Warnings of Systemic Risk in Private Credit Sector

Colm Kelleher, chairman of UBS Group, has issued a warning about growing risks in the global financial system, pointing out that insurance companies' pursuit of higher credit ratings for their private debt assets poses a potential threat. Kelleher made the remarks at the Global Financial Leaders' Investment Summit organized by the Hong Kong Monetary Authority, noting that these practices are reminiscent of what happened before the 2008 financial crisis, where financial institutions manipulated ratings of mortgage-backed assets.

Concerns About Insurance Company Practices

There are increasing voices expressing concern about the risks inherent in the trillion-dollar insurance sector, including its holdings of illiquid private credit loans, in addition to a lack of transparency in information disclosure. Kelleher joins a growing list of those worried about these risks.

Potential Manipulation in Credit Ratings

Kelleher stressed that smaller rating agencies are lax in their audit processes for assessing investment compliance, noting that regulators have failed to effectively control risks in the insurance sector, despite their efforts to boost economic growth. He warned that the absence of effective regulation could lead to the gradual emergence of systemic risks.

Warnings from the Bank for International Settlements

The Bank for International Settlements (BIS) previously indicated last month that the credit ratings of private credit assets held by US insurance companies may be inflated, warning that these assets may face concentrated sales during times of financial stress.

Criticism of Switzerland

In addition, Kelleher leveled sharp criticism at Switzerland, noting that it is losing its appeal due to competition from Hong Kong and Singapore in the field of wealth management, as well as the impact of the trade war launched by Trump and high US tariffs on the pharmaceutical industry. He also criticized the regulatory policies of the banking sector in Switzerland, considering that defining Switzerland's role in the global banking sector faces an identity crisis.