David Woodcock, director of the Division of Enforcement at the U.S. Securities and Exchange Commission, flagged private funds as an area the agency is watching closely amid turmoil in the private credit space.

The $3.5 trillion private credit market is facing increasing scrutiny amid rising concerns about liquidity, valuations, and risks tied to AI. Major banks have reported more than $108 billion in exposure.

"Private investment markets and efforts to broaden access to retail investors can be quite positive, but we must, and will, remain vigilant. We are attuned to potential risks relating to liquidity, fees, valuations, and conflicts of interest—not only at the private fund adviser level but throughout the distribution chain. Firms must ensure their representatives understand the products they sell and the investment profiles, risk tolerance, and liquidity needs of their clients," Woodcock said during the MFA Legal & Compliance conference.

Woodcock continued to say that the enforcement division will "remain active" in the investment adviser space, and will continue to "pursue matters involving misappropriated client assets, inadequate safeguarding of assets; misleading strategy disclosures; undisclosed fees and expenses; fraudulent valuations and mismarking; prohibited trading practices; and undisclosed conflicts of interest."

He also mentioned the private credit space, stating that the agency is also monitoring the situation as it relates to stresses in some portfolios across the sector. Additionally, Woodcock pointed to data showing a decline in SEC enforcement actions, arguing the agency has been more selective with the cases it brings.

“I want to be clear the commission has deliberately shifted toward an emphasis on quality over ⁠quantity, ​and I fully support that direction,” and added, “Our focus is and will remain on protecting investors and safeguarding markets from ​real harm," Woodcock said.

Woodcock is new to his role as chief enforcement officer; he previously served as director of the SEC’s Fort Worth Regional Office. He followed Margaret Ryan, whose exit was described as sudden after disagreements with the agency’s leadership, Reuters previously reported in March.

Last week, SEC Chairman Paul Atkins said the SEC is investigating alleged fraud in the private credit sector.

Speaking at the Milken Institute Global Conference on Monday, Atkins did not identify which specific firms are under investigation. He noted that the SEC, U.S. Department of the Treasury, and the Federal Reserve are all monitoring the private credit space.

“We are taking it seriously, we are monitoring the situation. There’s been allegations of fraud and obviously, I can’t talk about any specific cases, but we are investigating that as well,” Atkins said.

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