Private credit regulation in the United States is a layered system: federal securities and adviser rules govern the fund and its manager, while state licensing and usury laws govern the actual lending. A fund typically must fit within an exclusion from the Investment Company Act of 1940, raise capital under a Regulation D exemption, register its manager as an investment adviser subject to fiduciary duties, hold assets with a qualified custodian, file confidential risk data on Form PF, watch ERISA thresholds when accepting pension money, and license its lending activity state by state. The framework changed materially in 2024 when a federal appeals court vacated the SEC’s sweeping private fund adviser rules, and it will change again in 2028 when anti-money-laundering obligations reach investment advisers.
Staying Out of Investment Company Status
Before anything else, a private credit fund has to avoid being classified as an “investment company” under the Investment Company Act of 1940. Registered investment companies face limits on leverage, affiliate transactions, and governance that would make most private credit strategies impractical. Nearly every fund relies on one of two statutory exclusions.
Section 3(c)(1) excludes an issuer whose securities are held by no more than 100 beneficial owners, provided the fund is not making a public offering.1Office of the Law Revision Counsel. 15 USC 80a-3 – Definition of Investment Company Section 3(c)(7) has no hard investor cap but requires every owner to be a “qualified purchaser,” a wealth threshold higher than the accredited investor standard. Funds using 3(c)(7) can take more investors, but the bar for each one is steeper.
The choice between them shapes the fund’s architecture: how many investors it can accept, who those investors can be, and how feeder and co-investment vehicles are organized. Accidentally exceeding the 100-person limit under 3(c)(1), or admitting a non-qualified purchaser under 3(c)(7), risks losing the exclusion entirely and forcing registration as an investment company.
Raising Capital Under Regulation D
Selling interests in a private credit fund is a securities offering, so the fund needs an exemption from Securities Act registration. Regulation D is the usual route, and the two variants of Rule 506 make different trade-offs.
Rule 506(b) allows an unlimited number of accredited investors plus up to 35 non-accredited purchasers, but bars general solicitation and advertising.2Investor.gov. Rule 506 of Regulation D Rule 506(c) permits broad advertising but requires that every purchaser be an accredited investor and that the fund take reasonable steps to verify accredited status rather than accept self-certification.3U.S. Securities and Exchange Commission. Exempt Offerings Verification typically means reviewing tax returns, brokerage statements, or credit reports.
The accredited investor income and net worth thresholds have not moved in decades. An individual qualifies with annual income above $200,000 (or $300,000 jointly) in each of the prior two years and a reasonable expectation of the same for the current year, or with net worth above $1 million excluding a primary residence.4U.S. Securities and Exchange Commission. Accredited Investors The SEC expanded the definition in 2020 to include holders of certain professional licenses (Series 7, Series 65, Series 82), but the dollar thresholds remain unchanged for 2026.
Adviser Registration and Fiduciary Duty
Managers of private credit funds almost always meet the definition of investment adviser under the Investment Advisers Act of 1940. Dodd-Frank eliminated the old “fewer than 15 clients” exemption that many private fund advisers used to rely on. Advisers to private funds with $150 million or more in assets under management now must register with the SEC unless another exemption applies.5Legal Information Institute. Dodd-Frank Title IV – Regulation of Advisers to Hedge Funds and Others Smaller advisers generally register at the state level under the split of authority in 15 U.S.C. § 80b-3a.
Registration means filing Form ADV, a public disclosure document covering ownership, client types, assets under management, and disciplinary history.6Securities and Exchange Commission. Form ADV General Instructions Any prospective investor can look up a manager’s background before committing capital.
Registered advisers owe a fiduciary duty to their clients. The SEC has interpreted it as a duty of care and a duty of loyalty: acting in the client’s best interest, exercising competence and diligence, seeking best execution, and disclosing material conflicts of interest in enough detail for investors to evaluate them.7Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers A manager directing fund capital to a company the manager partially owns must disclose that relationship.8Securities and Exchange Commission. Observations from Examinations of Investment Advisers Managing Private Funds The fiduciary obligation applies to SEC-registered advisers, state-registered advisers, and even advisers who qualify as exempt reporting advisers.
The Custody Rule
Private credit managers typically have custody of client assets, which triggers the SEC’s custody rule. Client assets must be held by a qualified custodian, generally a bank or registered broker-dealer, rather than under the manager’s direct control.
Advisers with custody generally have to undergo an annual surprise examination by an independent public accountant. Fund managers can avoid the surprise examination if the fund is audited each year by an independent accountant registered with the Public Company Accounting Oversight Board and the audited financial statements go to investors within 120 days of fiscal year-end.9U.S. Securities and Exchange Commission. Custody of Funds or Securities of Clients by Investment Advisers Most private credit funds take the audit route. If a fund liquidates mid-year, the manager must obtain a final audit and distribute those statements promptly.
The SEC’s 2023 proposal to replace this framework with a broader “Safeguarding Rule” was formally withdrawn in June 2025. The existing custody rule stays in effect as written.
