Reed Calls for Better Scrutiny of Private Credit & Warns Trump is Weakening Retirement Security for America’s Workers

WASHINGTON, DC -- As warning signs flash about increased risk in the murky private markets, the Trump Administration is throwing billionaire private fund managers a lifeline at the expense of average working Americans and their retirement security.

Unlike stocks and bonds, private credit is not publicly traded and not subject to the same transparency or the same scrutiny from regulators, making it more difficult for retail investors to assess risks and returns. Just as big, sophisticated investors are starting to pull out of private credit because of concern about growing risk, President Trump is swooping in to allow private fund managers to sell these products to "mom-and-pop" investors. The Trump Administration is proposing to undercut long-standing rules that have shielded retail investors and retirement savers from higher risk, less liquid, and higher-fee investments that lack transparency and are difficult to value.

As the Trump Administration moves toward opening the retirement savings and 401(k)s of millions of small investors to riskier assets, U.S. Senator Jack Reed (D-RI) says the Trump Administration's moves could threaten the retirement security of millions of American workers and spill economic damage into the broader economy. Reed is once again urging the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of the Labor (DOL) to pause their deregulation efforts and take proactive steps to protect the savings and retirement accounts of working Americans.

Reed says private credit needs more transparency before it is offered to Main Street investors in their most important investment accounts-their 401(k)s. He says regulators should improve current regulation, which is supposed to help investors understand the risks of their investments and make the broader U.S. financial system stronger and more resilient. He also points out that President Donald Trump's erratic economic policies - including tariffs, attacks on the Federal Reserve's independence, and war with Iran is increasing fluctuations in the bond and equity markets and could tip the U.S. economy into a crisis.

Senator Reed sent a letter to the head of the SEC and a letter to the Acting Secretary of Labor urging them to pause efforts to place alternative assets, including private market investments, into Americans' 401(k) and other defined-contribution retirement plans. Reed, a member of the Senate Banking, Housing and Urban Affairs Committee is asking the SEC to "conduct a review of valuation and sales practices for retail private credit vehicles." Senator Reed also writes: "it would be irresponsible at this time to fling open the doors to these new financial instruments and expose Americans' defined-contribution pensions to the unknown risk of private credit funds and underlying illiquid assets."

Senator Reed's letter to the SEC notes the concerning development that: "Questions about credit quality have led retail investors to request $21 billion from vehicles holding private credit during the first quarter of this year, and most funds have exercised their discretion under the SEC's rules to temporarily suspend a portion of these redemptions."

Reed's letters were sent on the heels of the Financial Stability Board (FSB) -- which is made up of central bankers, regulators and finance ministers from the G20 countries -- issuing a "Vulnerabilities in Private Credit" report that identifies potential trends and risks related to private credit and interlinkages with banks. The report found that the healthcare, services, and tech sectors - including AI companies, which have increasingly turned to private lenders to fund data centers and other infrastructure -- have become the biggest borrowers of private credit while also highlighting a lack of transparency that causes challenges in collecting and analyzing data for effective oversight of the sector itself.

Using 2024 data, the FSB estimated the private credit market at $1.5 trillion to $2 trillion. However, the Alternative Investment Management Association estimates that the global private credit market has reached $3.5 trillion in assets under management.

Federal Reserve Governor Michael Barr, who serves on the FSB, flagged one particular private credit issue for urgent attention: payment-in-kind (PIK) arrangements or structures in which borrowers satisfy interest obligations by taking on additional debt rather than paying cash. "Basically, that just means you default on your loan, and it's not counted as a default," Barr told Bloomberg News. "You can't look at the book and know which loans are really actually under stress."

Reed requested that the SEC take several concrete steps, including:

• Examine sales practices used to place private credit with retail investors, focusing on communications regarding redemption limitations, asset diversification, fees and expenses, valuation practices, and the basic risk-reward profile of these funds.

• Review prospectuses for retail private credit funds, focusing on whether redemption limitations and valuation practices were fully and fairly disclosed.

• Reimpose the limitation, which the SEC rescinded in May 2025, on retail closed-end funds investing no more than 15% of their assets in private funds. Do not drop similar limitations that remain in place for open-end funds.

• Bolster systemic risk reporting by private credit funds through Form PF, so the Financial Stability Oversight Council (FSOC) can assess systemic risk.

Full text of Senator Reed's letters follow:

Dear Acting Secretary Sonderling:

I write to urge you to pause efforts to place alternative assets, including private market investments, into Americans' 401(k) and other defined-contribution retirement plans.

We have begun to see cracks emerging in the credit markets, centered in the less transparent private credit market. Many private credit loans have been packaged into investment vehicles that have been marketed and sold to retail investors as offering the best of all worlds: high returns on investment grade assets and varying levels of liquidity on illiquid underlying assets. Recent questions about credit quality and economic uncertainty have accelerated requests by retail investors to get their money out of these vehicles, but managers have imposed gates on one-third of these requests totaling around $4.6 billion. At the same time, we have seen a record number of workers making early withdrawals from their 401(k) plans in order to deal with higher expenses in the current economy.

Given these developments, it would be irresponsible at this time to fling open the doors to these new financial instruments and expose Americans' defined-contribution pensions to the unknown risk of private credit funds and underlying illiquid assets. I have asked SEC Chair Atkins to conduct an examination of valuation and sales practices for retail private credit vehicles and for Treasury Secretary Bessent to conduct a forward-looking analysis of systemic risk. It would be premature to open Americans' retirement accounts to these investments until these reviews are completed.

Thank you for your attention to this important matter.

Sincerely,

Dear Chairman Atkins:

I write to urge you to pause efforts to place alternative assets, including private market investments, into Americans' 401(k) and other defined-contribution retirement plans and to conduct a review of valuation and sales practices for retail private credit vehicles.

We have begun to see cracks emerging in the private credit market. Questions about credit quality have led retail investors to request $21 billion from vehicles holding private credit during the first quarter of this year and most funds have exercised their discretion under the SEC's rules to temporarily suspend a portion of these redemptions. Given these developments, I request that the SEC take the following steps:

1. Examine sales practices used to place private credit with retail investors, focusing on communications regarding redemption limitations, asset diversification, fees and expenses, valuation practices, and the basic risk-reward profile of these funds. This examination should also cover how brokers and advisers determined that these investments were in the best interests of their clients and the financial incentives(including servicing fees, placement fees, and commissions) to distribute these products.

2. Review prospectuses for retail private credit funds, focusing on whether redemption limitations and valuation practices were fully and fairly disclosed.

3. Reimpose the limitation, which you rescinded in May 2025, on retail closed-end funds investing no more than 15% of their assets in private funds. Do not drop similar limitations that remain in place for open-end funds.

4. Bolster systemic risk reporting by private credit funds through Form PF, so the Financial Stability Oversight Council (FSOC) can assess systemic risk.

5.Pause efforts to make alternative assets available in defined-contribution retirement accounts, which you are actively pursuing, pending a systemic risk review that I have asked Treasury Secretary and FSOC Chair Bessent to conduct.

Thank you for your attention to this important matter.

Sincerely,

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