Financial Stability

Over the past few years, the Financial Stability Board (FSB) and the International Organization of Securities Commissions' (IOSCO) at international level and the European Systemic Risk Board (ESRB) have examined the impact the use of leverage and liquidity imbalances in the fund management sector, including private equity, can have on banks and on the wider economy. 

How does it affect private equity?

The regulators’ efforts to assess the risks posed by non-bank financial intermediation (NBFI) have led to significant additional pressure on the ability of banks to lend to private equity buyouts and on the use of leverage at fund level in a private equity context. It also can affect the conditions under which "semi-liquid" funds can be set up by private equity houses, relevant to managers interested in retail distribution. These developments could at some point lead to changes to EU and UK fund management rules, in particular leverage limits and liquidity management tools in AIFMD and ELTIF.

Increased focus on seriousness of private equity valuations and need of stress testing of the asset management ecosystem also require ongoing discussion between Invest Europe and the EU policymakers concerned by the impact our asset class can have on financial stability.

Finally, the industry may soon be subject to stress tests conducted by EU authorities on major non-bank market players.