Form PF Reporting
SEC-registered private fund advisers file Form PF, a confidential report that gives regulators portfolio-level risk data across the private fund industry. Most advisers file annually; large hedge fund advisers and large liquidity fund advisers file quarterly. The SEC and CFTC jointly adopted amendments expanding the form, with compliance required by mid-2025.10Securities and Exchange Commission. Form PF
The form captures fund size, borrowing, counterparty exposures, and investment concentrations. Large advisers face current-event triggers requiring near-real-time reporting of events like large losses or major leverage changes. Filings stay confidential and are shared between the SEC and the Financial Stability Oversight Council, which uses them to monitor systemic risk trends. Investors and the public do not see them.
What the Vacated 2023 Rules Would Have Added
In August 2023, the SEC adopted a sweeping set of rules for private fund advisers. In June 2024, the Fifth Circuit vacated the entire rulemaking in National Association of Private Fund Managers v. SEC, finding the SEC had exceeded its statutory authority.11U.S. Securities and Exchange Commission. Private Fund Advisers The vacated package would have required:
- Quarterly itemized disclosure of fund fees, expenses, and adviser compensation.
- Annual financial statement audits of every fund advised.
- A ban on charging funds for the adviser’s own regulatory investigation costs.
- Restrictions on side letter terms giving certain investors better redemption or transparency rights when doing so could harm others.
- Independent fairness opinions on adviser-led secondary transactions.
Because these rules are gone, disclosure and governance terms in private credit funds remain largely a matter of negotiation, governed by the limited partnership agreement and side letters rather than standardized SEC mandates. The Advisers Act’s fiduciary duty and anti-fraud provisions still apply, and the SEC retains examination authority over registered advisers.
ERISA and the 25% Plan Asset Threshold
Funds that accept money from pension plans, 401(k) plans, or other employee benefit plans may trigger fiduciary obligations under the Employee Retirement Income Security Act. The trigger is ERISA’s look-through rule: if benefit plan investors hold 25% or more of the equity in a fund, the fund’s underlying assets are treated as plan assets, and the manager becomes an ERISA fiduciary subject to the prohibited transaction rules.12eCFR. 29 CFR 2510.3-101 – Definition of Plan Assets – Plan Investments Those rules restrict self-dealing, limit transactions with parties related to the plan, and impose personal liability for breaches. The Secretary of Labor can grant exemptions, but only after finding the exemption is administratively feasible, in the plan’s interest, and protective of participants.13Office of the Law Revision Counsel. 29 USC 1108 – Exemptions From Prohibited Transactions
Many managers avoid ERISA by capping benefit plan investors below 25%. Others qualify as a Venture Capital Operating Company, which requires investing at least 50% of assets (at cost) in operating companies and exercising management rights in at least one portfolio company each year. Meeting the VCOC test takes the fund outside the plan asset rules regardless of how much pension money it holds. This is a structural choice that gets locked in at formation and is hard to change later.
Anti-Money Laundering: Postponed to 2028
Registered investment advisers have not historically been “financial institutions” required to maintain AML programs and file suspicious activity reports under the Bank Secrecy Act. FinCEN’s 2024 rule would have changed that for registered investment advisers and exempt reporting advisers. In December 2025, FinCEN postponed the effective date from January 1, 2026, to January 1, 2028.14Financial Crimes Enforcement Network (FinCEN). FinCEN Issues Final Rule to Postpone Effective Date of Investment Adviser Rule to 2028 Throughout 2026, private credit fund managers are not required to maintain formal AML programs or file suspicious activity reports under the Bank Secrecy Act, though many have adopted voluntary programs.
When the rule takes effect in 2028, advisers will need customer identification procedures, ongoing due diligence, sanctions screening, and suspicious activity reporting to FinCEN. For managers lending into higher-risk sectors, this will be a substantial new compliance burden.
State Licensing and Usury Laws on the Lending Side
Federal rules govern the fund structure and the adviser’s conduct. The lending itself is a separate matter, and it is largely state-regulated. Non-bank lenders in most states need a lending license to originate loans, and requirements vary by jurisdiction. Applications typically involve background checks on principals, proof of adequate financial resources, and sometimes surety bonds.
Interest rates are subject to state usury laws. Ceilings differ widely, and many states carve out exemptions for commercial loans above a certain size or for loans to sophisticated borrowers. Large loans to middle-market companies often fall within those exemptions, but the analysis turns on the specific state, the loan amount, and the borrower. Getting it wrong can void the interest provisions of the loan or expose the lender to penalties.
State attorneys general also enforce consumer and business protection statutes covering lending practices, and they can bring enforcement actions independent of any federal proceeding. Lenders operating across state lines must register as foreign entities in each jurisdiction where they do business, which carries its own ongoing filing obligations.
FSOC Designation as a Backdrop
The Dodd-Frank Act gave the Financial Stability Oversight Council authority under 12 U.S.C. § 5323 to designate nonbank financial companies for enhanced Federal Reserve supervision if their failure could destabilize the economy.15Office of the Law Revision Counsel. 12 USC 5323 – Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies Designation brings Fed oversight, capital requirements, and stress testing. The statute directs FSOC to consider leverage, interconnectedness, importance as a credit source, off-balance-sheet exposures, size and concentration, and existing regulation.
No private credit fund manager has been designated as systemically important as of 2026. FSOC has increasingly focused on nonbank lending as the sector has grown, and it uses aggregate Form PF data to track trends without necessarily designating individual firms. The designation authority remains a meaningful backdrop for the largest managers.