(BOJ Review)The Expansion and Diversification of Private Credit Funds

On September 25, 2026, the Bank of Japan released a review on the expansion and diversification of private credit funds. The report, authored by IWAMURA Yuko, KOGA Sena, JIMBO Masahiro, and HIGUCHI Tomoki, highlights the growth of private credit (PC) funds in recent years, particularly in the United States. PC funds traditionally raised long-term capital from institutional investors and provided direct lending to medium-sized and small companies with lower creditworthiness, under strict credit management.

However, the increasing capital inflows have intensified competition among PC funds, prompting some to alter their lending conditions. In response, PC funds are diversifying their asset types and structures. Asset-based finance (ABF) funds, backed by cash flows from specific assets, and semi-liquid funds, aimed at retail investors, are gaining popularity. This diversification indicates a shift in the risk profiles of certain PC funds.

Japan's financial institutions and institutional investors have been closely linked with PC funds through investment and lending. As such, it is crucial to monitor the changing risk profiles and investment practices of PC funds as well as their credit developments. The Bank of Japan publishes the Financial System and Bank Examination Department's review series to inform a broad audience about recent economic and financial matters.

The current report, number 2026-E-13, is a translated version of the original Japanese publication, 2026-J-12, released in September 2026. The views presented in the report are solely those of the authors and do not necessarily represent the Bank of Japan's stance.