The Intermediary – August 2026 - Flipbook - Page 62
SPECIALIST FINANCE
Opinion
When markets
pause to reflect
E
very lending
market experiences
moments that prompt
uncomfortable
questions. A highprofile default,
allegations of poor governance or a
major loss inevitably lead to a period
of introspection. Credit commiees
revisit assumptions, investors reassess
risk appetite, regulators ask whether
existing frameworks remain fit for
purpose and commentators inevitably
question whether the market itself has
become too complacent.
These moments maer not simply
because they test appetite for an entire
asset class, but because they force
us to examine whether the systems
that have evolved alongside it remain
appropriate for its scale and maturity.
Private credit is no exception. Over
the past decade, the sector has become
one of the most significant sources of
capital supporting UK businesses and
property markets.
Institutional investors have rightly
been aracted by its ability to generate
aractive risk-adjusted returns while
providing borrowers with funding
that traditional banks are oen
unable or unwilling to offer. That
growth is a success story, and it should
remain one.
However, every rapidly expanding
market reaches a point where
operational maturity must catch up
with commercial success.
The temptation aer any market
event is to search for a single culprit.
Some will argue regulation has failed,
while others will suggest investors
have chased yield at the expense of
prudence. Neither explanation is
entirely satisfactory, because both
assume the problem sits outside the
day-to-day operation of lending itself.
In reality, confidence is built
or lost through information
and the willingness to act on the
accuracy, volume or timeliness of it.
Institutional funders make decisions
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The Intermediary | August 2026
based on data, while warehouse
providers advance capital based on
confidence in collateral.
Investors assess risk using portfolio
reporting, governance frameworks
and operational controls. If those
foundations are robust, markets are
remarkably resilient. If they weaken
or are circumnavigated, confidence
can disappear surprisingly quickly.
That is why the conversation should
move beyond whether additional
regulation is required, and instead
focus on whether the industry has
invested sufficiently in independent
assurance. There remains an
understandable tendency across
financial services to view due diligence
as an event that takes place before
capital is deployed.
Evolving risk
Once facilities are established,
aention naturally shis towards
growth, origination and portfolio
performance, but risk does not
stand still. Loan books evolve over
surprisingly short periods of time, and
security positions change. Borrowers
refinance and data quality deteriorates
unless actively maintained.
Governance that was appropriate
on day one may no longer reflect
the complexity of a portfolio several
years later.
The industry’s thinking therefore
must evolve from point-in-time
due diligence towards continuous
assurance. That means independent
verification of collateral rather than
sole reliance on borrower-produced
information, and it points to ongoing
portfolio monitoring rather than
periodic reviews. It means governance
frameworks that grow in proportion
to the size and complexity of managed
loan books. Above all, it means
recognising that operational resilience
is not simply a compliance exercise,
but an investment in institutional
confidence. This becomes even more
important as competition increases.
JOHN BARBOUR
is senior director, lending
advisory services at Broadstone
Spread compression across private
credit means every basis point
maers, and while conventional
thinking might suggest that tighter
margins encourage firms to reduce
oversight costs, I would argue
precisely the opposite.
When returns become harder to
generate, avoiding losses becomes even
more valuable. Robust verification,
stronger governance and higher
quality portfolio monitoring become
competitive advantages. Growing
safely is the key, and the cost of
independent assurance is invariably
lower than the cost of repairing
damaged confidence.
Private credit is no longer an
emerging alternative to mainstream
finance. It is mainstream finance,
and with that comes an expectation
from institutional investors that
governance, transparency and
operational discipline will continue
to evolve.
The most effective improvements
are likely to come from the market
itself in the shape of beer data,
beer independent verification, and
beer transparency between funding
parties. None of these inhibit growth
in our experience, they enable it.
We all know that markets
ultimately operate on trust and
when that that trust is reinforced,
confidence and capital follows. The
private credit market has repeatedly
demonstrated its resilience and
importance to the wider economy.
The challenge now is not whether it
should continue to grow, but whether
its governance and operational
frameworks continue to mature
alongside it. Confidence is rarely built
by reacting to the last crisis, but it is
built by ensuring the next one is less
likely to occur. ●
