Anthony Bolton, the influential Fidelity stockpicker, has given warning that banks are heading for disaster by recklessly lending huge sums to private equity firms.

Mr Bolton, who yesterday began the handover of his Special Situations fund to his successor, Sanjeev Shah, said that it was increasingly difficult to find value in large companies because of the liquidity boom.

The 55-year-old fund manager said private equity firms were themselves surprised by the cheap borrowing available to them. “I think the phrase is ‘covenant-lite’, but in many cases it appears to mean no covenant at all,” Mr Bolton said.

Under the terms of covenant-lite loans, borrowers can skip the usual quarterly tests that compare a company’s cash-flow with its level of outstanding debt. Apax was the first British private equity firm to use the loans, in its acquisition of Trader Media from the Guardian Media Group in March.

The naming of Mr Bolton’s successor has been eagerly awaited since he announced last year that he would step down from running Special Situations.

Last September the assets of the original Special Situations fund – at the time valued at more than £6 billion – were divided and a £2.8 billion Glo-bal Special Situations Fund set up. The £3.2 billion Special Situations fund that Mr Shah will control is the remainder of Mr Bolton’s legacy.

After the handover on January 1, Mr Bolton will work full-time as a mentor and adviser at Fidelity, the privately owned fund manager. Mr Shah, 36, will take the next three months off before finishing the year studying with Mr Bolton.

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