We assess non-bank financial institutions in the new world order of modern asset management.

Today, the major passive index funds, private equity titans, hedge funds, and exchange funds etc combine to reshape Wall Street and several other global financial centers across some specific traditional business lines. From retail payments to stablecoins and cryptocurrencies, new, nonobvious, and useful financial innovations continue to disrupt some specific traditional business lines in the global financial system in recent years.

We describe, discuss, and delve into how the major index funds, hedge funds, and private equity titans remake, reshape, and reinforce Wall Street and many other financial centers across some specific traditional business boundaries. Over recent years, the vertiginous AI-driven asset price hikes often tend to conceal cracks in the new global financial order after some rare extreme events. These rare extreme events include the Global Financial Crisis of 2008-2009, European sovereign debt debacle of 2010-2012, and Covid pandemic crisis of 2020-2022. From retail payments to stablecoins and cryptocurrencies, today novel, non-obvious, and useful financial innovations continue to disrupt some traditional business segments in the global financial system.

 

In recent decades, the major index funds and many other passive exchange funds have inexorably risen to dominate on the global stage. Today, the 3 major index funds, BlackRock, State Street, and Vanguard, continue to dominate many low-cost investment products in the global markets for stocks, bonds, exchange trade funds (ETF), real-estate investment trusts (REIT), and derivative products such as equity options and interest rate swaps. These 3 major market players keep more than $30 trillion assets under management, and most of this global capital tends to concentrate in American passive index funds and ETFs over recent decades. In modern asset management, the standard fees often represent 25% to 35% of economic profits from active strategic capital allocation worldwide. Also, non-bank fintech innovators such as both private equity and private credit companies have grown significantly as part of the global macro trend toward strategic asset management. Specifically, Apollo, Blackstone, and KKR combine to keep almost $3 trillion of assets under management (up from only $570 billion one decade ago). Further, several hedge funds such as Citadel and Millennium have attracted both strategic capital and brainpower from the rest of the global financial system. Today, some of these hedge funds like Jane Street earn as much in stock sales as some of the banks like Morgan Stanley earn in America.

 

The 3 major index funds, BlackRock, State Street, and Vanguard, hold a median stock ownership of approximately 21% to 25% in S&P 500 public corporations. Because these 3 major index funds vote almost all their shares, they cast almost 25% of all votes at annual shareholder conferences for S&P public companies. Further, each of the 3 major index funds serves as the largest single shareholder in approximately 88% of all S&P 500 public companies. Vanguard alone serves as the top owner of more than 65%, almost 330, of S&P 500 public companies.

 

We should put their relative market size in perspective. The 3 major index funds combine with Apollo, Blackstone, and KKR to represent more than $1.55 trillion stock market capitalization, almost 27% of the recent $5.75 billion stock market capitalization of the major banks in America. In practice, some specific major market players tend to overlap in their common spheres of influence. Apollo resembles a life insurer more than it does the conventional private equity fund. Also, the largest venture capital companies have grown from small strategic partnerships to look like their bigger cousins in private equity. For instance, one of the key venture capital companies, General Catalyst, has even set up a new wealth management division in recent years. Today, several big hedge funds serve as market-makers to provide cash liquidity support. Historically, however, the big banks dominated as market-makers in this traditional role and then traded stocks, bonds, REITs, equity options, swaps, and so forth on their own account. Recently, some big banks such as JPMorgan Chase and Goldman Sachs attempt to reorganize themselves to better compete with private equity firms, private credit lenders, and venture capital firms.

 

In competitive equilibrium, these recent efforts can cause several revolutionary ripple effects on the business boundaries of the global financial system. One of the business boundaries is the distinction between banks and non-banks. Today, banks continue to grease the wheels of the firms with some specific strategic asset allocation. In recent years, the total loans to non-banks have doubled to $1.3 trillion since 2020 and now account for more than 10% of total bank loans. Hedge funds borrow from the prime-brokerage divisions of the banks in America; and the total loans to hedge funds have increased from $1.4 trillion to $2.4 trillion over the same period. In the post-pandemic years, we continue to witness the modern proliferation of strategic loan partnerships between banks and private credit companies.

 

Another business boundary relates to the distinction between both the public and private markets. Borrowers now choose between both the public corporate bond and loan markets and their respective private counterparts. The former allow public corporate debt to change hands frequently, whereas, the latter hardly allow the private corporate debtors to trade at all. These days more modern asset management companies seek to operate in both markets. In time, such smart capital diversification accords with the global macro investment thesis. From BlackRock and State Street to Vanguard, these major asset management companies now provide not only passive index funds and active ETFs but also REITs, equity options, interest rate swaps, and many versions of global macro stock market investment portfolios. In combination, many investors now enjoy a broader variety of global macro investment options. Variety is the spice of life.

 

The third business boundary involves the distinction between both retail investors and institutional investors. Through passive index funds and almost all kinds of ETFs, retail investors can access stocks, bonds, REITs, and derivative products such as equity options, interest rate swaps, and even credit insurance contracts. In time, the major asset management companies structure many active ETFs as staid and liquid investment vehicles in addition to novel, non-obvious, and useful financial innovations such as special purpose vehicles (SPV) for securitization and special purpose acquisition companies (SPAC) for new IPO stock issuance in recent decades. Some of the active ETFs even provide the kinds of risks and rewards for both retail investors and institutional investors who seek speculative exposure to stablecoins, blockchains, and cryptocurrencies.

