BoE speaks on role of private equity

Nathanael Benjamin of the BoE has spoken on the role of the private equity market, focusing on its key role in financing companies but looking also about safe and sustainable growth. Key points from his speech included:

• half of all funding for UK businesses now comes directly from financial markets and NBFIs rather than from banks;
• as assets under management in the PE sector have increased, many people who used to work for banks now work for competitors or clients of those banks; and
• around £250bn is currently actively invested in UK companies via private equity, a lot of it in the tech sector

The speech outlined that key players in the PE ecosystem, from the “sponsors” (or general partners) who can come in all shapes and sizes, although there are signs that larger ones are beginning to dominate, the limited partner investors – institutional or HNWI, the banks that provide leverage and the private credit funds which compete with the banks be lending to companies which are owned by the PE funds.

Mr Benjamin moved on to discuss the current challenges to the sector. Highly-leveraged companies are facing challenges because of higher interest rates, and the private equity sector is particularly vulnerable to the consequences of a lack of exit opportunities. Moreover, he said these developments and challenges come against a backdrop of opacity and are resulting in interconnectedness. The BoE is looking closely at the impact of all of this on systemic institutions, interlinked markets and the real economy.