Why Private Markets Are Surpassing Banks in Wealth, Power & Risk

The recent Barron’s article highlights a dramatic reordering of wealth, power, and influence in global finance. Private equity and alternative-asset executives now dwarf their counterparts at major banks in cumulative compensation, reflecting a business model that rewards originators of fee and carry‐rich financial services over balance-sheet centric banking [1]. This is not merely about pay; it signals the locus of capital, incentives, and influence shifting away from regulated banking institutions toward entities operating with lighter regulatory footprints.

Supporting this shift is the explosive rise in private credit. Reports show global AUM in private credit between $3.0 trillion and $3.5 trillion as of late 2025, with capital deployment in 2024 up by nearly 80% from 2023 [2][3]. Major private asset managers such as Blackstone, Ares, and Apollo have private credit segments growing rapidly, often forming the largest shares of their AUM compared to traditional buyouts [2]. These firms are pivoting toward credit and hybrid capital businesses (which combine debt and minority equity stakes), judging traditional PE buyouts as less attractive under current yield, cost, and regulatory environments [6].

These developments raise systemic concerns. The non-bank financial sector now holds over half of global financial assets; within that, shadow banking entities have grown at twice the rate of traditional banks in 2024, according to the Financial Stability Board [4][5]. Key risks flagged include maturity mismatches, leverage, liquidity shortfalls, and weak transparency. Agencies likewise warn of mounting defaults in private credit especially in the U.S., raising questions about covenant quality, valuation practices, and exposure of traditional banks to non-bank lenders [5][6].

Strategic implications are multifaceted. For regulators, there is growing pressure to develop frameworks for oversight of non-bank financial intermediation, stress testing, disclosure, and interconnectivity with banking sector risk. For banks, their traditional strongholds in underwriting, advisory, and market making remain, but they are losing revenue, influence, and talent to private market firms. Institutional investors must reevaluate allocator exposure, alignment of risk-return expectations, and potential illiquidity or downside tail-risks. Finally, the valuation premium and societal influence of PE/alt executives provoke reputational and political risk that may pressure both voluntary and formal constraints on compensation and operating models.

Open questions include: How will regulators globally address the growing opacity and size of private credit? Will there be capital or liquidity regulation for private market funds similar to banks? Can PE-firm demands for exits continue to support promised returns in a higher interest rate environment? And what triggers might catalyze a correction or crisis—valuation shock, macro slowdown, or regulatory clamp-down?