 

The common parable of BlackRock can often illustrate this messy macro picture. Today, BlackRock serves as the largest asset management company worldwide. In fact, BlackRock began its asset management operations back in 1988 as part Blackstone, one of the major private equity firms in America. In 1994, BlackRock broke up with Blackstone. For several decades thereafter, BlackRock dominated the unique world of public markets, low fees, retail investors, and the more socially responsible stakeholder capitalism of its founder, Larry Fink, who has reiterated the vital importance of greater social purpose in Corporate America. Over these decades, Blackstone represented the alternative version of finance. Meanwhile, Blackstone focused on private markets, institutional investors, and higher fees for strategic asset management. Stephen Schwarzman, Blackstone’s founder, has long served as the archetypal private equity buyout baron.

 

In combination, private equity, venture capital, and index fund management have helped drive the recent structural changes in the American economy. In sum, these structural changes involve disruptive innovations in finance such as cashless credit cards, new fintech services for retail payments and wire transfers, and payroll services for small-to-medium enterprises (SME) in America, Europe, and many other countries, regions, and jurisdictions worldwide. Capital markets fund an increasingly larger proportion of the American economy than big banks do today. In practice, these recent global macro trends extend to East Asia, Western Europe, Britain, Canada, Australia, and New Zealand. Today, specifically, the global Treasury bond markets and stock markets continue to finance AI infrastructure networks, massive cloud platforms, data centers, graphics processing units (GPU), tensor processing units (TPU), and several other application-specific integrative circuits (ASIC) worldwide. In recent years, these capital expenditures are vital and necessary to help sustain the current global AI-driven stock market rally.

 

However, these rapid structural changes bring new risks, threats, and dangers to the global financial system. Many stock market investors recognize new financial innovations as dangerous Pareto improvements only after they falter in due time. Like special purpose acquisition companies (SPAC), some financial innovations gradually fade into irrelevance without much harm to the global financial system. Like credit derivative investment products, also known as the financial weapons of mass destruction, however, some other financial innovations wreak havoc across the global financial system, especially in the Global Financial Crisis of 2008-2009, European sovereign debt debacle of 2010-2012, Covid pandemic crisis of 2020-2022. In this negative light, many stock market investors blame a potent mixture of product complexity, leverage, and short-term finance in the messy macro picture. As several specific studies suggest, tight interlinkages between banks and non-bank financial institutions might amplify systemic risks. In the recent rare worst-case scenarios, these risks often manifest in the common forms of market, credit, and operational risks in America, Europe, East Asia, and many other countries, regions, and jurisdictions worldwide. For these reasons, central banks learn to better balance the monetary policy carrots, sticks, and trade-offs between both output-inflation expectations and macro-financial stress conditions in response to the next-gen waves of financial innovations worldwide.

 

At this stage, it is vital for us to draw a distinction between the long-term return distributions for stocks versus venture capital and private equity firms. For stocks, the long-term return distributions follow the Gaussian normal distribution with heavy tails of extreme returns on both sides. Specifically, the long-term stock market return distributions resemble the Gaussian bell curve with leptokurtic tails and extreme returns. Also, the long-term stock market distributions often exhibit some negative conditional skewness such that extreme negative stock returns tend to occur more often than extreme positive stock returns. By comparison, the long-term return distributions for both private equity and venture capital follow the Pareto power law. For both private equity and venture capital, specifically, a small 5% to 20% minority of investments generate the vast majority of long-term returns. Equivalently, these long-term returns often represent 80% to 95% of returns on both private equity and venture capital. In principle, this Pareto power law suggests that a few positive outlier companies return more capital than almost all of the other investments with small single-digit to negative returns. From a fundamental perspective, many venture capital and private equity firms often attempt to invest in the next Facebook in social media, the next Google in online search, the next Microsoft in software development, the next Amazon in fast cloud computation and e-commerce, the next Tesla in both electric vehicles (EV) and autonomous robotaxis (AR), the next Nvidia in GPU and ASIC clusters, the next TikTok in online video platforms, the next ChatGPT in novel and useful proprietary AI chatbots, the next OpenClaw in open-source AI agents, and so on. For both venture capital and private equity firms, it would be wise to invest in a few 10-baggers with 10 times market value appreciation than many mediocre companies with long-term returns between the real interest rate and the zero lower bound. In this broader context of the global macro investment thesis, the long-term return distributions for venture capital and private equity can often differ dramatically from the Gaussian normal distribution with fat tails for stocks, bonds, index funds, REITs, ETFs, and many other conventional asset classes.

 

Since many central banks reduced the short-term interest rates to hit the zero lower bound in response to the Global Financial Crisis of 2008-2009, both private equity and venture capital firms have grown significantly to dominate the new global markets for private equity investments, private credit loans, and higher fees for strategic asset management these days. Both retail investors and institutional investors can benefit substantially from a wider variety of alternative investment asset classes.

