Financial Services Regulation Committee Publishes Private Markets Report

Source: UK Parliament

The Financial Services Regulation Committee publishes its report ‘Private markets: Unknown unknowns’:

Global private markets have grown rapidly, from less than $4 trillion in global assets under management in 2008 to around $16 trillion today, and approximately $185 billion in the UK. Whilst private markets have delivered strong returns for investors and provided tailored finance to UK companies and infrastructure projects, concerns have been raised about the implications of their rapid growth and interconnectedness with banks and insurers for the UK’s financial stability. The report sought to shine a light on the drivers and consequences of the growth of private markets.

Post-Global Financial Crisis regulatory reforms, particularly to bank capital requirements, have contributed to the growth of private credit, as banks have reduced direct lending to UK companies relative to non-banks and other types of lending. In addition, banks are increasingly relying on an ‘originate to distribute’ model of lending, in which private credit plays a significant role. SME demand for borrowing has been subdued for some time. At the same time, the availability of SME finance has been squeezed by a combination of changes to bank capital and the fact that private credit has not entered the SME finance market. Addressing constraints on smaller and specialist banks’ ability to lend could increase the finance available to SMEs, should demand increase.