Bank of England launches system-wide exploratory scenario exercise focused on private markets

The Bank of England (the Bank) has today launched its second system-wide exploratory scenario (SWES) exercise. This will focus on how the private markets ecosystem operates under stress and the potential implications for UK financial stability and the UK real economy.

Private markets comprise a broad ecosystem of primarily long-term financing arrangements for businesses, including through private equity (PE) and private credit (PC). Total assets under management in private market funds have reached approximately $16 trillion globally. Within this, global PE and PC have expanded significantly, increasing from around $3 trillion to approximately $11 trillion over the past decade. Having grown significantly over the past decade, including in the UK, they now play a major role in financing UK companies. In the UK, PE-sponsored businesses account for up to 15% of total corporate debt and 10% of private sector employment, accounting for just over two million jobs.

The rapid growth of private markets has brought many benefits, such as providing additional and more diverse forms of long-term capital to support economic growth. However, the resilience of private markets, in their current form, to a severe downturn has not been tested yet. The Bank’s Financial Policy Committee had previously highlighted the interconnections with banks, insurers and leveraged finance markets, as well as potential vulnerabilities related to use of leverage, valuation challenges, and the extent of reliance on credit rating agencies.

The Bank’s first System-Wide Exploratory Scenario exercise focused on risks in gilt, gilt repo and sterling corporate bond markets. This second exercise will aim to address critical data gaps and explore potential risks and dynamics associated with private market finance. It will aim to better understand how banks and non-banks active in private markets would respond to a severe but plausible global downturn, how their actions interact at a system level, and whether these interactions can amplify stress across the financial system and pose risks to UK financial stability and the provision of finance to the UK real economy.

Deputy Governor for Financial Stability, Sarah Breeden, said:

“Private equity and private credit play an increasingly valuable role in helping UK companies to innovate, invest and grow. To keep delivering those benefits, we need a robust understanding of how risks might flow through the financial system in a stress. This exercise provides a unique opportunity to work collaboratively with firms to build that system-wide understanding together.”

The exercise will consist of two rounds, enabling system-wide interactions and amplification effects to be accounted for, including by updating firms on the behaviours of other firms and any consequences of that, as well as testing key sensitivities.

Participants will include key firms in the private markets ecosystem, including traditional and alternative asset managers, large banks providing credit to both private market funds and private equity-sponsored corporates, and institutional investors that are the primary providers of capital to private and related public markets. The exercise will be run in close collaboration with the participating firms. A range of alternative asset managers that are active in private markets, including major global players, have agreed to participate in this exercise. In aggregate they account for around one third of UK PE leveraged buyout activity, around half of UK and global PC activity to the corporate sector and around 40% of employment in UK PE-sponsored corporates over the past three years.

The Bank is conducting this exploratory exercise under the guidance of the FPC and the Prudential Regulation Committee (PRC), working closely with and with full support of the Prudential Regulation Authority, Financial Conduct Authority (FCA) and The Pensions Regulator (TPR). The Bank is committed to sharing our findings with other central banks, regulators and international bodies like the Financial Stability Board to advance understanding of private market developments globally. 

The exercise is not a test of the resilience of the individual firms that will participate in the exercise, and published material will not provide information on any individual firms. Its focus is system-wide, exploring the resilience of the provision of private market and related public market finance (including via leveraged loans and high-yield bonds) to the UK corporate sector.

Most of the exercise will be completed in 2026, with a final report published in early 2027, setting out aggregate system-wide findings, as well as sector-specific findings where relevant, their implications for UK corporate financing markets, and any conclusions for the Bank’s assessment of risks to UK financial stability and the UK real economy. An update will be provided over the course of 2026.