In recent years, many global stock market investors and Treasury bond holders learn how hard it can be to get money out of private equity and venture capital. On Wall Street, the investment bankers who arrange R&D deals, IPOs, and mergers and acquisitions (M&A) are often the first casualties of economic policy uncertainty. Since many central banks raised short-term interest rates in response to high inflation amid the Covid pandemic crisis of 2020-2022, private equity and venture capital firms have struggled to sell their current investments. In the best likelihood of success, the first and subsequent payments of both private equity and venture capital investors often resemble the classic J-curve, also known as the Nike swoosh. Specifically, private equity and venture capital investors first promise new future capital investments to make short-term deals before the long-tail returns flow back to these initial funds. Since March 2023, private equity funds have returned only 3% of the value of capital investments, and this recent return was well below the long-term average return of 4.5%-5%. The messy macro picture is bleaker in venture capital. Most venture capital funds rely more on the global macro public markets for their exit strategies with subpar long-term returns of 3.5%-4.5%. When we put these figures in perspective, the long-term average returns on both private equity and venture capital tend to persist well below the long-term average returns of 6% to 11% on many stocks, ETFs, equity options, and some corporate bonds in America.

 

The first wave of private equity buyouts peaked in November 1989 when KKR bought RJR Nabisco, a conglomerate with Winston cigarettes, for $25 billion. During this first wave, private equity buyouts often involved hostile takeovers, targeted large public companies, and even orchestrated massive corporate loans with high leverage requirements. After the Global Financial Crisis of 2008-2009, low interest rates allowed the private equity sector to quadruple in size. From the Global Financial Crisis to the Covid pandemic crisis, corporate debt was cheap, and stock market valuation generally surged in response. Since then, the private equity sector has grown substantially to become big, powerful, and cumbersome. In recent years, private equity firms keep $4.5 trillion to $5 trillion assets under management worldwide.

 

Through American financial history, private equity firms have deployed almost all kinds of buyout techniques to create short-term cash liquidity to some specific fallen angels in the public stock and bond markets. Many of these private equity firms have been through the subsequent waves of M&A buyout deals with high leverage requirements. Today, these new M&A buyout deals by private equity firms often appear in the secondary markets where some mixture of debt and equity would change hands. As some recent Lazard survey suggests, the market value of these new M&A buyout deals has grown almost 40% to $155 billion in recent years. The common forms of buyout techniques span continuation funds, net-asset-value loans, and collateral fund obligations. Specifically, continuation funds sell assets to themselves as part of some specific buyout deals. Through net-asset-value loans, private equity funds borrow against their net asset values to pay cash dividends and share repurchases such that the major investors cash out as a result. With collateral fund obligations, private equity firms integrate several pools of illiquid collateral assets to create more attractive investment options via multi-tranche securitization. However, only naïve and delusional institutional investors would witness these recent private-equity developments as new signs of severe macro-financial stress conditions.

 

Meanwhile, the biggest private equity firms now seek to further diversify into private loans, even though these private equity firms often only lend to their strategic partners. Many stock and bond market investors tend to believe these private equity firms have not further diversified into private loans fast enough. Over recent years, their market valuations have declined dramatically. Specifically, the stock price of Blackstone, the largest private equity firm, has fallen by more than 25% since its recent peak in November 2024.

 

As private equity firms find solace for their troubles in almost all kinds of financial innovations and buyout techniques via securitization schemes, asset tranches, and collateral debt obligations, venture capital firms seek salvation from their own liquidity crunch in the next game-changers and disruptive innovations worldwide. Counterintuitively, the venture capital woes often coincide with the major M&A booms in recent decades. As part of the current AI-driven stock market rally, numerous AI lean startups often tend to absorb most of the cash on the table. Over recent years, SpaceX, OpenAI, and Anthropic continue to accelerate their AI sprints on many GPU, TPU, and ASIC clusters in the cloud. Specifically, many financial economists gauge the stock market valuations of SpaceX, OpenAI, and Anthropic at more than $1 trillion, $850 billion, and $375 billion respectively. Also, Silicon Valley retains an active interest in some strategic sectors such as defense and cyber security. For instance, Elon Musk’s SpaceX continues to attract large government contracts from the U.S. Defense Department. In combination, these government contracts are worth $350 billion today.

 

In America, many elite universities and research labs have long been the top-tier customers for private equity and venture capital. From Harvard and Berkeley to Yale and Princeton, their endowments often extend vast riches across multi-year time horizons. For these top-notch universities and elite research labs, their special tax-exempt status can often attract the sustainable streams of grants, research funds, future endowments, and so forth. Almost 40% of the $190 billion of Ivy League university endowments flow to private equity and venture capital. Today, it can be tough for these elite university endowments to achieve stellar long-term returns on their investments in private equity and venture capital firms.

 

In light of the next-gen waves of financial innovations, the new generation of debt barons now seeks to replace many big banks across several traditional business lines in the global financial system. Specifically, Apollo, Bain, Blackstone, and KKR attempt to achieve higher long-term returns on the respective debt buyouts with no further risks across the private equity sector.

Several private equity firms seek to tap into private credit loans these days. Private credit loans serve as the new solution to the recent fragile failures of Silicon Valley Bank, Signature Bank, and First Republic Bank. Some private equity leaders now regard private credit loans as another major boon for the American economy. In light of the next-gen waves of financial innovations, the new generation of debt barons now seeks to replace many big banks across several traditional business lines in the global financial system. Specifically, Apollo, Bain, Blackstone, and KKR seek higher long-term returns on the respective debt buyouts with no further risks across the private equity sector.

