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(Bloomberg) — The Bank of England said hedge funds have faced “significant” margin calls from their prime brokers as they navigated extreme market volatility in the aftermath of US President Donald Trump’s tariff announcements and warned that the risk of “further sharp corrections” remains high.

While the central bank’s Financial Policy Committee found that so far those firms had been able to meet margin calls, it warned that the overall global risk environment has deteriorated, according to minutes from meetings it held on April 4 and April 8.

“Uncertainty has intensified,” the committee said. “The probability of adverse events, and the potential severity of their impact, has risen.”

Markets have gone haywire since Trump unveiled a raft of tariffs on trading partners around the world. Equity investors immediately headed for the exits, wiping out trillions of value. Markets continued to convulse this week, while the VIX Index, or fear gauge, rose to pandemic-era levels.

The central bank spent months last year studying how a bevy of investment banks, insurers, central counterparties, hedge funds and other asset managers can handle different forms of stress as part of its so-called system wide exploratory scenario. It ultimately warned that hedge funds, asset managers and pension providers could be “underprepared” in times of crisis.

At its meetings, the committee noted that some hedge funds had de-risked their portfolios ahead of Trump’s announcement last week, which meant they were less impacted by the volatility in markets.

Still, the central bank flagged the risk posed by the rising use of leveraged investment strategies in UK government bond markets.

Much of that recent increase could be explained by hedge fund net gilt repo borrowing, the BOE said, which rose from £4 billion at the start of 2024 to £61 billion as of March 2025. That’s within the top percentile of the historical distribution of hedge fund net positioning, going back to 2017, it added.

Hedge funds use repo markets to hold sovereign debt outright or to take positions relative to other asset classes, including the so-called basis trade that exploits the price difference of bonds and futures contracts. Market participants have speculated that wild swings in US Treasury prices over recent days are due in part to the unwind of basis trades. Gilts have also sold off heavily in the market ructions.

“Any forced or rapid unwinding of leveraged positions, particularly when concentrated, could amplify price shocks and create financial stability risks,” the committee said. Other central banks including the Bank of Canada and European Central Bank have also noted these risks.

The central bank said it remains concerned about the prevalence of private equity-backed companies across the UK and how such ownership structures could hurt the country’s economy during times of economic stress.

Shares of the biggest private equity firms have plunged in the aftermath of Trump’s tariff announcement. KKR & Co. and Ares Management Corp. both tumbled 15% — a record drop for both firms — the day after Trump unveiled the new policies. Apollo Global Management Inc., Carlyle Group Inc., Blackstone Inc. and Brookfield Corp. also all swooned.

At the start of the year, private equity dealmakers were hopeful that Trump would usher in a frenzy of merger activity and initial public offerings. That would have been good news for buyout funds that have been patiently awaiting a window to exit many of their longtime investments.

Trump’s announcement last week has throttled that optimism, at least in the short-term. Already, high-profile companies including Klarna Group Plc and Stubhub Holdings Inc. have paused their initial public offerings.

The BOE has long voiced concern about opaque valuation practices and governance risks in the private equity market, which now finances around 10% of the UK’s private-sector jobs.

“Heightened global uncertainty and perceived higher economic risk could translate into tightened financing conditions for business, as well as impacting exit opportunities for investors in an already subdued IPO market,” the committee said. “These vulnerabilities could amplify shocks to highly indebted UK corporates or investor confidence and potentially affect UK financial stability.”

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