Private markets have an increasingly important role to play in UK economic growth and the industry should work with regulators to advance the sector, according Sarah Pritchard, deputy chief executive of the FCA.
Addressing an audience at the Investment Association’s Private Markets Summit, Pritchard (pictured) laid out why the asset class is key to the economy, and the role the regulator can play.
Private markets’ importance to the UK’s future means they deserve “serious, proportionate oversight”, she explained.
This requires the FCA to stay alert, clear-eyed and focused on the standards that help drive much needed confidence in the asset class.
She also noted the asset management industry must develop appropriate governance, and engage closely with the FCA to facilitate the reform needed for private markets to thrive.
“I gave my first speech as deputy chief executive of the FCA at last year’s Private Markets Summit,” Pritchard said.
“The lights I talked about shining on private markets have become brighter than ever. No longer waiting in the wings; it’s taken centre stage in the UK’s growth story.”
She added UK private markets are approaching £1.2trn in assets under management and now sit at the very heart of how growth is financed, as well as helping maintain London as the largest asset management hub in Europe.
Pritchard also tackled recent concerns that private credit markets have become overstretched.
“Headlines are always a tough read when funds run into difficulty,” she said. “And lately, the language has been stark.
“Some have even asked if private credit has a canary in the coal mine. That’ll make you sit up a bit straighter, won’t it?
“But in this moment, it’s important to remember that stress in markets is normal, and okay, as long as the system stays resilient. Private markets, done well, can support resilience.”
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Despite this upbeat assessment, Pritchard urged the industry to exercise prudence, as the range of issues to plan for is wider than it was, and uncertainty has risen.
“We know there will be situations where stress could be a problem,” she added. “Those are the ones we need to plan for. Early, and together. And with the entire system in mind.
Confidence is key
“We know that robust valuation frameworks and processes are key to investor confidence and critical to market integrity,” she told the audience.
Pritchard went on to outline three pillars to build the required confidence in private markets upon.
Firms must have “strong first-line controls”. “Ultimately, you are the first line of defence. Getting the basics right underpins the confidence of the entire ecosystem,” she said.
“Which means that your underwriting standards, operational resilience and valuations discipline matter more than ever.”
Second, the regulator must focus on ‘the risks that really matter,’ and do so calmly and proportionately.
“When I say proportionate, I mean that in every sense,” Pritchard added. “Including the way we design our rules and collect data, which allows us to take a smarter, more targeted approach; one focused on risk.”
The third of Pritchard’s triple was having a ‘well-connected’ system.
“Connected markets call for joined-up oversight”, she said. “Which means we can’t do any of this work alone.”
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