Summary: The following write-up jots down some notes about capital, the size of the global market, about allocators of capital, both the largest asset managers and asset owners. Followed by the changing role of capital – modern day vs the original purpose of capital as funding growth, both in terms of valuation expansion as well as rise of passive investing. Moving further it notes down some pointers on raising capital in modern times. And mentions the still wide a gap between enterprise need and capital funding it, even in a world awash with capital. Eventually, it discusses some alternate ways of operating, introducing, what perhaps can be called ‘Rolling-Purpose Enterprises’ – a new approach which reconnects capital with its traditional role of stewardship and funding growth. For other charts and references, please refer to the craft link at the end of the post.

(All numbers are in USD. Kindly note that the data is from various sources, at times conflicting in nature. Please refer to for directional understanding only)

Here’s a general dictionary definition of capital:

“wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.”

While in Economics:

“Capital is a broad economic concept representing produced assets used as inputs for further production or generating income.”

Capital is wealth as well as fuel for further growth. Below are a few notes on Capital, at a global level.

Size of the Market

There are many avenues in which capital is currently held around the world. Some of these are markets which can be easily traded in, liquid and some are private, illiquid markets.

The public markets or relatively liquid markets represent a ~$250- $270 trillion universe. These include:

Equities – Global Capital markets are ~110 trillion
Bonds – the largest category, around $135-$140 trillion. This includes corporate and government bonds. Bulk of this is US and other developed markets. China is the new fast growing market with ~$21 trillion.
Alternatives (Private Equity $14 trillion, Hedge Funds $4.5 trillion); Private Credit is $1.5 – $2 trillion rapidly growing market. (To note that “Between 2000 and 2023, total AUM across private market asset classes increased almost 20-fold”)
Commodities $15-$20 trillion
Real Estate Investment trusts $15-$20 trillion
Cash & Derivatives (Derivatives although have a notional value of $700 trillion, the market value is close to $15-$17 trillion) [1]

To get a sense of growth, this universe, which is currently $250-$270 trillion, was $100 trillion in 2007, (and $53 trillion in 1993 (?), $12 trillion in 1980(?)). One of the points to note is that at no point in human history was there this much capital available.

For quick reference, global GDP is c. $100 trillion (2022).

In terms of illiquid assets, world’s total property value is ~$380 trillion.

“The total value of the world’s property stood at $379.7 trillion at the end of 2022. Real estate is worth more than the global equity and bond markets combined and is almost four times the size of global GDP. The value of all the gold ever mined – $12.2 trillion – is paltry by comparison, a little over 3% of the value of global real estate.”

Over three quarters of real estate value is residential property, commercial c. $51 trillion, agricultural land c. $41 trillion. Still, because these are private markets, value calculations are estimates only.

From another source, if you include govt funds ($110 trillion) too, the total net assets in the world is close to $660 trillion (2022 chart). As to other charts and information sources, please see the craft workbook here.

[1] (A little note on Derivatives – Although the notional value is $700 trillion+, the bulk of these are interest rate ($570 trillion) and forex related ($120 trillion) derivatives. Of the total, Equity-linked are close to $8 trillion notional value, and similar for credit derivatives. Commodity derivatives are close to a notional value of $2.8 trillion – all these are notional values, actual market value being $17 trillion to the notional of $700 trillion+)

Allocators of Capital

As the above chart shows, the owners of capital are households, government, finance industry and non-financial corporate sector. Although households own wealth, they may have allocated wealth to pension funds etc, which implies finance industry is the key owner.

Here, a look at both – the largest asset allocators as well as the largest asset owners.

Firstly, largest asset allocators/ managers

“Total discretionary assets under management (AUM) of the 500 managers ranked reached $128.0 trillion at the end of 2023, up by 12.5% from the end of 2022.”

This is, in a way, half of the liquid capital markets mentioned above. Worth noting that top 20 manage $58 trillion, or almost a quarter of total public markets (both bond and equity).

