Alternative asset managers have provided the Bank of England (BoE) with information on investments in 520 UK companies, representing £230bn, as part of its stress test of private markets.
In its July Financial Stability Report, the BoE provided an update on its System-Wide Exploratory Scenario (SWES) and also revealed that it is considering easing some capital requirements for major UK lenders.
Regarding the SWES, the Bank said the exercise is being conducted in collaboration with 46 market participants, including 17 alternative asset managers.
Last month, the BoE launched the exercise, presenting private market participants with a hypothetical scenario involving a global recession over a five-year period. Under the scenario, the UK economy would contract by four per cent and interest rates would rise to seven per cent.
As part of the data-gathering phase, alternative asset managers provided information on investments in 520 UK companies. Of these, around 130 had received private equity investment, while 440 had received private credit financing, with some companies receiving both.
Read more: Bank of England to stress test private markets
The BoE said that around 60 per cent of companies receiving private credit financing have EBITDA below £50m, compared with around 30 per cent of those receiving private equity financing.
Collectively, the companies represent more than £230bn in revenue and around £40bn in EBITDA, the BoE said.
The Bank also gathered information on around 180 private credit funds with approximately £370bn of total capital, as well as around 85 private equity funds with roughly £400bn of total capital.
Some of the largest players in private markets are participating in the Bank of England’s first stress test of the sector, including the likes of Apollo, Arcmont, Ares, Goldman Sachs and Oaktree.
Easing capital rules
Separately, the Bank of England proposed relaxing some capital rules for UK banks that were introduced following the 2008 financial crisis.
The Bank said it would consult on changes that would reduce the aggregate capital UK banks are required to hold against a key risk metric, known as the leverage ratio, by 20 basis points.
It is also making short-term changes that would allow the UK’s largest banks to draw on their capital buffers during periods of stress.
One reason private credit has grown rapidly in recent years is due to banks scaling back certain types of lending following the 2008 financial crisis. As a result, changes to bank capital rules could potentially erode some of the structural advantages currently enjoyed by private credit lenders.
