The Transparency Gap in Private Markets
Posted by Laura Saville on September 8, 2026
As credit migrates into private markets, investors, insurers, and regulators are losing the independent reference points they need to evaluate and challenge credit assessments. Those assessments drive real decisions: where to take risk, how much capital to commit, and whether that capital adequately reflects the underlying exposure. Independent private-market credit intelligence is available to close that gap.
Recent Columbia Business School research points to a pattern: where credit assessments operate without independent, observable benchmarks, ratings run more favorable and recognize deterioration more slowly. For insurers, whose capital requirements are based on those ratings, that can leave insurers holding insufficient capital against the exposure. Independent benchmarking supplies the missing challenge.
The Rise of the Opaque Credit Market
Private markets are growing faster than the tools available to benchmark their risk.
Public markets provide multiple ways to challenge a credit view: agency ratings, traded prices, analyst scrutiny, public disclosure, and competing assessments. None is perfect, but together they let a credit opinion be tested.
In private markets, most of those reference points disappear — capital is deployed where independent information about credit risk is hard to obtain.
The Columbia study puts a scale on that gap. Among U.S. life insurers, privately rated holdings rose from approximately $46 billion in 2018 to $481 billion in 2025 — 1.5% to around 12% of bond portfolios — and more than 96% carried no contemporaneous public rating. A market has grown more than ten-fold with almost no observable second opinion attached to it.
The Columbia study attaches a consequence to that scale: those unrated bonds went on to impair more often than comparable public bonds — a gap that disappeared wherever a public rating also existed.
Key Distinction
Having a credit assessment is not the same as being able to benchmark it independently.
Opacity does not imply poor credit quality. The issue is whether investors and risk managers have an external reference point when a credit view needs to be challenged.
What the Columbia Research Tells Us
Private holdings have moved from a niche part of insurer portfolios to a more material component.
That shift happened inside seven years — fast enough that allocation has outpaced the reference points available to test it.
Figure 1. Privately rated holdings increased more than ten-fold between 2018 and 2025. Source: Li, Oh & Ricciardi, Rating Without Market Discipline.
Benchmark Discipline
An observable benchmark appears to create discipline of its own.
Within the same rating category, privately rated bonds subsequently experience higher impairment while being downgraded less frequently than comparable publicly rated bonds. Where a public rating also exists, the impairment gap disappears — which the authors read as evidence that observability itself imposes discipline.
The study stops short of proving deliberate inflation. What it does establish is the mechanism: absent an observable second opinion, assessments run more favorable and correct more slowly — with capital consequences for the institutions holding them.
The Missing Benchmark
The coverage problem extends well beyond the securities captured in one study.
Traditional ratings illuminate only a fraction of the private-company universe. Global financial companies are a useful example because private ownership is the norm in terms of volume and agency coverage is thin.
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Figure 2. Approximately 5,353 of the c.5,637 financial services companies in the Credit Benchmark universe are private. |
Figure 3. Only 9% of companies in the global Credit Benchmark financial services universe are CRA rated. |
The same structural pattern appears across other institutions — including private credit funds, specialty lenders and leasing companies — and in real estate.
The Implication
The absence of a public rating does not imply the absence of credit risk.
It means the risk is harder to observe externally. As private markets become a larger share of portfolios, the need for scalable external reference points increases.
A Different Model for Independent Credit Information
Credit consensus ratings can extend an external reference point into parts of the market where traditional coverage is sparse.
Credit Benchmark derives credit consensus ratings from the internal credit assessments of banks, insurers, and asset managers across public and private obligors. The inputs come from independent risk functions and are aggregated and anonymized to create a consensus view.
This model allows breadth of private-market coverage and independence from any single institution’s credit opinion.
Second Opinion, Not Substitute
An independent perspective.
Credit consensus ratings are not designed to replace agency ratings, private ratings, or an institution’s own analysis. They provide a comparable reference point against which those assessments can be challenged, monitored, and investigated.
How the Models Differ
| Public Agency Rating | Private Rating | Credit Consensus Rating | |
|---|---|---|---|
| Observable to market | Yes | Usually limited | Yes |
| Private-company reach | Limited | Strong | Strong |
| Single-provider opinion | Yes | Yes | No — aggregated |
| Useful as external benchmark | Yes | Sometimes | Yes |
What Credit Benchmark Data Can Show
The core question is: what does credit risk look like across private companies outside the traditional agency-rating universe?
