Top analysts at Bank of America Research are pulling back the curtain on the colossal $22 trillion universe of private capital, an asset class so massive it would be “the world’s second-largest economy” if it were treated as a country. As the global financial landscape faces tectonic shifts, Bank of America Research’s latest thematic investing report reveals that private capital is reshaping how companies, investors, and economies think about growth, risk, and control, challenging the primacy of public markets and opening new frontiers for both innovation and caution.
TL;DR
- Private capital, a $22 trillion market, is now larger than any national economy except the US.
- Companies are staying private longer, with fewer US-listed companies and a surge in private venture-backed businesses.
- Private equity has significantly outperformed the S&P 500, but risks exist due to less transparency and oversight.
- Private credit is fueling massive AI infrastructure spending, with long-term bets on technologies with uncertain viability.
Private capital, which the bank defines as assets not traded on public markets, encompasses private equity, private credit, and real assets. Its growth has been extraordinary, more than doubling from 2012 to reach $22 trillion by 2024. This surge is attributed to a withdrawal from public markets. Since 2000, the count of U.S.-listed companies has been cut in half, now standing at just over 4,000, while the number of private venture-backed businesses has increased 25 times. Startups now stay private for an average of 16 years, which is a third longer than ten years ago, indicating a significant move towards private capital and away from public oversight and rules.
According to BofA, the most impactful companies globally aren't listed on stock exchanges. Similar to how public stock markets have a “Magnificent 7,”, there exists a “Private Magnificent 7” of “hectocorns,”, each worth at least $100 billion and expanding. BofA's Thematic Research division projects that their collective worth has surged almost five times since 2023, reaching $1.4 trillion. They analyzed the top 16 firms in this sector, totaling $1.5 trillion in worth, which is an impressive 1% of the world's GDP. Numerous other “decacorns” (worth $10 billion or more) and unicorns also populate the ranks below these.
Investors have seen private equity significantly outshine the S&P 500 during this timeframe, with an average annual outperformance of six percentage points, according to BofA. Additionally, BofA analysts point out other advantages associated with privacy: “In the time spent on financial regulation paperwork every year, 12 Great Pyramids of Giza could be built.”
As this asset class expands significantly, financial professionals caution that a lack of clarity fosters danger, particularly concerning the $1 trillion-$3 trillion chunk of private credit. Unlike public markets, which provide openness, oversight, and ease of trading, private companies frequently forgo regular disclosures and face less stringent supervision. This limited insight can conceal financial and management dangers, prompting analysts to advise investors to be mindful of the potential problems while seeking profits.
Wall Street’s “fear index”—the VIX—spiked by more than 35% in the past month amid bankruptcies at subprime lender Tricolor Holdings and auto supplier First Brands, both marred by alleged fraud and loss events, slicing $100 billion off U.S. Bank stock market capitalization. JPMorgan CEO Jamie Dimon warned, “When you see one cockroach, there are probably more,” pointing to the dangers of hidden risks in private lending markets. In fact, Dimon has been sounding a similar tune since at least May, when he warned that non-bank lending “hasn’t been tested in a downturn,” implying that a deluge of defaults could follow if a recession hits.
Private capital allocation
Public companies were traditionally viewed as the premier means for capital efficiency, providing liquid investments, clear financial reporting, and broad accessibility. However, private capital is now altering this landscape. As fewer companies opt for IPOs, public markets are diminishing in their former significance for economic expansion. Concurrently, advancements in innovation and digitization, fueled by game-changers like OpenAI’s ChatGPT, are increasingly supported by well-funded private investors. BofA reports that since ChatGPT's introduction, Nvidia, Google, Microsoft, and Amazon have collectively invested in approximately half of the planet's 100 artificial intelligence (AI) unicorns.
The data-center deals that are driving a significant chunk of GDP growth are increasingly based on private credit, to boot. Meta, for example, has secured a nearly $30 billion financing package or a data center in Louisiana, Bloomberg reported, adding that it is the largest private capital deal on record. The scale of spending in this space is unprecedented, with OpenAI alone estimating it will require trillions in infrastructure spend to keep up with rapid technological demands. In late October, Apollo Global Management Chief Economist Torsten Slok argued that private construction spending on data centers was so massive that there was “basically no growth in corporate capex outside of AI at this moment.”
Even some of the beneficiaries of this are concerned. OpenAI’s CEO Sam Altman has drawn parallels to the dot-com bubble, cautioning that “someone’s gonna get burned there”—especially since 95% of generative AI projects reportedly don’t deliver any profit, according to a widely read piece of MIT research. Analysts warn that investors could face pain if speculative infrastructure bets outpace real-world utility or revenues, recalling lessons from early-2000s telecom overreach.