 

However, some American regulators and bankers remain skeptical. These key stakeholders view private credit loans as another exuberant and dangerous form of regulatory arbitrage. Also, these key stakeholders believe private credit loans are bound to blow up when massive defaults rise, especially in rare times of severe macro-financial stress conditions. As many private equity firms scramble to expand into private credit loans, this expansion would only compound the folly with systemic risk consequences.

 

In the total addressable market for private credit loans, the stakes are quite high. In recent years, the 5 key private credit lenders have amassed almost $2 trillion debt assets. These private credit lenders now keep their eyes on the $40 trillion loans to American households and businesses. This lofty target can be one of the next game-changers and disruptive innovations for private credit lenders. About $14 trillion of these loans to American households and businesses remain on the balance sheets of the big banks in America. Some recent McKinsey survey shows that the total addressable market for private credit loans can be in the reasonable range of $35 trillion to $40 trillion.

 

Through the current private credit loans, most private equity firms lend to their strategic partners and lean startups with some specific stock ownership transfers. In response to interest rate hikes since March 2022, many private equity firms stepped in and thrived in private credit loans amid this macro-financial turmoil. Today, private equity firms continue to finance the vast majority of new private credit loans and M&A buyout deals with high leverage requirements. In recent years, some of the major private equity firms now serve as massive business development companies. In turn, these companies extend private credit loans to both retail investors and institutional investors. Also, these companies tend to target high-net-worth investors who seek alternative asset investment options these days. Since 2020, these private credit loans have grown significantly to $440 billion. Blackstone has set up its own new private credit business group to target high-net-worth investors. Nowadays, this new business group manages $70 billion private credit loans. If Blackstone were another American bank, this private credit business group would be the 35th largest bank in America.

 

In February 2025, Apollo collaborated with State Street to launch a new ETF for private credit loans. Further, Apollo started to tokenize its own private credit fund, so retail investors acquired access to its credit hardware and software tokens on the same blockchain. Through its strategic partnership with Capital Group, KKR launched its own mixture of both public and private credit funds. In April 2025, Blackstone established a new strategic alliance with Vanguard and Wellington Management to launch new multi-asset investment funds for both public and private credit loans and several other alternative investment options.

 

Private credit lenders further turn to life insurance for more capital. Unlike bank deposits, which can be withdrawn rapidly amid another bank run, life insurance policy holders often incur penalties for withdrawing their capital too early. Today, many private credit lenders suggest that this relatively stable finance makes life insurers ideal buyers of less liquid private credit loans with higher interest yields. In effect, private credit lenders marshal life insurers to fund long-term investment projects and private credit loans for the benefit of the American economy with more and more retirees these days. Through offshore reinsurance arrangements in Bermuda and the Cayman Islands, private credit lenders further benefit from the lax laws, rules, and regulations for life insurers in America.

 

In 2009, Apollo launched Athene as its own life insurance arm. Indeed, Apollo had this prescient economic insight about 10 years before many of its private equity rivals cottoned onto the same idea. Athene now sells more retirement annuities than any other life insurers in America. In February 2024, KKR acquired another major life insurer, Global Atlantic, for $2.7 billion. In recent years, Blackstone took minority equity stakes in several life insurers such as Corebridge and Resolution for several billion dollars. In exchange, Blackstone would help manage their assets with no further full stock ownership transfers. Blackstone kept $237 billion life insurance assets under its watch. Also, Bain acquired 9.9% minority equity stakes in Lincoln Financial Group for $825 million in April 2025. Another 2 major private equity firms, Brookfield and Carlyle, continue to manage life insurance assets these days.

 

Many of the major private equity firms now attempt to replace banks rather than only siphoning off their private credit loans. Specifically, Apollo and Blackstone originated $35 billion and $220 billion private credit loans respectively each year. In the best likelihood of success, we would witness another major revolution in the global market for private credit loans over the next few years. Private credit borrowers keep deferring interest payments in an attempt to stave off massive defaults. Almost half of these private credit borrowers have negative free cash flows for the major business operations in recent years. Today, American regulators pay particular attention to the current concentration of private credit loans in some strategic sectors such as AI-driven tech advances and business services. Before 2022, private equity firms spent many years paying top prices for new strategic partnerships, capital investments, and alternative assets etc. Over the next couple of decades, the next recession would likely reveal more instances of shoddy private credit loans, defaults, and private market valuations.

 

Private credit loans often augment the traditional role of banks in America. For each dollar some specific business development companies raise from investors, these business development companies tend to borrow one more dollar from the big banks. As a consequence, the macro-financial risks of private credit funds might pose some new dangers to the big banks in America. Regulatory capital requirements tend to provide incentives for banks to lend to nascent business development companies instead of making the loans directly to both public and private companies. These private credit loans would make the next recession more severe if private credit lenders seek to pull back from lending more sharply to some strategic partners than the big banks would have done so in due course. We would expect to see greater recurrent macro-financial risks in relation to the novel sources of both private credit debt capital instruments and life insurance schemes. The sudden failure of one of the major life insurers would be severe; and the simultaneous failure of one of the major asset management firms would further compound the adverse macro financial chain reaction. Indeed, the sheer lack of transparency in private markets suggests significant systemic risks for investors and potential pitfalls in capital formation. This macro-financial opacity reduces access to bespoke, accurate, and comparable real-time data. Also, this macro-financial opacity suggests some specific structure in support of both private equity sponsors and fund managers at the expense of retail investors who might fail to accurately price risks in time. As a result, American regulators and retail investors might not see the next major financial crisis until the last moment.

