The Bank of England will begin testing how private credit and equity firms would deal with a financial shock after warnings about their potential threat to the wider economy.
The central bank said it has launched a new exercise to stress-test the resilience of the market.
Total assets in private credit and equity funds have increased from around three trillion US dollars (£2.25 trillion) to 11 trillion dollars (£8.23 trillion) over the past decade.
They now play a major role in financing UK companies, with funding supporting around two million jobs, according to the Bank.
Private credit is a form of lending where businesses do not go to banks but to a private company and negotiate a deal.
Private equity typically refers to financing in return for a stake in a business.
Concerns about the strength of the market and the fact that it has much less regulation and oversight than the traditional banking system have risen in recent months.
The collapses of US auto parts firm First Brands and car dealer and lender Tricolor in October fuelled worries among investors.
Andrew Bailey, Governor of the Bank of England, said recently that it had to take concerns over the failures “very seriously”.
The Bank said it wanted to review the private markets because firms have not been tested against a severe global downturn before.
It wants to know whether it could pose any risks to financial stability in the UK.
“Private equity and private credit play an increasingly valuable role in helping UK companies to innovate, invest and grow,” Sarah Breeden, the Bank’s deputy governor for financial stability said.
“To keep delivering those benefits, we need a robust understanding of how risks might flow through the financial system in a stress.”
The Bank said a range of private market firms including “major global players” had agreed to take part.
Investment giants including Blackstone, Apollo and KKR are among those reported to have signed up.
Most of the testing will happen in 2026 and the central bank expects to give an update on its findings during the year, before publishing a final report in early 2027.
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