Inflated ‘Private’ Ratings Mask Credit Risk, Study Says (1)

Ratings that underpin a growing slice of the $1.8 trillion private-credit market, the hottest corner of Wall Street in recent years, are systematically understating investment risk, according to a new study by Columbia Business School researchers.

The finding, in a paper posted online this monthand not yet peer-reviewed, adds to concerns about perils lurking in the US life insurance industry. Carriers are piling up bets on private credit, fueling a bonanza for the financiers who create the products, while leading regulators and analysts to warn of potential risks for policyholders.

The study focuses on so-called private-letter ratings, which aren’t ...