 

Today, exchange trade funds (ETF) serve as the new investment fad tailor-made for both prudent investors and speculative investors who seek to achieve higher returns with substantially fewer risks. ETFs can help stabilize the global macro markets for stocks, bonds, real-estate investment trusts (REIT), equity options, and even interest rate swaps etc because ETFs help diversify asset price risks across many asset classes worldwide. Several Magnificent 7 tech ETFs continue to outperform the broader stock market indexes such as S&P 500, Dow Jones, Nasdaq, NYSE, and MSCI USA in the current global AI-driven stock market rally.

Macro finance continues to be a key strategic sector of endless experimentation. Many investors seek to apply the good experiments across a broader variety of asset classes. For this reason, the better asset investment strategies pay off and then propagate through the global macro markets for stocks, bonds, real-estate investment trusts (REIT), and even derivative products such as equity options and interest rate swaps. With lax laws, rules, and regulations, however, some new financial innovations can sometimes place intolerable risks on both retail investors and institutional investors and the broader global financial system.

 

Today, exchange trade funds (ETF) serve as the new investment fad tailor-made for both prudent investors and speculative investors who seek to achieve higher returns with substantially fewer risks. Many index funds, investment banks, and other asset specialty firms wrap together securities and then provide the bundle of assets for trade on some specific exchange. As a result, ETFs often empower investors to reap real diversification benefits by not putting all their eggs in one basket. In recent years, ETFs help reduce the costs of passive index investments in key stock market indexes such as S&P 500 and the Magnificent 7 tech stocks. More recently, ETFs can further reduce the costs of strategic bond investments for better inflation hedges. In recent years, ETFs rapidly expand into some more complex derivative products such as equity options, interest rate swaps, futures, and even credit insurance contracts. Now these derivative ETFs manage about $100 billion assets under management. ETFs can help stabilize the global macro markets for stocks, bonds, real-estate investment trusts (REIT), equity options, and even interest rate swaps etc because ETFs help diversify asset price risks across many asset classes worldwide. Several Magnificent 7 tech ETFs continue to outperform the broader stock market indexes such as S&P 500, Dow Jones, Nasdaq, and NYSE in the current global AI-driven stock market rally.

 

In America, the major index funds, investment banks, and other asset specialty firms launch almost 350 new ETFs each year. Most of these new ETFs provide exposure to some specific strategic sector, country, region, or mega tech trend. Other ETFs have more esoteric pitches. Some of these ETFs even mimic and copy the asset investment strategies of some famous investors such as Warren Buffett and Bill Ackman. However, many ETFs now provide exposure to more speculative bets on the global markets for stocks, bonds, REITs, equity options, swaps, futures, and even credit insurance contracts. One ETF may promise investors triple the inverse of the daily return of shares in American banks. Another ETF may promise investors some speculative exposure with high leverage to the 2 major microchip manufacturers Nvidia and AMD. Again, another ETF may further promise investors twice the annual return of shares in the Trump Media and Technology Group. In time, new ETFs can often go above and beyond stock market investor demands, expectations, and imaginations.

 

In recent years, the current chair of the U.S. Securities Exchange Commission (SEC), Paul Atkins, tends to be more amenable to new financial innovations such as ETFs, stablecoins, blockchains, and even cryptocurrencies. Also, the Trump Media and Technology Group has further launched new ETFs, also known as Truth Social Funds, in support of the Make America Great Again (MAGA) theme. Treasury Secretary Scott Bessent continues to reiterate the vital importance of financial literacy in his recent public speeches, podcasts, and TV interviews. These days, financial literacy transcends the traditional business lines in the global financial system. Financially literate adults understand not only the market dynamism for stocks and bonds but also the state-of-the-art fintech innovations from Magnificent 7 tech ETFs and central bank digital currencies (CBDC) to stablecoins, blockchains, and cryptocurrencies such as Bitcoin and Ethereum.

 

Many ETFs require active asset management from month to month. These ETFs tend to exhibit substantially more asset return volatility with no guarantee of high return output. High asset turnover incurs transaction costs on a frequent basis. Some of these ETFs further maintain high debt leverage for the normal business operations. As these ETFs continue to expand into many asset classes, these ETFs strategically seek to achieve higher stock market alphas in the long run. ETFs can help diversify across many assets by design. However, it is not clear whether these ETFs can manage to achieve higher returns and even greater diversification benefits over 5 to 10 years. For these reasons, these ETFs often charge higher fees on their active asset management services. In turn, these ETFs may inexorably reduce returns on investor capital flows in due course.

 

In the worst-case scenario, the global macro market mechanism tends to allow ETFs to function well with no perfect match between ETF returns and returns on the constituent assets. When the current price of an ETF differs dramatically from the market value of constituent assets, financial institutions generally, and hedge funds specifically, create and redeem ETF shares to arbitrage away any potential economic profits. This arbitrage opportunity keeps the current prices of ETFs in line with the market values of the constituent assets. By design, this fast, smart, and efficient statistical arbitrage can help underpin investor faith and confidence in the global macro market mechanism. As many active ETFs further expand into opaque derivative products and credit insurance contracts, some illiquid assets may cause large gaps between ETF prices and constituent asset prices. More complex products might test this process further to its limits. In the meantime, the key regulatory agencies, especially the U.S. SEC and Treasury Department, should consider the potential macro-financial impact of large gaps between ETF prices and constituent asset prices. Persistent large asset price differences can combine with less liquid asset positions to cause the next global financial crisis.

