SEC begins questioning the integrity of rating agencies; the blame game in private credit officially kicks off.

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The pressure in the private credit market is evolving from a redemption wave into a deeper crisis of trust. As several major asset management institutions successively restricted withdrawals, regulators have begun to openly question whether the rating system underpinning the operation of this market had fundamental flaws from the very start.

The U.S. Securities and Exchange Commission (SEC) recently conducted inquiries into whether the credit rating agency Egan-Jones can "continue to issue credit ratings with integrity." This statement is not a routine review, but rather a public challenge by regulators to the reliability of the private credit market’s core mechanisms.

Meanwhile, Ares Management’s Strategic Income Fund announced withdrawal restrictions after redemption requests reached 11.6%. Previously, Apollo Global Management had also imposed withdrawal limits on its $25 billion Apollo Debt Solutions product, with the trigger threshold also set at 11%.

These events indicate that the private credit market is experiencing a dual shock—liquidity pressure and a crisis of credit credibility brewing simultaneously. This means not only are exit channels blocked, but the rating foundation previously relied upon for pricing and risk management is also facing re-evaluation.

Redemption wave continues to spread, major institutions successively set gate

Over the past months, redemption pressure in the private credit market has shown systemic spread.

According to public information, on March 3rd, Blackstone’s flagship private credit product experienced “record” redemption, with investor withdrawal requests amounting to about 7.9% of the fund’s $82 billion in assets; on March 6th, BlackRock began restricting withdrawals from its $26 billion HPS Corporate Loan Fund; on March 11th, Morgan Stanley and Cliffwater respectively imposed withdrawal limits on their $8 billion and $33 billion funds.

Earlier, on February 19th this year, Blue Owl imposed redemption restrictions on its private credit fund aimed at retail investors; on January 26th, BlackRock marked down TCP Capital Corp. by 19%. These events outline the gradual accumulation and ultimate concentrated outbreak of liquidity pressure in the private credit market.

Notably, on March 16th, Apollo’s co-president publicly stated that asset valuations in some areas of the private market are “all wrong,” an unusual statement that further shook market confidence.

SEC inquires Egan-Jones, reliability of rating system questioned

The SEC’s inquiry into Egan-Jones this time brings the market’s focus from the liquidity level to a more fundamental structural issue. Egan-Jones is a relatively small rating agency but deeply embedded in the private credit sector, and its numerous private loan ratings are used by insurance companies as a basis for capital treatment.

This is not the first time Egan-Jones has faced regulatory pressure. The agency has historically been subject to SEC reviews, mainly involving conflicts of interest, information disclosure, and internal controls. In 2012, the SEC accused the company of making false statements regarding its asset-backed security rating qualifications, which resulted in fines and a suspension of its authority to rate certain structured products.

If the ratings issued by Egan-Jones have systemic biases, its impact goes far beyond a single institution. This means insurance companies relying on these ratings for capital calculation, and institutional investors using them for investment decisions, may bear real risks far greater than those shown on their books. This logic closely resembles the issue of inflated structured product ratings prior to the 2008 financial crisis.

Enforcement has loosened, regulatory pressure cannot be ignored

This public SEC inquiry came at a subtle moment. Just one day prior to the inquiry’s disclosure, the SEC’s acting head of enforcement reportedly resigned after seeking to take tougher enforcement actions than leadership expected, which indicates that the SEC’s internal willingness to take initiative may not be strong at present.

For this reason, the SEC’s decision to publicly question the integrity of private credit ratings under these circumstances further highlights that external pressure can no longer be ignored. Historical patterns show that such regulatory statements are often not the start of a crisis, but a passive response when problems have already accumulated to a certain extent.

As gates for redemption continue to close and asset valuations come under scrutiny, the assignment of responsibility among market participants is accelerating. Fund managers are beginning to distance themselves from rating agencies, investor calls for accountability are intensifying, and regulators are compelled to raise issues they previously deliberately avoided. The trust rebuilding journey of the private credit market may only be just beginning.

Risk Warning and DisclaimerThe market carries risks and investment requires caution. This article does not constitute personal investment advice and does not take into account the unique investment goals, financial situations, or needs of individual users. Users should determine whether any opinions, viewpoints, or conclusions in this article are suitable for their particular situations. Investing based on this article is at your own risk. ```