The Bank of England is right to be concerned about a private equity bubble, one of the City’s best-known turnaround specialists Jon Moulton has said.
“Banks need to better employ group-wide risk data aggregation tools, stress testing capabilities and consolidated management information reporting processes,” she said, citing Archegos Capital’s collapse in 2021 that led to Credit Suisse’s shotgun marriage with UBS.
Moulton told Financial News the wide range of complicated debt structures being used are “more or less the same as the ones used in the subprime crisis”.
“There’s lots of complex debt with strong domino characteristics. One company going bust could have quite a wide impact. The Bank is right to be concerned,” the Better Capital boss said.
“The main problem that seems to be coming is the wide range of debt instruments being used in private equity. No longer is the debt just in portfolio companies, but it is also being lent against funds giving impressive overall leverage for investors and fund managers.
“It gets worse… Some of the debt is provided by highly leveraged structures that are more or less the same as the collateralised loan obligations used in the subprime crisis.”
Moulton has been involved in buyouts, turnarounds and venture capital since 1979 with firms such as CVC, Permira, Apax and Alchemy. He has been the chair of Better Capital since 2009.
Assets under management in the private equity sector have increased to around $8tn from $2tn in 2013, the Bank said.
The sector provides about £250bn in funding to British businesses, with the IT, media and software communications sectors snapping up a major chunk of that cash pool.
The British Venture Capital Association said 2023 alone saw £137bn — equivalent to 6% of GDP — directly generated by private-capital-backed businesses.
BVCA’s chief executive Michael Moore said: “The Bank has an important responsibility to ensure financial stability and the private capital industry stands ready to detail how it has played a vital role in the UK economy for over 40 years, showing its resilience through different economic cycles.”
Write to Shruti Tripathi Chopra at shruti.chopra@dowjones.com
