The growing trend of private credit lenders originating loans and selling them off to other investors is a growing concern for the chief executive of one of the biggest asset managers.

“One of the things I worry about is that we’re seeing a little bit of creep back into the originate-distribute model,” said Richard Oldfield, group chief executive at Schroders.

“Where are the incentives in the system when you’re originating a loan and you don’t have any responsibility for it?” he said, speaking at HSBC’s Global Investment Summit in Hong Kong on Tuesday.

“I think one of the things we should all be looking at is when you buy a product, where is the alignment between who’s originating the credit and you?”

“The last time you saw originate to distribute get into a habit was in securitizations. So, as I look forward, one of the things I worry about is making sure we’ve got alignment between everyone through the value chain.”

He argued that its importance is critical going forward due to the increasing need for more infrastructure funding globally and the role private credit will need to fill.

“The need to create investment for infrastructure is getting bigger and bigger,” he said. “So the very reason for private credit to exist is getting bigger.”

Private markets are increasingly filling a funding gap for long term investments in illiquid asset classes such as infrastructure, which are typically less well suited for public markets.

Institutions still buying private assets

Yet despite growing fears surrounding private credit exposure to the software sector – now seen as big potential losers of artificial intelligence disruption – institutions remain buyers of the asset class, according to Oldfield.

This comes as some of the biggest alternative asset management firms such as Blackstone, Apollo and KKR have had to gate some of their private credit funds on the back of a jump in investor withdrawals.

“Gating is a feature, not a flaw,” Oldfield said. “You want funds gated because that’s how we protect investors in the product. It’s how we stop the destruction of value when there’s a fire sale.”

“It’s a very important product for many people. By the way, not everyone’s selling it. Institutions are still buying private products,” he said.

However where Oldfield still has concerns is around the investment wrappers used to sell private products to the wealth market.

He said: “The wrappers aren’t wrong, per se. But do people really understand what they have bought with that wrapper?”

“And if they don’t, I think we can see a regulatory overreaction and overreach to try and protect consumers who bought into semi-liquid products without really understanding what they were buying.”

“So I think there’s a big onus on the industry to help educate and make sure we only have the right wrappers in the right channels, but I worry about regulatory overreach in this space if we don’t see a little bit of moderated behaviour.”