The EU has proposed stricter rules for private credit funds aimed at professional investors, that are likely to be approved this week.

EU governments are reportedly set to sign off a regulatory update for managers of alternative investments such as direct lenders.

According to Bloomberg, the new regulations include caps on leverage for private credit funds.

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The leverage of closed-ended loan origination funds would be capped at 300 per cent of their net asset value, while open-ended ones would be capped at 175 per cent, according to text published ahead of the vote by governments on Wednesday.

The new rules will also require funds to retain five per cent of the value of each loan they originate, and to diversify their risks and limit exposures if the borrower is a financial institution.

Private credit managers are already subject to certain rules and data reporting requirements, particularly if they are targeting retail investors. However, the new EU rules will implement higher standards for funds aimed at professional investors.

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Earlier this month, the European Parliament signed off on the rules, which are expected to enter the EU’s official journal by April and be adopted in national laws within two years, according to EU officials cited by Bloomberg.

Funds would then have a further year to meet the additional data reporting requirements, they added.

The booming private credit industry is currently valued at $1.7tn (£1.3tn) and is predicted to swell to $2.8tn by 2028, according to data provider Preqin.

Authorities have raised concerns about whether the sector poses a risk to financial stability, highlighting a lack of data transparency, the underlying illiquidity of the assets and the impact of high interest rates on borrower delinquencies.

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