When the Financial Services Authority embarked on its examination of private equity earlier this year, many welcomed the UK watchdog’s decision to train its spotlight on the fast-growing and increasingly influential business.

But in the course of its study, the FSA has shifted focus. Its 94-page discussion paper is mainly a detailed exposition of the risks and tensions posed by the rapid expansion in leveraged lending. And the stresses in the system are as likely to affect the investment banks and hedge funds that operate in the market for risky loans as in the private equity groups themselves.