The Bank of England has sounded its strongest warning yet about the threat to financial stability posed by the $8 trillion private equity market as buyout firms and the companies they own wrestle with higher interest rates.
In a sign of officials’ growing unease, the Bank’s financial policy committee said in its latest quarterly update that it was carrying out a closer review of the risks lurking in the private equity industry, which grew rapidly in the period of ultra-low rates that followed the 2007-9 financial crisis.
The committee also cautioned that financial markets more broadly are too optimistic about the extent of future rate cuts by central banks, raising the likelihood of a sharp sell-off if policymakers disappoint investors.
Buyout firms typically use debt
