Calling a default of a large private-equity-backed company or a cluster of smaller ones “inevitable,” the United Kingdom’s market regulator on Monday published a report on what it considers to be the major risks from the buyout boom, including excessive leverage, market abuse and conflicts of interest. With classic British restraint, it said that the amount of debt in buyout transactions has surged, and that “this lending may not, in some circumstances, be entirely prudent.”
The F.S.A. said it hopes to get feedback from private equity executives and public policy makers on a number of initiatives related to leveraged buyout activity, which has been setting records in both the United Kindgdom and in the United States. For example, the agency said it plans to create an alternative investment team to bolster its oversight of private equity deals. It may also conduct regular surveys on leveraged loans, which are used to fund private-equity takeovers.
Despite the concerns outlined in the 102-page report, it did not call for tighter oversight of the industry in general, which is likely to come as a relief to many private equity professionals. On the subject of private equity, the F.S.A. said it believes “our current regulatory architecture is effective, proportionate and adequately resourced.”