 

In recent years, the major hedge funds remake, reshape, and reinforce the global macro public markets for stocks, bonds, real-estate investment trusts (REIT), and new derivative assets such as equity options, interest rate swaps, futures, and even credit insurance contracts. We should further assess whether these major hedge funds have become too big to fail in the next global financial crisis.

In recent years, the major hedge funds worldwide have grown substantially in terms of some specific metrics. The number of staff members at the 5 largest hedge funds has surged to 15,000. The notional value of global macro asset positions held by these 5 largest hedge funds has almost tripled to more than $1.5 trillion today. Just as the 3 major index funds, BlackRock, State Street, and Vanguard, continue to dominate the vast majority of low-cost and buy-and-hold passive investment products, Citadel and Millennium have achieved strategic consolidation among active stock pickers and retail investors. These days American regulators have begun to assess whether these major hedge funds have become too big to fail in the next global financial crisis.

 

In the past, mutual funds used to rise-and-fall in tandem with the stellar market performance of one single star trader. Today, the multi-manager model inverts the traditional structure of most mutual funds. In the long run, it is more efficient for the top hedge funds to choose stock pickers across the entire global macro sector. Also, it is more efficient for the top hedge funds to set the key conditions under which the star stock pickers operate in practice. In recent years, the elite global macro market investors include Ken Griffin at Citadel, Israel Englander at Millennium, and Steven Cohen at Point72. Retail investors benefit from strategic diversification across many different capital markets, teams, and asset classes. Portfolio managers can often enjoy cost economies of both scale and scope in global trade, finance, and technology worldwide. Again, variety is the spice of life.

 

Multi-managers often tend to thrive on both high fees and leverage requirements. From year to year, the key hedge funds pass through their operational expenses to retail investors. These operational expenses span wages, perks, bonuses, and even fintech equipment costs. A recent McKinsey survey shows these expenses at a hefty 6.5% of total assets under management per annum. In modern asset management, the standard fees often represent 25% to 35% of economic profits from active strategic capital allocation worldwide. Now the sheer size of the major hedge funds further empowers them to receive better prices from the big banks for keeping higher debt leverage to power the core business operations. Just like many other financial institutions, the major hedge funds can often borrow more than 10 times their equity capital requirements. Over the past couple of decades, debt capital has surged to $5.5 trillion for the top 10 hedge funds; and their debt leverage ratio is on average more than 40% of total assets under management. The big banks provide almost half of this debt capital to the major hedge funds. At these big banks, their prime brokerage divisions sometimes even provide leverage to the major hedge funds through margin loans and derivative products.

 

When the global financial markets show rare extreme asset return volatility with no clear reason, many economists believe some specific multi-asset hedge fund might have breached its value-at-risk limits. In this special case, this hedge fund would need to engage in the fire sales of liquid assets at short notice. In effect, these fire sales of liquid assets might aggressively amplify another chain reaction of fire sales elsewhere within the global financial system. Good examples include the recent credit crunches in the Global Financial Crisis of 2008-2009, European sovereign debt debacle of 2010-2012, and Covid pandemic crisis of 2020-2022. Given the value-at-risk limits at the major multi-asset hedge funds, they are much quicker to cut their losses via these fire sales of liquid assets at short notice. Over time, the credit crunch cultivates an extreme hair-trigger approach to financial risk management. To the extent that the major multi-asset hedge funds rely heavily on debt finance from the big banks, the rare credit crunch propagates to several parts of the global financial system. In due course, this credit crunch propagation goes through not only the fire sales of liquid assets but also the high financial leverage requirements for these major hedge funds.

 

Some recent studies show that tight interlinkages between banks and non-bank financial institutions can amplify systemic risks. In the recent rare worst-case scenarios, these risks can often manifest in the common forms of market, credit, and operational risks in America, Europe, East Asia, and many other countries, regions, and jurisdictions around the world. For these reasons, central banks learn to better balance the current monetary policy carrots, sticks, and trade-offs between both output-inflation expectations and macro-financial stress conditions in response to the next-gen waves of financial innovations worldwide. Therefore, it is vital for both American and European regulators to better understand the potential macro-financial risks of these goliaths in terms of both their fire sales and tight interlinkages with the big banks.

 

In combination, the major index funds, private equity firms, private credit lenders, venture capital companies, and hedge funds serve as the new fintech titans of Wall Street. Due to fire sales and tight interlinkages between both banks and non-bank financial institutions these days, the new fintech titans of Wall Street can cause new macro risks across the global financial system.

Over the past couple of decades, several macro trends have transformed many parts of the global financial system. Today, these macro trends remake, reshape, and reinforce the new world order of global finance. Private equity firms keep diversifying from M&A buyouts to new private credit loans and life insurance contracts. Hedge funds continue to consolidate their core business operations with broader diversification benefits in relation to their cost economies of both scale and scope. The major index funds continue to dominate the global markets for passive investment products. In combination, the major index funds, private equity firms private credit lenders, and hedge funds serve as the new fintech titans of Wall Street. Due to fire sales and tight interlinkages between both banks and non-bank financial institutions these days, these fintech titans can cause new macro risks across the global financial system.