Lets consider the top few asset allocators:

Blackrock, the largest asset manager manages $10 trillion.
Vanguard Group manages $8.5 trillion
Fidelity $4.6 trillion
State Street Global, manages $4.1 trillion
JP Morgan Chase manages $3.4 trillion
Next few Goldman Sachs ($2.8 trillion), UBS Switzerland ($2.6 trillion), Capital Group US ($2.5 trillion), Allianz Germany ($2.4 trillion) and Amundi France ($2.25 trillion)

Between them, these above 10 manage ~$43 trillion. They invite investments through mutual funds, wealth management and invest actively and passively in the underlying capital markets.

Secondly, Largest Asset Owners

In terms of the largest asset owners: as of 2023, the top 100 asset owners managed $26.3 trillion, half of this is managed by Pension Funds and ~38% by Sovereign Wealth Funds. Private Trusts handle ~9% of these top 100.

A look at the top few:

Government Pension Investment, Japan is the largest asset owner in the world. It is a pension fund that manages $1.6 trillion wealth.
Next is Norges Bank Investment Management of Norway which manages $1.5 trillion. It is a Sovereign Wealth Fund (SWF) owned by the Norway government
China Investment Corporation, another SWF manages $1.2 trillion
SAFE Investment Company, another SWF from China manages $1 trillion
Abu Dhabi Investment Authority, UAE manages $0.96 trillion
A few others are Kuwait Investment Authority (Kuwait, SWF, $0.8 trillion), National Pension (South Korea, Pension Fund, $0.8 trillion), Federal Retirement Thrift (US, Pension Fund, $ 0.78 trillion), GIC Private Limited (Singapore, SWF, $0.76 trillion), Public Investment Fund (Saudi Arabia, SWF, $0.76 trillion).

Between them, these top 10 owners own about $10.3 trillion. It is still a small share compared to the largest allocators in the world.

In terms of retail investors globally, “—a growing and largely untapped pool of nearly $60 trillion”

A question here worth considering deeper, how do different asset owners, be it pension fund, or a high-net-worth individual decide where to deploy the capital?

Determining a portfolio or determining where to invest is a dynamic balancing of a) investment objective (preservation or growth), b) time-frame available, c) cost bearing capacities, and d) span of direct management available to oversee the investments. At one end, perhaps capital spells out as entrepreneurial risk capital, actually being deployed in its traditional sense of creating new wealth (rather than just valuation expansion), and at the other end of the spectrum, it sits as cash or risk-free investment.

The allocators and managers consider capital as portfolio, and try to allocate it for optimum returns across strategic objectives (long term, income, diversification), tactical objectives (cycle play, hedge, spread), seeking alpha and managing risk (hedging against infaltion, deflation, investing in other markets). In this spectrum, there are multiple approaches, multiple players, and multiple means of accessing the market, finding the optimum risk adjusted returns. For example, as ChatGPT suggests:

“Hence, today, capital mainly flows to:

Public equity markets – driven by price/valuation appreciation
Private equity & venture – chasing IRR via entry/exit arbitrage
Credit (private/public) – yield-based flows
Real assets – for inflation hedge, income, stability
Passive products – not truly “going anywhere,” just tracking indices
Thematic vehicles – AI, clean energy, biotech etc., often speculative”

Modern day vs. the original role of capital

In 1492, when Queen Isabella funded Columbus, it was one of the early examples of capital which was other than money lending, it pretty much set the era of Capital for funding new growth. Before that, land was the key economic asset. The subsequent charters led to world domination plans by multiple parties before it settled into something that last century has presented to us, a financially interconnected world.

The world was very different even a 100 years ago: Today, two things have emerged:

Distance between capital and its usage
Disconnect with active stewardship

The current era of global capital market development was launched in the 1970s with the breakdown of the fixed exchange rate system and capital flow controls that had been in place since the end of World War II. That earlier system comprised a collection of largely independent national financial markets. In the late 1970s, floating exchange rates replaced the old system, and prices for instruments across borders came to be determined by capital market activity.

