Private Equity and Non-Banks Driving Global Financial Crisis 2.0

PAUL PRESTON
4 days ago
3 min read

Chriss W. Street

Oct 15, 2025

Private Equity and “Non-Banks” now control 20% more assets than all the global regulated banks. The secret sauce for this phenomena has been the ability of private unregulated entities toleverage just 4.1% of the world’s investment capital into 23% control of the world’s $217 trillion of investible assets.

These private non-bank institutions can provide bank-like services without a traditional bank charter, while private equity can employ leveraged investment strategy to invest in illiquid private companies.

City of London partnerships of anonymous wealthy “names” founded the modern insurance market at Lloyd’s of London in the late 1680s. Control of the industry solidified over the next three and a half centuries into widely distributed national networks of regulated insurance companies. But the “names”still sell high-risk, high-return reinsurance to the insurance industry to backstop extreme disaster risks.

The Global Financial Crisis driven by the collapse of sub-prime debt caused the U.S. stock market to suffer a 57% peak-to-trough crash from October 2007 to March 2009, and triggeredsix million U.S. households to lose their homes to foreclosure by 2011.

The extreme GFC lack of liquidity gave a huge advantage to private equity and non-banks that could leverage-up their deep-pocketed investors’ capital to by assets at distressed levels. The stock market after bottoming out in March 2009, began a recovery phase that saw the S&P 500 climb approximately 30% by mid-May 2009 and over 60% by the end of that year.

The spectacular predatory investment returns drove a boom in private equity and debt fundraising. Regular stock market investors can leverage $.50 down, to buy $1.00 of stock and bonds. Private investors can put $.05 down, to buy $1.00 of stock.

In the mostly rising market for stock, bond, real estate, crypto and gold markets over the last two decades, asset prices have more than quadrupled. Highly leveraged private non-bank investors have reaped up to a ten-fold return during the same period.

The fear of missing out (FOMO) has caused traditionally conservative pension plans to put between 15-30% of their assets in in private equity and debt. California’s Public Employee Pension System has invested about 19% of their assets in private funds.

The World Bank just issued an extraordinary warning that private non-banks face“heightened cyclical risks driven by macroeconomic vulnerabilities, asset price volatility and reduced market liquidity. The materialization of macroeconomic risks threatens the balance sheets of [non-banks] and households, potentially increasing bankruptcies and insolvencies. Tighter financial conditions, geopolitical tensions and muted growth prospects raise the risk of disorderly asset price declines.”

Those risks appear to be highest in the United States, which with 4% of the world’s population, is home to a stunning 44.5% of the world’s $121 trillion in investible assts.

American asset values are concentrated in the S&P 500’sInformation Technology sector and other tech and tech-adjacent stocks that potentially account for over 40% of the Index. But tech risk is extremely concentrated in the combined market capitalization of the Magnificent Seven that include Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla that just hit an all-time high of $20.9 trillion, or 35% of the entire S&P Index.

There is also the hidden danger for well-heeled investors in private equity and non-bank funds because they usually sign management agreements with covenants that make these institutional investors at recourse risk to repay leveraged loses that exceed their initial paid-in capital.

There have only been few instances of this type of margin call in the two-decade up markets that private investors have been enjoying. But with overall leverage running at about 600%, a GFC type -57% stock market crash could be an epic wealth wipe-out.