The first phase of AI build-out was largely peer-to-peer, but now bond investors and private credit lenders are providing two to three times the funding of public markets. Tech “hyperscalers” have tapped private credit for sustained, long-tenor loans, and commercial mortgage-backed securities tied to AI infrastructure hit $15.6 billion in August, JPMorgan estimated at the time. Major deals now feature 20-30 year funding horizons—extraordinary bets on technologies whose commercial viability five years from now remains uncertain. “We are conservative in our assessment of forward cash flows because we don’t know what they will look like, there’s no historical basis,” Ruth Yang, global head of private market analytics at S&P Global Ratings, told Bloomberg in August.
Shawn Tully, a frequent commentator on private credit for Coins2Day, highlighted a difference between prominent firms like Apollo, Ares, and KKR, who are “pioneering a highly original strategy by extending credit they originate independently, often backed by high-earning assets from rail cars to data centers, that lock in borrowers for a number of years.” Borrowers are prepared to incur significantly higher interest costs compared to the conventional, protracted, and costly syndication method, which necessitates ratings from S&P and Fitch, stringent covenants, and occasionally extended timelines.
Two top executives in the space, David Spreng of Runway Growth Capital and Ted Goldthorpe of BC Partners Credit, argued in a Coins2Day commentary this month that private credit is not, in fact, a shadowy bogeyman but “structured finance built on cash flow, enterprise value, and downside protection.” Far from venture-style risk-taking, they argue that many private debt vehicles are publicly listed or institutionally backed, while reporting audited financials and operating under legal and fiduciary obligations. To be sure, they add, there are riskier parts of the market with looser standards such as covenant-lite loans, aggressive structures, or promises of liquidity where underlying assets are illiquid.
Earlier this month, Morgan Stanley Wealth Management CIO Lisa Shalett told Coins2Day expressed significant worry regarding the extent to which the current spending surge is fueled by private credit. “Every morning the opening screen on my Bloomberg is what’s going on with CDS spreads on Oracle debt,” she stated, alluding to credit default swaps, the financial tool notorious for its part in the 2008 global market collapse. “If people start getting worried about Oracle’s ability to pay,” Shalett remarked, “that’s gonna be an early indication to us that people are getting nervous.”
Long-term perspective: prospects versus neglect
The significant move towards private investment has profound consequences for society. BofA analysts observe that as private companies grow, they influence technological advancement, job creation, and risk management. The leading 120 private unicorns collectively hold a valuation comparable to Germany's total market capitalization, indicating their substantial impact globally.
Jim Rossman, the global head of Barclays’ shareholder advisory group, has been tracking private assets with a particular focus on hedge funds for decades on Wall Street, and he sees a wider transformation taking place. “The growth of private capital is really a reflection of the fact that companies, particularly these now that Apollo and Blackstone and TPG, are closing in on trillion-dollar platforms,” he told Coins2Day in a recent interview, noting that they’ve acquired their own insurance companies in some cases and are growing beyond the traditional conception of an investment firm.
These firms are so flush with capital and assets, Rossman said, that he sees the private capital boom facilitating the growth of alternative platforms to public markets. “You could see an age when private equity, private capital allows companies to remain in a private format for longer. And if 401(k)s get opened up” for private equity investments, he added, he could envision some kind of investment platform where wealth advisors could invest money just as freely in the private capital space as they can now in equities. “And that would give you exposure to a much broader part of the economy than just what’s public.”
More generally, Rossman added, the world of finance is undergoing many changes. “I think there’s a technology change, a generational change, and then finally, the structural change [that] may be the most important is the growth of mutual fund investing.” Instead of seeing private capital as a shadowy and risky thing, Rossman argued it is opening up more kinds of companies to investment, and that will likely grow, even mutate in surprising ways to many investors.
Rossman remembered purchasing his initial mutual fund from a prominent asset manager around the late 1990s: “It cost 300 basis points, three percentage points to join, and they would select 28 interesting technology companies … and then, oh, the expense ratio would be two-and-a-half, 250 basis points a year.” He stated that nowadays, the index-fund surge has made investing so accessible that one can obtain the identical fund for a mere 5, 15, or 25 basis points. “It’s just so incredible.”
The $22 trillion private capital sector, where public and private funding increasingly merge, signifies more than just financial shifts; it's an indicator of how our economies, businesses, and advancements will be shaped and assessed in the future. As private holdings approach the scale of national economies and major tech firms invest heavily away from public scrutiny, leading experts see this as a burgeoning revolution.