CB Credit Consensus Rating (CCR), mapped to CB21 major grades. Share of population by grade, insurance + non-bank financials + real estate combined. Non-agency-rated private names skew two grades lower — the BB bucket alone holds 30% of the population, roughly double the rate seen in either rated group.
The most useful comparison divides companies into three populations — publicly owned companies, privately owned companies with an agency rating, and privately owned companies without an agency rating — then compares the distribution of credit consensus ratings across insurance, non-bank financial institutions, and real estate.
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Public n=166 | Private, rated n=173 | Private, unrated n=1,795 |
Public n=284 | Private, rated n=373 | Private, unrated n=4,933 |
Public n=205 | Private, rated n=126 | Private, unrated n=2,487 |
Next we evaluate whether the non-agency-rated private universe looks materially different.
Net rating actions (upgrades minus downgrades) per 100 entities, trailing 12 months, by population. Positive = net upgrades.
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Analysis
Non-agency-rated private names carry no S&P rating by construction, so this comparison covers public and agency-rated private entities only. Each row is the share of CB’s major-grade cohort landing in each S&P major grade; the diagonal is exact agreement.
Private doesn’t automatically mean riskier: most of the credit-quality gap in our analysis comes from real estate.
Across insurance, non-bank financials and real estate, the non-agency-rated private population carries a high-yield share roughly 10–14 points above its rated peers.
The weakness is in the distribution, not just the average: the cohort sits around two major grades below public companies, and the elevated risk is central rather than a tail phenomenon.
The differential is concentrated rather than systemic: exposure is a function of sector allocation as much as of private ownership, and portfolios weighted toward private real estate carry most of it. In insurance and non-bank financials, non-agency-rated private names sit close to their rated peers — there, the absence of a rating reflects ownership structure and issuance behavior rather than weaker fundamentals.
Why Benchmarking Matters for Insurance (And Others)
When ratings determine capital treatment, benchmarking isn’t just good risk governance — it can help test whether capital relief is supported by the underlying credit risk.
A stronger rating means a lower capital requirement and more capital free for deployment. Where the assessment reflects the underlying risk, that efficiency is earned; where it does not, the insurer is undercapitalized against the exposure.
From Rating to Capital
Credit assessment → regulatory treatment → capital requirement → capital available for deployment
A difference in credit assessment is therefore not merely an analytical disagreement. In some circumstances, it has direct economic consequences.
The Columbia research finds evidence consistent with insurers increasing their use of private ratings where those ratings provided greater regulatory capital relief. The precise magnitude of that effect is debated, but the principle is straightforward: where ratings influence capital requirements, the ability to challenge them independently becomes more valuable.
Benchmarking surfaces those divergences — between an internal assessment, an external rating, and the broader consensus — before they become unexpected losses or misallocated capital.
Practical Use Cases
A consensus reference point changes what a risk function can actually do — from challenging a single assessment to evidencing portfolio-level oversight.
- Challenge — identify ratings and internal grades that diverge from broader institutional views, and give credit committees a defensible basis for questioning an assessment rather than accepting it by default.
- Prioritize — direct analyst attention toward the largest outliers and the exposures where consensus is deteriorating fastest.
- Evidence — demonstrate to committees, boards, and regulators that private-market credit risk is being independently tested.
Each converts an unobservable credit view into something that can be compared, questioned, and evidenced — using credit information regulated institutions already generate.
Private Markets Benefit From a Second Opinion
The debate over private ratings will continue. The more durable issue is the absence of independent reference points across a rapidly expanding part of the financial system.
Much of private credit is not necessarily mis-rated. It is under-benchmarked.
The conclusion is not that private means riskier. It is that private is harder to verify independently — and an independent benchmark is what distinguishes where the absence of a rating is benign from where it may be masking materially different risk.
Credit consensus ratings narrow that gap without importing the public disclosure model: they aggregate the assessments of institutions already taking the risk, and reach the private, non-agency-rated universe traditional ratings do not.
Closing Thought
Independent benchmarking can reveal where credit risk is consistent with the broader market, where it isn’t, and where a second look is warranted.
As private markets grow, the ability to form a credit view isn’t the problem. The ability to independently challenge it is.
Credit Benchmark provides ongoing consensus credit data, analytics, and research. For more detailed analysis and custom data extracts, please contact us at [email protected] or visit creditbenchmark.com to learn more.
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