The Retailization of Private Markets and the Rise of Ponzi Finance

Following the 2008 financial crisis, the US entered an economic environment characterized by low interest rates, cautious banks, and tighter financial regulations. As a consequence, businesses that were too small to issue securities faced a credit crunch while money managers were on the hunt for higher yielding assets. Private markets that have existed for decades have provided a solution to that double problem by offering to channel funds provided by money managers into credit-constrained businesses. As of 2025, private equity funds hold $24 trillion worth of assets globally (Edlich et al. 2026, 24) and private debt funds have $2.6 trillion of assets under management (Hinds et al. 2026, 5). While there have been recent worries about developments in private debt markets, regulators and private equity firms have been quick to brush these worries aside, arguing that the private debt market is small, private debt deals have a lot of equity buffer (leverage is low), covenants attached to private debt deals allow for a quick correction of problems in a way that promotes the long-term success of businesses, and low default rates reflect the inherent soundness of private markets. Instead, private capital firms and regulators have pushed for "democratizing" private markets by "unlocking broader access to sophisticated strategies that were once out of reach for everyday savers" (CEO of Great Gray Trust Co., in Bodamer [2025]) in order to use dormant savings in banks to "channel them into productive investments."