The Bank of England (BoE) is currently conducting an investigation into the potential impact on UK businesses if there is a reversal of the private equity boom that has been ongoing. Officials from the BoE’s financial policy committee have expressed concerns about leverage, transparency, and valuations in private markets. They have stated that the risk environment remains challenging and there is an increased likelihood of a sharp correction in some markets, despite rising prices and an uncertain outlook.
Despite rising prices and an uncertain outlook, officials have highlighted the vulnerability of finance for riskier corporates in the event of a significant deterioration in investor risk sentiment. They have also emphasized the importance of understanding the interconnections between private equity firms, facing higher borrowing costs, and the UK companies that rely on them for funding. The BoE has pledged to conduct further work on this issue to better understand and address potential risks to financial stability.