Private equity could profit from QE threat to sovereign bonds

NAPF argues that the Bank of England's quantitative easing efforts have a negative impact on pension funds that are heavily invested in British government bonds (gilts). The central bank's debt purchase that first started in March 2009, increases the price of gilts, turning them into a low-yield investment. 

In theory, a move out of low-risk sovereign bonds could provide an important push for private equity funds, which are struggling with the current difficult fundraising environment in Europe.

But while QE is designed to encourage investors to move into riskier assets, a NAPF survey shows that only 14% of funds would abandon gilts for alternative investment routes.

"Firms are legally obliged to fill the deficits, and that diverts money away from jobs and investment," says Joanne Segars, chief executive of NAPF, with regard to pension fund liabilities.

This suggests that it might take more than continued quantitative easing, namely a healthy economic recovery, to see a trend towards riskier assets. Private equity is generally classified as a high-risk asset, but tends to outperform its public-market equivalent (PME).

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• Topics
• UK / Ireland
• Fundraising