The global economy reached $36 trillion in GDP in 2003, up from $24 trillion in 1993 and $10 trillion in 1980.

At the moment, the global GDP is $100 trillion (2022).

In 1980, the global capital markets and GDP were of the same size. Today, it is 2.5 -3 times basis different calculations. For example, following is from a McKinsey report of 2005

“The global financial stock has grown faster than the underlying economy over the long term—since at least 1980. Moreover, there are no apparent near-term limits to continued deepening: the deepest countries—the US and the UK, for instance—continue to grow deeper, while many fast-growing economies—India and the countries of Eastern Europe, for instance—have the potential to deepen much further as their financial systems develop.”

How these two features (distance between capital and usage, and disconnect with actual stewardship) translate in actual data:

Valuation Expansion as the key reason of Capital growth & perhaps the growth of intermediary universe and related fee
Passive Capital Expansion

Valuation Expansion

Today, valuation expansion has become the key reason for capital growth rather than actual production. For instance, consider the following table generated along with AI (please use for directional reference only). The rise of valuation ratios:

(CAPE = Cyclically Adjusted P/E ratio)

For a moment, lets reconsider, what exactly is P/E. It is an indication of expected earnings, and price of the company in its terms. If earnings stay the same as current year, it implies, it will take the same number of years to return the capital. But high P/E generally imply higher growth expectations, but at some point, these high growth companies will become stable, average growth companies. At that point, the valuation corrects or should correct in efficient markets. There is a lot of capital chasing relatively few opportunities in the listed space. Resulting in expansion of value without underlying expansion of the growth producing assets.

In the above context, following excerpt: (for US, read all developed markets in the world and increasingly the developing ones too)

“The cyclically adjusted P/E ratio has remained above 1929 levels for much of the last few years and is also approaching the peak of 2000.² Indeed, with the exception of the immediate aftermath of the 2008–9 crash, valuations have remained at elevated levels since 2000 (relative to previous history), despite the fact that this period has been characterized by a financial crisis, weak productivity gains, and ongoing narratives of “secular stagnation.

…A more comprehensive explanation would simply state that the U.S. economy is, to a unique extent, organized around maximizing asset values and returns on capital independently of growth—in terms of corporate behavior, financial market incentives, and government and central bank policy. This may seem obvious or even tautological: what is capitalism if not a system aimed at maximizing returns on capital? But the disconnect that has emerged between returns on U.S. financial assets and underlying economic performance—and even corporate profits—over the last few decades should raise deeper questions about basic economic policy assumptions and their theoretical foundations. Insofar as rising asset values are not linked with growth or productivity—and at the very least it is clear that they can diverge for meaningful lengths of time—then not only are different policy approaches required to achieve these distinct objectives, but the larger relationship between capitalism and development will need to be rethought.

Part of it is also explained by the fact that the business models in America have shifted to asset-light models which do not require significant capital investment:

“Although free cash flow yields have dropped significantly in 2021—to levels indicative of historically high valuations—they remained relatively high for most of the period since the financial crisis. This unusual combination of high earnings multiples and high free cash flow yields is consistent with a shift of earnings to asset-light businesses as well as weak capital investment more broadly, which in fact has been observed throughout this period.”

And yet:

“From 1989 to 2017, $34 trillion of real equity wealth (2017:Q4 dollars) was created by the U.S. corporate sector. We estimate that 44% of this increase was attributable to a reallocation of rewards to shareholders in a decelerating economy, primarily at the expense of labor compensation. Economic growth accounted for just 25%, followed by a lower risk price (18%), and lower interest rates (14%). The period 1952 to 1988 experienced less than one third of the growth in market equity, but economic growth accounted for more than 100% of it” (American Affairs, 2021)

The increasing gap between real growth and the capital returns sometimes spells out as higher hurdle rate and thus, reduces the capital willing to deploy itself to real growth or productivity opportunities which do not meet those high hurdle rates. Part of the difficult problem the world faces at the moment. That capital is hoarded, rather than deployed. (Further notes in Craft sheet attached)

The rise of passive investing

Where ETF/passive investing was $220 billion in 2005, <1% of global market cap, as of now, it is close to $13-$15 trillion or >10% of global market cap. This changes the market dynamics.

