There is more to Federal Reserve policy meetings than simply voting to raise or lower interest rates. In late 2006, for example, Fed officials were grappling with whether financial markets were showing signs of overheating. The details of their deliberations were made available earlier this month when the Fed released full transcripts from its ‘06 meetings. Given the scrutiny over private equity spurred by Mitt Romney’s bid for President, one passage in particular, from December of that year, jumps out.

Here is Dino Kos, then manager of the Fed’s System Open Market Account, expressing some concern about the frothiness of financial markets at the time:

…the market has been more than willing to finance lower-rated paper for purposes other than traditional investment in plant and equipment. It is fair to say that risks are rising.

And with regards to private equity specifically:

Private equity sponsors are increasingly turning to [leveraged loans] to finance acquisitions.

Meanwhile private equity deals are also evolving. The size has obviously grown, but two other aspects are worth noting.

First, many deals no longer involve acquisitions of underperforming companies. In many cases the acquired companies are performing reasonably well but are viewed as being able to operate with higher levels of debt. It’s not clear what value added the private equity buyer is providing in such cases.

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