Private Capital Soars to $22 Trillion: Progress or Potential Threat?

The private capital sector has surged to an immense $22 trillion, putting it on par with the world’s second-largest economy, according to

(BofA). This remarkable growth signals a fundamental transformation in global finance, as more companies are opting for private funding over going public. The number of companies listed in the U.S. has dropped by half over the last 20 years, while the count of private, venture-backed businesses has soared 25 times. Startups now typically stay private for 16 years—about a third longer than ten years ago—highlighting the increasing preference for private capital, as reported by .

Over the past decade, private equity has delivered annual returns that outpace the S&P 500 by an average of six percentage points, attracting investors with the allure of greater profits and more operational freedom. Companies also avoid the regulatory expenses tied to public markets, which BofA estimates to be roughly 4% of the median U.S. firm’s market value. Additionally, private markets have demonstrated more resilience than public ones, with steadier fundraising and less vulnerability to economic shocks, according to the Investing.com report.

Yet, the swift rise of private credit—a $1.7 trillion segment within the private capital universe—has sparked concerns.

has cautioned that U.S. banks have nearly $300 billion in exposure to private credit, with total lending to non-depository financial institutions (NDFIs) reaching $1.2 trillion. The ratings agency points to dangers from unclear lending practices and loose underwriting, referencing recent bankruptcies such as subprime lender Tricolor and auto parts producer First Brands as warning signs. "While lending to private credit firms can diversify banks’ portfolios, it also brings added leverage and reduced transparency," Moody's stated in a .

Capital Economics has also voiced apprehension, highlighting the unsustainable speed of private credit’s expansion. The U.S. private credit market has grown by 20% each year since 2010, and analysts caution that this pace cannot last. "With so little public data on credit quality, assessing the true risks is difficult," they observed, adding that investors are already factoring in possible losses. JPMorgan CEO Jamie Dimon has issued similar warnings, likening hidden dangers in private lending to a "cockroach" scenario—where one problem hints at more beneath the surface, as mentioned in a

.

The discussion around the risks and rewards of private capital also touches on major deals and tech investments. Meta’s $30 billion data center project in Louisiana—the largest private capital transaction to date—illustrates how private credit is powering infrastructure growth. However, with 95% of generative AI initiatives reportedly failing to generate profits, critics warn against excessive borrowing. "We take a cautious approach to forecasting future cash flows because their trajectory is so uncertain," said Ruth Yang of S&P Global Ratings, emphasizing the unpredictability of long-term AI infrastructure returns, as noted in a

.

Regulators and investors are now wrestling with the challenge of encouraging innovation while maintaining oversight. Although private capital provides adaptability and control, its lack of transparency could introduce systemic risks. As the boundaries between public and private markets become less distinct, this $22 trillion asset class is transforming global finance—offering both extraordinary prospects and significant hurdles.