 

In America, Europe, East Asia, and many other countries, the regulators tend to follow their first instinct to cut red tape for the rivals, competitors, and adversaries to these new titans of Wall Street. In recent times, many economists worry that some specific rules might have driven traditional business lines away from the big banks to the non-bank financial institutions. As these major non-bank financial institutions face lax laws, rules, and regulations, we would witness more asset market fragmentation in the broader context of financial deglobalization. Over the next couple of decades, deregulation would likely further accelerate the recent revolutionary transformation on Wall Street. In combination, less stringent bank capital requirements, liquidity rules, macro-prudential stress tests, and supervisory reviews for banks may allow them to lend even more to the major hedge funds and many different asset management specialty firms. As the less stringent laws, rules, and regulations continue to further supercharge the current revolutionary transformation on Wall Street, we would expect more asset market fragmentation to emerge as the next inexorable result of financial deglobalization. At any rate, we should review whether these new fintech titans of Wall Street have become too big to fail in the next global financial crisis.

 

 

With U.S. fintech patent approval, accreditation, and protection for 20 years, our AYA fintech network platform provides proprietary alpha stock signals and personal finance tools for stock market investors worldwide.

We build, design, and delve into our new and non-obvious proprietary algorithmic system for smart asset return prediction and fintech network platform automation. Unlike our fintech rivals and competitors who chose to keep their proprietary algorithms in a black box, we open the black box by providing the free and complete disclosure of our U.S. fintech patent publication. In this rare unique fashion, we help stock market investors ferret out informative alpha stock signals in order to enrich their own stock market investment portfolios. With no need to crunch data over an extensive period of time, our freemium members pick and choose their own alpha stock signals for profitable investment opportunities in the U.S. stock market.

Smart investors can consult our proprietary alpha stock signals to ferret out rare opportunities for transient stock market undervaluation. Our analytic reports help many stock market investors better understand global macro trends in trade, finance, technology, and so forth. Most investors can combine our proprietary alpha stock signals with broader and deeper macro financial knowledge to win in the stock market.

Through our proprietary alpha stock signals and personal finance tools, we can help stock market investors achieve their near-term and longer-term financial goals. High-quality stock market investment decisions can help investors attain the near-term goals of buying a smartphone, a car, a house, good health care, and many more. Also, these high-quality stock market investment decisions can further help investors attain the longer-term goals of saving for travel, passive income, retirement, self-employment, and college education for children. Our AYA fintech network platform empowers stock market investors through better social integration, education, and technology.

 

Andy Yeh

Online brief biography of Andy Yeh

https://ayafintech.network/blog/a-brief-biography-of-andy-yeh/

Co-Chair

AYA fintech network platform

Brass Ring International Density Enterprise ©

 

 

We assess the current global race toward artificial general intelligence (AGI) between both the U.S. and China.

Podcast: https://bit.ly/4cGMCgi

Article: https://ayafintech.network/blog/we-assess-the-current-global-race-toward-artificial-general-intelligence-agi-between-both-china-and-america/

 

The current AI-driven stock market rally may not be a major asset bubble yet in global human history.

Podcast: https://bit.ly/46LY46t

Article: https://ayafintech.network/blog/the-current-ai-driven-stock-market-rally-may-not-be-an-asset-bubble-yet/

 

President Trump refreshes American fiscal fears and sovereign debt concerns through the One Big Beautiful Bill Act.

Podcast: https://bit.ly/4eSEU1w

Article: https://ayafintech.network/blog/president-trump-refreshes-american-fiscal-fears-and-sovereign-debt-concerns-through-the-one-big-beautiful-bill-act/

 

President Trump poses new threats to Fed Chair monetary policy independence again.

Podcast: https://bit.ly/4ebeoQH

Article: https://ayafintech.network/blog/president-trump-poses-new-threats-to-fed-chair-monetary-policy-independence-again/

 

What are the mainstream legal origins of President Trump’s tariff policies?

Podcast: https://bit.ly/3ZnNMG7

Article: https://ayafintech.network/blog/mainstream-legal-origins-of-recent-trump-tariffs/

 

American exceptionalism often turns out to be the heuristic rule of thumb for better economic growth, low and stable inflation, full employment, and macro-financial stability.

Podcast: https://bit.ly/4iuWuJ9

Article: https://ayafintech.network/blog/american-exceptionalism-turns-out-to-be-the-heuristic-rule-of-thumb-for-better-economic-growth-low-stable-inflation-full-employment-macro-financial-stability/

 

In the broader modern monetary policy context, central banks learn to weigh the trade-offs between output and inflation expectations and macro-financial stress conditions.

Podcast: https://bit.ly/42SwrXG

Article: https://ayafintech.network/blog/central-banks-weigh-the-monetary-policy-trade-offs-between-output-inflation-and-macro-financial-stress-conditions/

 

Is higher stock market concentration good or bad for Corporate America?

Podcast: https://bit.ly/3F1fpgN

Article: https://ayafintech.network/blog/is-higher-stock-market-concentration-good-or-bad-for-corporate-america/

 

Geopolitical alignment often reshapes and reinforces asset market fragmentation in the broader context of financial deglobalization.

