Monetary policy and private equity acquisitions: tracing the links

Fernando Avalos, Boris Hofmann and José María Serena Garralda

No 1326, BIS Working Papers from Bank for International Settlements

Abstract: Private equity funds play an increasingly important role in financial systems. Yet, the impact of monetary policy on their activity has been little explored so far. In this paper, we analyse the transmission of monetary policy through private equity (PE) deals, focusing on the impact on: (i) the volume of private equity deals; (ii) the use of leverage; and (iii) the pricing of those deals. We find that contractionary monetary policy shocks to the short end of the yield curve tend to dampen private equity activity, by reducing deal volumes, the use of leverage and deal prices. A credit channel of monetary transmission seems to affect deal volumes and the use of leverage, while a valuation channel appears to drive the transmission to deal pricing. Monetary policy shocks to the long end of the yield curve have weaker effects on PE activity.

Keywords: private equity; buyouts; monetary policy; credit spreads; equity risk premium (search for similar items in EconPapers)
JEL-codes: F32 F34 G21 G32 (search for similar items in EconPapers)
Date: 2026-01
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