UK consults private equity firms on market turmoil effects: FT

Britain’s financial watchdog has been consulting private equity firms about the effects on the companies and their investors of rising rates and the bond market tumult triggered by the government’s failed mini-budget, the Financial Times (FT) reported on Sunday.

Officials at the Financial Conduct Authority (FCA) contacted several buyout groups to try to find out how badly the turmoil had hit pension funds and other investors while also quizzing them about the effects on private markets, according to the report, which citing unidentified people brief on the calls.

The discussions highlight regulators’ concern about oversight of the private equity industry, the newspaper said, adding that the talks were informal and not part of any investigation. The FCA declined to comment to the FT.

Meanwhile, the UK government bonds at the heart of recent market turmoil capped their biggest weekly surge on record.

The rate on 30-year bonds has plummeted 72 basis points this week, its biggest retreat in data going back decades. The equivalent yield on 10- and 30-year inflation-linked gilts are also on course for record declines.

The move reflects relief at the ousting of Prime Minister Liz Truss and her economic agenda. The market is also being supported by the exclusion of long-dated debt from the Bank of England’s bond sales program and signs that the pensions industry is on a more stable footing.

Cash-strapped pensions were at the forefront of forced selling this past month when wrong-way bets on derivatives triggered calls to raise extra collateral. Both longer-maturity and inflation-linked debt are sought after by UK defined-benefit pensions, which need to match their assets with the timing of future payouts.

Still, traders were on edge on Friday as the Conservative leadership contest to succeed Truss as UK prime minister was in full swing. Speculation that former Prime Minister Boris Johnson would clinch the premiership was swirling, with traders distributing betting probabilities on group chats.

For some investors, the prospect of a contentious race, with divisive candidates potentially winning the premiership, raises the risk of renewed turbulence in already fragile markets.

—Bloomberg