Private equity firms are facing higher borrowing costs, and there could be a significant deterioration in investor risk sentiment that may affect funding for UK businesses. Officials from the Bank of England have expressed concerns about issues such as leverage, transparency, and valuations in private markets. The financial policy committee, which is responsible for monitoring risks to financial stability and implementing policies to mitigate them, has stated that the risk environment is challenging. They have also noted an increased likelihood of a sharp correction in some markets as prices continue to rise despite uncertainty in the economic outlook.
The BoE has promised to conduct further research on the connections between private equity firms and the companies they fund as they work to address potential vulnerabilities in the financial system. If there is a reversal of the long-standing private equity boom, this could lead to a significant impact on funding for UK businesses. Officials have highlighted that there could be particular vulnerability in funding for riskier corporates if there is a significant deterioration in investor risk sentiment. This includes private equity firms that are facing higher borrowing costs and UK companies that rely on them for funding.