“An ETF — exchange-traded fund — is a portfolio of securities, commodities or other instruments that is traded on an exchange. Investors own a share of the ETF itself rather than the underlying portfolio, which can help diversify their investments and lower the risk of exposure to individual stocks.”

“Passive investing has grown significantly over the past three decades, accounting for 50% of total equity investing in mutual funds and ETFs globally today.”

This is capital which is not thinking. Originally, when risk capital was introduced, one of its key tenets was stewardship.

This changes the idea of price discovery in the market. There is less human judgement, more algorithms and related flows, making the markets riskier as the price discovery becomes cluttered with price inelastic elements.

“The rise of passive investing has had a significant impact on financial markets in the last three decades, especially on its contribution to higher asset-price volatility, reduced liquidity, and possible contribution to heightened market concentration. By analyzing the substantial shift of assets from active to passive strategies—particularly through the growth of Exchange Traded Funds (ETFs) and retirement-savings plans, such as 401(k)— passive investors, who primarily track major indices, have contributed to reduced price elasticity and market responsiveness, which, in turn, have led to amplified price movements, decreased liquidity, potential macroeconomic inefficiencies, and a disproportionate concentration of market influence in a few dominant stocks, such as the so-called “Magnificent Seven.””

Raising Capital

Now for a moment consider, if you are a CFO or a company navigating the capital markets, what are the options available:

“Companies raise capital in a bunch of different ways, but the main ones are:
• issuing some more shares—a company gets new or existing shareholders to put more money into the company, such as through an initial public offering (IPO) or share placement
• taking on debt—a company borrows money and agrees to repay it at a later date
• reinvesting its profits—putting some of its profits aside (instead of giving them to shareholders) and using those profits as capital.
All of these end up with the company getting more money to use.”

For each of the above option on equity and debt, a company today can explore various options:

Raising equity capital:

IPO – Globally, $121 billion was raised through this means in 2024. (Worth noting here that a lot of IPO volume is PE and VC companies exiting or offloading their portfolio). Another note to reflect is that at the end of 2023, the global market cap was ~$111 trillion and at the end of 2024, $126 trillion. Most of the expansion is valuation expansion rather than new money into companies.
For comparison PE deal value for 2024 was $1.7 trillion. A lot of this is assets changing hands at higher valuation (generally) and not really new money towards enterprise.
VC – $368 billion this too includes secondary valuation rises. Out of this Corporate Venture Capital is $180 billion.
Private Fundraising

Debt – here, similar to equity (rise of PE, VC), things have changed over the last few decades.

“Over the past 25 years the corporate finance landscape and, especially the corporate debt finance environment, has changed significantly.The rise in innovative trends and techniques in corporate finance enhanced the essential role of debt in the firm. Fuelled by the post-GFC banking regulation, there has been an increased competition among the traditional finance providers, such as banks, and the non-traditional finance providers, in particular, private credit funds. This competition has been one of the main factors shaping the global debt financing markets in the past years. More recently, the competition has become more intense, as sophisticated institutional investors (e.g. sovereign wealth funds) started to compete with banks and private credit funds by directly providing financing to companies.”

Banks – If you are in bank dominated countries, you would seek from banks, working capital finance, project finance, long term loans. And from equity markets, equity capital.
Bonds – If you are in markets where bonds are an established channel, you would seek from markets capital either as bonds, or equity. ($600 billion (?) global fundraise by corporate bonds in 2024)
Private Credit – New fast growing category, current stock is $2 trillion. Taking share away from banks and non-bank lenders.

This is different, in terms of fees and options compared to say, 1950.

