Private credit has become an essential source of financing globally, with fund sponsors enjoying strong demand from borrowers, market participants, and investors. However, as the industry’s “golden age” continues, regulatory scrutiny is growing. Media coverage and legislative inquiries have pressured agencies — particularly the SEC — to take action.
Motivated by a rapidly evolving geopolitical climate, governments around the globe have increasingly scrutinized and intervened in transactions under foreign direct investment (FDI) screening regimes in recent years. Rising protectionism, concerns over cybersecurity threats, Covid-19 and the desire to protect critical domestic industries have driven the expansion of FDI regimes beyond purely national security or defense specific industries.
More than 100 jurisdictions now apply FDI screening in some form. The notification triggers and review processes vary significantly between these regimes, and their proliferation has significantly increased complexity for investors planning cross-border investments.
With Paul Atkins as the new SEC Chair, the agency’s priorities have shifted away from many of the aggressive policies of former Chair Gensler. The first four months of the Republican controlled SEC saw a dramatic shift in the approach to crypto with the dismissal or pause of major litigation, the termination of several longstanding investigations, the recission of accounting guidance regarding the safeguarding of crypto assets and the establishment of a new task force to help formulate the regulatory approach to crypto going forward. With the enforcement program under a new SEC undergoing significant changes, there will likely be a return to more traditional enforcement cases with greater emphasis on egregious conduct involving pecuniary gain or investor harm, moving away from “pushing the envelope” cases. Enforcement sweeps involving off-channel communications, late filings and other “broken windows” initiatives are expected to fall by the wayside. Regulation by enforcement could be replaced by increased interaction with the Staff, formal or informal guidance or lighter-touch rulemaking.
Over the past year, regulatory scrutiny of the credit markets has intensified, with the SEC investigating the potential use of material nonpublic information (“MNPI”) relating to credit instruments. The SEC brought a number of enforcement actions against investment advisers involving the failure to maintain and enforce written MNPI policies involving trading in distressed debt and collateralized loan obligations, even in the absence of insider trading claims. We anticipate that these investigations of trading in private credit instruments and related MNPI policies will continue, as SEC enforcement staff has increased their focus on these markets.
With ESG regulation now well embedded across all major jurisdictions, the trend we see for 2025 is about increasingly sophisticated triangulation by private fund managers between the regimes that apply by default (such as mandatory corporate sustainability reporting), those that apply by choice (such as becoming an Article 8 fund within the meaning of the EU’s SFDR or the new for 2024 ESMA ESG Fund Name Guidelines – see summary here) and those that apply by third party request or expectation (such as reporting obligations within side letters). As regimes evolve, the ESG-approach of any fund once identified, chosen and defined must also take into account tracking developments and monitoring compliance.
Confession: writing this in May 2025, we cannot predict with confidence what the rest of 2025 will bring. The year has already seen four months of change and upheaval – political, regulatory, and economic. The new US administration has touted a business-friendly regulatory environment, with actual and promised tax cuts and deregulation. However, geopolitical tensions, tariff trade wars and political instability have introduced new risks and created a climate of extreme unpredictability. We should expect 2025 to hold several surprises still, whether that is a breakout of peace or new political themes obtaining prominence in one or more jurisdictions.
As we head further into 2025, the landscape of SEC exams and enforcement is poised for significant shifts. How will the SEC adapt to emerging trends and evolving market dynamics? In the first issue of Beyond the Deal in 2025, four of our regulatory lawyers weigh in on what to
As reported today, Vice President Harris has announced Tim Walz, the sitting governor of Minnesota, as her running mate. This announcement is particularly significant for investment advisers due to the Advisers Act Political Contributions Rule, otherwise known as the “pay-to-play” rule.
On June 14, 2024, the SEC announced an enforcement action settlement with a Pennsylvania-based hedge fund manager for violating the Marketing Rule under the Investment Advisers Act. The SEC found that the adviser had misled investors by advertising a hedge fund’s investment performance based on the investment performance of a