The rapid growth of the private credit market and increasing pension scheme exposure to the asset class could create systemic risks without stronger oversight and transparency, a new report from RSM UK and Fieldfisher has warned.

The report, Private Credit: Growth, Governance and Resilience, highlighted how defined benefit (DB) pension schemes are increasingly allocating to private credit investments as part of wider efforts to secure higher returns and diversify portfolios.

According to the report, Solvency II reforms and Mansion House reforms are helping to accelerate institutional investment into private markets, including private credit, amid growing appetite from insurers and pension funds.

The report noted that UK pension schemes have become a “major source of funding” for private credit markets, with the asset class now deeply embedded in pension risk transfer transactions.

However, the authors warned that the market’s rapid expansion, combined with limited transparency and lighter regulation than public markets, has heightened concerns about leverage, valuations, and systemic interconnectedness.

The report pointed to increasing regulatory scrutiny from the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Bank of England, particularly around valuation practices, leverage and the growing links between private credit funds, insurers and pension schemes.

It also cited concerns that pension trustees may struggle to fully assess risks due to the opaque nature of some private credit structures and the heavy reliance on credit ratings.

The report stated that some market participants feared private credit valuations could become overstated because assets are not marked to market as frequently as publicly traded securities.

In addition, the report highlighted growing concern over “double dipping”, where lenders may hold claims over multiple layers of collateral, potentially complicating recoveries during periods of stress.

The report also referenced the collapse of Tricolor and issues surrounding First Brands as examples of governance and asset verification failures that have intensified calls for stronger due diligence and oversight across the sector.

Despite these concerns, the report said most industry participants remain confident in the long-term outlook for private credit, citing strong investor demand and continued growth opportunities across infrastructure, energy and digital assets.

Fieldfisher partner, financial services regulatory, Oliver Abel Smith, said transparency and governance would become increasingly important as pension scheme allocations to private markets continue to rise.

"Private credit will undoubtedly continue to play an important role in financing the real economy.

"However, it is critical that the sector evolves with greater transparency, concentration and interconnected risk.”

RSM UK partner, restructuring advisory, Damian Webb, added that market consolidation among weaker lenders was likely.

“We believe that consolidation is inevitable; there are too many unsustainable lenders in the market,” he said.

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