“Today’s financial markets include several institutions aside from banks that, broadly speaking, channel savers’ money to investors, and some of them also engage in maturity transformation. Stock markets provide direct links whereby savers fund publicly traded companies; publicly traded stocks are liquid in that they can be sold quickly, but they do not offer a safe return. Another source of investor funding is bond issuance; bonds of larger companies can often also be traded in centralized markets and thus offer a degree of liquidity. A more recent phenomenon is the growth of venture capital and private equity firms that offer funding for companies that are not publicly traded, but these firms do not engage in maturity transformation and are typically not accessible to most individual savers.

Today there are also a number of intermediaries – such as securitization vehicles and money market mutual funds – that provide debt-financing like banks do but operate largely outside of the regulated banking system. By financing long-term illiquid investment with shorter-term and more liquid instruments, these non-bank intermediaries also engage in maturity transformation. Because of this similarity, they are often referred to as shadow banks. These shadow banks now account for a significant share of intermediation activity in the economy and the failure of shadow banks were at the heart of the Great Recession, sometimes also called the Global Financial Crisis. Thus, also in terms of their vulnerability to runs and panics to these institutions resemble banks.”

The thing to note here is that there is a lot of layers and complexity in the financial market where capital is not really reaching enterprise, just playing in the secondary market for valuation gains. Capital is a source of income as well as the fuel for further growth. Yet, when capital seeks market-like return in the enterprise, it is difficult to find, especially if they seek software like returns which warp the capital allocation decision itself.

“Today, however, any discussion of maximizing the value of production and the annual revenue of society sounds almost as quaint as capitalists naturally preferring to support domestic industry. Corporations instead seek to maximize returns to shareholders (which in practice usually means maximizing the value of the firm’s equity) and increasing profits is at best a means to that end. While deploying capital to grow revenues and profits may be the most intuitive way to increase equity values, it is hardly the only one.”

And, in all this above discussion, this startling fact:

“Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies.

SMEs are less likely to be able to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises. The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4 times the current level of the global MSME lending. East Asia And Pacific accounts for the largest share (46%) of the total global finance gap and is followed by Latin America and the Caribbean (23%) and Europe and Central Asia (15%). The gap volume varies considerably region to region. Latin America and the Caribbean and the Middle East and North Africa regions, in particular, have the highest proportion of the finance gap compared to potential demand, measured at 87% and 88%, respectively. About half of formal SMEs don’t have access to formal credit. The financing gap is even larger when micro and informal enterprises are taken into account.”

The world is awash with capital, yet this gap between capital and enterprise.

Here again, lets understand the fundamental reason financial markets exist:

“Institutions such as banks and similar financial intermediaries exist arguably because financial markets fundamentally channel savings toward real investment. In the aggregate economy, savings must equal investments, but investment opportunities and the willingness and ability to save usually do not coincide at the individual level.

The role of financial markets is to solve the problem of coincidence of saving and investment, while taking into account the needs of different savers and investors.”

Exploring Alternative ownership structures

Amidst all this, one realises the world changes rapidly. From where it began in the fifteenth century, this version of capital has come a long way in the last 500 years, and especially the complexity in the secondary world that has come in the last 50 years.The intention or stewardship of that capital is slowly seeping away.

One of the fundamental questions is the question of sustainability. How sustainable is this distance of capital from enterprise? How sustainable is the passive, non-stewarded capital?

“Today’s shareholder-driven corporations are not necessarily—or even primarily—motivated to engage in the traditional methods of “growing a business.” Companies are often highly incentivized to pursue financial engineering and valuation multiple expansion, rather than investing to increase earnings. Eliminating profit streams can actually increase shareholder returns when the remaining company trades at a higher valuation—especially if share buybacks or other cash returns feature in the process.”

Capital seeks optimum returns, the way water seeks level. Even through complexity barriers, it navigates its way to the optimum returns basis its objective. But if one were to consider the ideal role of capital – it is stewardship, funding growth, enterprise, and allowing returns simulatneuosly to its owner.

A look here at few alternate ownership structures. Some examples (in discussion with AI)

In recent years, a rich ecosystem of alternative enterprise forms has been quietly growing, reimagining what a corporation can be. These innovations are motivated by the very dissonances we’ve described, and they offer living examples that businesses can pursue multi-faceted purposes, adopt self-restraint, and still succeed.

