or borrowing from banks. However, companies can also borrow through “private credit” — a form of financing that operates outside the traditional banking framework.
Private credit is not subject to the same regulatory oversight as bank loans, allowing greater flexibility and customization in loan terms to suit both borrower and lender. This flexibility has made it an increasingly attractive option for corporations seeking tailored financing solutions, as well as for lenders seeking higher returns. Some market leaders, including the CEO of a major financial institution, have raised concerns that the relatively light regulation of private credit could contribute to future financial instability.
Why Does Private Credit Matter?
Much like private equity — which has grown dramatically from approximately $579 billion in 2000 to over $8 trillion today — private credit has expanded significantly, reaching nearly $2 trillion in assets. While the private equity market has long been dominated by large institutional players — particularly private equity firms — many of whom profit by taking equity stakes in growing companies, private credit has followed a parallel path. Indeed, despite concerns expressed by some of their executives, some major financial institutions started taking part in the private credit markets right after the 2008 financial crisis and now plan to invest tens of billions in private credit. Large investment funds now play a dominant role in this market, offering bespoke credit arrangements to companies and earning returns in the process.
As individual investors have observed the outsized returns generated by institutional players in private equity, they have increasingly turned to investment managers capable of pooling smaller capital contributions to access these same opportunities. This trend is now extending into private credit. These funds have enabled broader investor access by lowering entry points. Some platforms allow participation by individuals with a net worth of $250,000 or an annual income of $70,000, expanding access beyond traditional institutional investors and opening up a new world of investment to smaller players.
Which Laws Regulate Private Credit? How Has the Government Enforced Regulation?
Banks are primarily regulated by the Office of the Comptroller of the Currency (OCC), with the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) playing a secondary role. However, private credit generally falls outside of the purview of these agencies. Although private credit performs some of the same economic function as bank lenders, additional regulatory stringencies placed on banks can make traditional bank lending more difficult for corporate clients. The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the 2008 financial crisis, imposed sweeping changes on the banking industry particularly in the areas of capital and liquidity requirements. While these reforms improved overall banking stability, they also made traditional bank lending more burdensome for corporate clients.
In contrast, private credit is generally not subject to those same capital and liquidity requirements. Where private credit is extended by investment funds, those investment funds are governed by the Investment Advisers Act of 1940. Informal guidance from the SEC has also shaped the industry. Since 2002, the SEC staff has held that closed-end funds’ investment in private funds is limited to 15% of their assets — unless their investors are so-called “accredited investors.” This limit is not a formal rule, but a longstanding regulatory posture adopted to protect retail investors from exposure to illiquid or complex investment strategies.
Accredited investors are actually defined by a different act — the Securities Act of 1933 — whose Regulation D holds accredited investors to certain income or wealth thresholds. The current Regulation D definition sets those thresholds at a net worth of $1 million, or an annual income of $200,000 ($300,000 for joint income) for each of the last two years. Although the Regulation D thresholds were first established in 1982 and have not been adjusted for inflation, they continue to limit the access of small investors to investment funds that are primarily devoted to private credit or private equity.
What is the Future of Private Credit, and How Will It Be Regulated Going Forward?
The march of inflation and an overall increase in personal wealth has meant that the pool of accredited investors has grown. The $1 million net worth/$200,000 annual income threshold is reached by a far greater percentage of investors today than it was some 40 years ago; the SEC’s most recent review of the Regulation D threshold reveals that the share of households who clear the threshold has gone from 1.8% to 18% from 1983 to 2022. That review explains that the intent behind the threshold was to serve as a proxy for financial sophistication — with the understanding that investors with a greater net worth would be better able to assess and to bear the unique risks of private funds. At the same time, the review notes that even above the threshold, investors often do not understand the unique risks their investments may face, and a 2020 review of the accredited investor definition allowed knowledgeable individuals to qualify without meeting the strict wealth or income thresholds.
Amidst this, there are questions both within and beyond the SEC about whether the threshold itself is still meaningful. The Securities Industry and Financial Markets Association’s Asset Management Group urged the SEC in April 2025, to eliminate the 15% cap, arguing that the SEC staff’s practice would better be replaced by individual metrics assessing the investor’s ability to understand and bear risk. And shortly after his confirmation as SEC chair in that same month, Paul Atkins hinted that he may direct his staff to reconsider the staff’s guidance.
On the one hand, removing the 15% cap would open the door to smaller investors participating in a growing and vibrant market that has served as an increasingly important conduit for capital formation. On the other, it could expose less sophisticated market participants to higher risk in credit markets without the security of OCC banking oversight. Proponents of private credit argue that private credit spreads default risk across lending instruments and actually contributes to greater market stability, while those who oppose it see it as a wild west free from the guidance of the Fed and the safety net of the FDIC.
Whatever actions regulators might take in the immediate future to open up the market further, it seems that private credit is garnering a broader interest among market participants and will serve a growing place in providing financial liquidity and capital formation to the economy — and income to those with the stomach to take the risks.
Conclusion
Those energized and encouraged by Chair Atkins’s announcement — and seeking to participate in this evolving private credit landscape, whether as lenders, borrowers or investors — should seek legal guidance on how best to navigate this complex and rapidly developing market.
This article was co-authored by Phil Lieberman, law intern.
