Investors hunting for enhanced yields via hedge funds, leveraged loans and private equity are posing problems for the financial system, the Bank of England warns today.

"Many investors have continued to seek out higher returns, accepting higher risks in the process," the Bank said in its Financial Stability Review. This poses two risks to the system, according to Sir Andrew Large, deputy-governor for financial stability. "There are signs that areas of credit risk may be under-priced, and the liquidity of some assets could prove illusory in stressed conditions," he said.