Benefit Corporations and B Corps & Public Benefit Companies: Benefit corporations bake a specific public benefit into their legal purpose. Leaders of a benefit corporation are obligated to balance profit with social and environmental goals. By widening the mission beyond shareholder profit, B Corps explicitly reject infinite growth as the sole metric of success – growth is pursued mindfully, in service of a broader mission. Examples – Patagonia (now a perpetual trust), Allbirds, Eileen Fisher (40% employee owned).

Cooperatives: Cooperative businesses – whether owned by workers, consumers, or producers – align decision-making with the interests of their members and often the community. Co-ops typically prioritize stable service, fair distribution of surplus, and longevity of the enterprise over aggressive expansion. Examples – Recreational Equipment Inc, Ace Hardware

Foundation-Owned and Steward-Owned Firms: Notable in parts of Europe (and a few in the U.S.) are companies whose controlling owner is a charitable foundation or trust. The “steward ownership” movement extends this idea: entrepreneurs relinquish the notion of personal stock windfalls and instead tether their companies to foundations or golden-share trusts committed to mission and reinvestment. Examples – Bosch, Novo Nordisk

Perpetual Purpose Trusts and Mission-Locked Ownership: One of the most intriguing new models is the Perpetual Purpose Trust (PPT) – a structure in which a business is owned by a trust that exists not for the benefit of any individuals, but for a stated purpose or stakeholder community. Under a purpose trust, profits are reinvested or distributed to fulfill the defined purpose, and the company cannot be sold off for private gain.

Further to the above, the idea worth exploring and developing further is how to best match the capital with enterprise. Hence:

Proposing Rolling-Purpose Companies (Sunset-to-Sunset)

Proposing a shift away from the presumption of perpetual corporate life toward finite, purpose-limited enterprise design. Think of enterprises that are born with a clear mission, live out that purpose, and then gracefully sunset – repurposing capital and talent back into the market to pursue new enterprise/ objectives. Lets call these “Rolling Purpose Enterprises,” operating on a sunset-to-sunset cycle of focused creation and intentional dissolution. Each enterprise would have a planned lifespan corresponding to its specific project or goal, after which it pivots to new endeavors.

So, instead of chasing perpetual growth (in industries and sectors that allow for it), focuses on operating to a purpose, and as that purpose changes, it shifts its resources (people, capital, business resources) to more relevant objectives. This requires an active stewardship by capital, and this active involvement should yield results which are overall better than the passive valuation expansion which may lead to bubble risks. These are to be commercially viable with an IRR of over 15% over the life without the promise of perpetual growth.

A few pointers about this proposal:

This is not very different from the traditional mode of capital with active stewardship. It echoes the same design ethos, systematizes it, makes it disciplined and attunes it to modern ways of doing business.
This seeks enhancing long term value of the business. By providing for transition, paradoxically, this will introduce long term thinking in the firm. Forced to think through the potential growth phases, a long term plan and transition to new opportunities lens will be operating from day 1. There is no one time high growth, but multiple phases of high growth that are to be planned.
The returns are higher than traditional business because it capitalises on growth phases of multiple purposes, actively shepherding capital back to new purposes within the firm.

–

One of the things that one learns from nature is that things rise and fall, live and then die once their purpose is spent. Then to make something long term sustainable, one needs the robustness of nature. This is an approach of capital as craft, as artisanal capital, making channels such that capital profitably seeks the enterprise opportunities and fills that gap, rather than just seeking valuation expansion.

The idea has been further developed and discussed with AI. (More details here)

Linked workbook (sources, notes, charts)

For additional charts, links, sources and the referred chat, please see the open craft workbook here.

One of the sources for many quotes above, and for further reading to help reflect on the valuation expansion: https://americanaffairsjournal.org/2021/08/the-value-of-nothing-capital-versus-growth/

Capital – some notes (a workbook)