Private equity crash could hit shares

A disruption to the activity of private equity firms could cause significant
damage to stock markets, the Bank of England has warned.

According to City A.M., the Bank said that its market contacts had
revealed that trading in the shares of listed companies was vulnerable to a
slump in buyout activity.

The warning follows months of lobbying by unions and left-wing politicians
for a complete restructuring of the way in which private equity operates.

Opposition to the industry has centred around the fact that private equity
enjoys tax advantages because of the way deals are structured, with unions
saying that private equity bosses do not pay enough tax on their emoluments.

‘In the event of a significant disturbance to financial asset markets, there
is uncertainty surrounding how the shock would be transmitted through the
financial system,’ the Bank said.

The Bank also pointed out that less onerous loan covenants increased the risk
of a collapse in private equity deals.

Further reading:

Private equity bosses ‘will bow to tax rises’

Brown to offer foreign subsidiary tax breaks

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