Podcast: https://bit.ly/3ZpGMcD

Article: https://ayafintech.network/blog/geopolitical-alignment-often-reshapes-and-reinforces-asset-market-fragmentation-in-the-broader-context-of-financial-deglobalization/

 

The global cloud infrastructure helps accelerate the next high-tech revolutions in electric vehicles (EV), virtual reality (VR) headsets, artificial intelligence (AI) online services, and the metaverse.

Podcast: https://bit.ly/47pDk3z

Article: https://ayafintech.network/blog/the-global-cloud-infrastructure-helps-expand-what-can-be-made-digitally-viable-from-electric-vehicles-and-virtual-reality-headsets-to-artificial-intelligence-metaverse/

 

How can generative AI tools and LLMs help enhance human productivity?

Podcast: https://bit.ly/4elAFKv

Article: https://ayafintech.network/blog/generative-artificial-intelligence-uses-large-language-models-and-content-generation-tools-to-enhance-human-productivity/

 

Both BYD and Tesla have become serious global manufacturers of electric vehicles (EV) worldwide.

Podcast: https://bit.ly/3BgL0sL

Article: https://ayafintech.network/blog/mainstream-technological-advances-in-the-global-auto-industry/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Meta Platforms (U.S. stock symbol: $META).

Podcast: https://bit.ly/3Vt1Sng

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-meta-platforms-meta/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Alphabet Google (U.S. stock symbol: $GOOG).

Podcast: https://bit.ly/46yuX5T

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-alphabet-google-goog/  

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Nvidia (U.S. stock symbol: $NVDA).

Podcast: https://bit.ly/3Kh8Qta

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-nvidia-nvda/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Tesla (U.S. stock symbol: $TSLA).

Podcast: https://bit.ly/4nRGLqy

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-tesla-tsla/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Apple (U.S. stock symbol: $AAPL).

Podcast: https://bit.ly/4ndXt3K

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-apple-aapl/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Amazon (U.S. stock symbol: $AMZN).

Podcast: https://bit.ly/46fUWQE

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-amazon-amzn/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Microsoft (U.S. stock symbol: $MSFT).

Podcast: https://bit.ly/46biKoG

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-microsoft-msft/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of IonQ (U.S. stock symbol: $IONQ).

Podcast: https://bit.ly/3IXfnss

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-ionq-ionq/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Oracle (U.S. stock symbol: $ORCL).

Podcast: https://bit.ly/47fF94u

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-oracle-orcl/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Netflix (U.S. stock symbol: $NFLX).

Podcast: https://bit.ly/4q7cTss

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-netflix-nflx/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Palantir (U.S. stock symbol: $PLTR).

Podcast: https://bit.ly/4gZTiWO

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-palantir-pltr/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of AT&T (U.S. stock symbol: $T).

Podcast: https://bit.ly/4q2VfG4

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-att-t/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of T-Mobile (U.S. stock symbol: $TMUS).

Podcast: https://bit.ly/4mV2ays

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-t-mobile-tmus/ 

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Cisco Systems (U.S. stock symbol: $CSCO).

Podcast: https://bit.ly/48gGjxM

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-cisco-systems-csco/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of AMD (U.S. stock symbol: $AMD).

Podcast: https://bit.ly/470BoPm

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-amd-amd/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Salesforce (U.S. stock symbol: $CRM).

Podcast: https://bit.ly/46LpXvZ

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-salesforce-crm/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Uber Technologies (U.S. stock symbol: $UBER).

Podcast: https://bit.ly/4nOTVFm

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-uber-technologies-uber/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of IBM (International Business Machines) (U.S. stock symbol: $IBM).

Podcast: https://bit.ly/4ohozqT

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-ibm-ibm/

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Intuit (U.S. stock symbol: $INTU).

Podcast: https://bit.ly/4ohAKUE

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-intuit-intu/ 

 

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fundamental analysis of Texas Instruments (U.S. stock symbol: $TXN).

Podcast: https://bit.ly/4nVq0Ly

Article: https://ayafintech.network/blog/gen-ai-fundamental-analysis-of-texas-instruments-txn/

 

Industry Analysis

AYA ebook hyperlink: https://bit.ly/4hxvrwy

AYA ebook length: 283 pages (21 chapters and 122,241 words).

 

Stock Synopses for the Top 20 Tech Titans

AYA ebook hyperlink: https://bit.ly/3VR7Ka5

AYA ebook length: 449 pages (20 chapters and 168,639 words).

 

Top-Tier Self-Improvement Book Reviews

AYA ebook hyperlink: https://bit.ly/46Iqkrc

AYA ebook length: 133 pages (10 chapters and 54,529 words).

 

Bidenomics

AYA ebook hyperlink: https://bit.ly/44CdDu7

AYA ebook length: 206 pages (18 chapters and 90,405 words)

 

Trump Economic Reforms

AYA ebook hyperlink: https://bit.ly/2ZwYfiE

AYA ebook length: 507 pages (21 chapters and 97,854 words)

 

Modern management macro themes, insights, and worldviews

AYA ebook hyperlink: https://bit.ly/2IezdQh

AYA ebook length: 225 pages (top 40 recent management book reviews)

 

Economic science macro themes, insights, and worldviews

AYA ebook hyperlink: https://bit.ly/3FaegyI

AYA ebook length: 220 pages (top 40 recent economic science book reviews)