Partner Michael Barnett comments on the private credit market in City AM

Commenting in City AM, Partner Michael Barnett considers the resurgence of the private credit market, and discusses how its rapid growth, complexity, and under-regulation could pose risks to investors and the broader financial system.

Michael’s comments were published in City AM, 1 September 2025, and can be found here.

“The global regulatory response to the 2008 financial crisis – particularly the implementation of Basel III capital requirements and bank resolution measures – offers some reassurance against future threats to global financial stability and banking culture.

“However, those of us lawyers who spent nearly a decade litigating the causes of the financial crisis are wary of a spiralling trend towards investment by a wide range of sectors in the burgeoning but complex, risk-driven and under-regulated industry that at once comprises both lending model and asset class.

“While banks that lend to private credit may be better protected than most other investors, their growing interest in this sector fuels its expansion. This, in turn, drives the proliferation of increasingly exotic and highly structured investment products, heightening the risk to investors.

“And that is where the cracks start to appear. When those structured assets start to unravel and investors rush for the exits with values crashing around them, fraud, mis-selling and other claims ripple across the system. Left unchecked, the damage won’t stop with the investors – it will hit the wider finance sector.

“The only answer is to get ahead of the industry in terms of appropriate levels of regulation and supervision, without choking genuine market demand.”