Private capital firms are losing ground to traditional investment banks as a surge in initial public offerings and mergers drives bank shares to record levels, marking a sharp reversal from the outperformance of alternative asset managers in recent years, according to a report by the Financial Times.
Shares of the largest US private capital groups have fallen more than 15% so far this year and more than 20% over the past 12 months, underperforming the broader US stock market, which has posted double-digit gains.
By contrast, shares of major investment banks including Goldman Sachs, Morgan Stanley, JPMorgan and Citigroup have risen more than 18% over the past year, with several matching or outperforming the wider market.
The shift represents a significant change in investor sentiment towards the financial sector. Private capital firms such as Blackstone and Apollo Global Management were among the market’s strongest performers for much of the past decade, as investors embraced their faster-growing businesses and perceived resilience compared with traditional banks.
The reversal is particularly notable for Blackstone, which at times in recent years carried a higher market value than both Goldman Sachs and Morgan Stanley. The firm, which went public in 2007, has since grown into one of the world’s largest alternative asset managers, with more than $1tn in assets under management.
Its market capitalisation is now less than half that of either investment bank.
Wall Street banks have benefited from a powerful revival in capital markets activity, with large mergers, blockbuster IPOs and a more favourable regulatory environment boosting earnings.
The largest US investment banks recently reported some of their strongest quarterly results in more than a decade, helped by a wave of public listings and major transactions, including the high-profile IPO of Elon Musk’s SpaceX.
Private capital firms have had less exposure to some of the most sought-after assets in the public markets, including SpaceX and fast-growing artificial intelligence companies expected to list in the near future.
At the same time, alternative asset managers have faced pressure in parts of their private credit businesses. Rising redemption requests at some large funds earlier this year weighed on investor sentiment and contributed to a slowdown in fundraising for some of the sector’s fastest-growing strategies.
Investors have also become increasingly concerned that AI could disrupt software and professional services companies, sectors that have been central to private equity’s expansion over the past decade.
The combination of weaker fundraising, valuation pressure and concerns over private credit liquidity has contributed to a decline in valuation multiples across the industry.
Private equity firms have also struggled to realise returns from investments held for longer than originally expected. Tariffs and broader economic uncertainty have complicated exits, while persistently high interest rates have increased concerns about highly leveraged portfolio companies.
The backlog of unsold private equity investments has grown to a record $4tn, adding pressure on managers to find exit routes and return capital to investors.
