One of the most senior private equity figureheads has warned investment groups against buying debt in companies that they also hold equity in.

Jon Moulton, founder of Alchemy Partners, said private equity groups that own both debt and equity risk are harming creditors' abilities to enforce a default, delaying write-offs of their investment.

'With 25% or even less you can get a seat at the creditors’ top table or create a blocking minority,' Moulton told the Financial Times. 'That way they can stop the nasty debt boys from enforcing a debt-for-equity swap.'

He argued that private equity groups risk disappointing investors when they use their main buy-out funds to take on leveraged loans due to the capped returns on debt against the potentially unlimited gains on equity.

Further reading:

Bank annual reports are 'unreadable'