The Quiet Revolution in Private Markets
For decades, the world of private capital—encompassing private equity, private credit, and real assets—operated as a quiet, exclusive domain. It was a space reserved for large institutional investors who were willing to accept a lack of liquidity and complex, rigid fund structures in exchange for potentially higher returns. This asset class has since exploded in size and importance, becoming a critical engine for financing the global economy. However, the very systems that underpin this massive growth are showing their age. The operational infrastructure—the back-office machinery of record-keeping, settlement, and asset servicing—has not kept pace with the industry’s success. This growing friction is becoming the single biggest obstacle to future expansion. The core challenge is no longer finding capital or deals, but modernizing the fundamental architecture that allows these assets to be created, managed, and moved efficiently. The goal is to bring the same level of digital sophistication and operational ease to private markets that public markets have enjoyed for decades, thereby unlocking access for a much wider range of investors, from large institutions to individual wealth clients.
The sheer scale of this boom is staggering. Semi-liquid and evergreen funds, which have been the primary vehicles for opening private markets to a broader investor base through wealth and advisor channels, have seen their assets under management more than double since 2022, surpassing the half-trillion-dollar mark. Private credit, a major component of this universe, tells an even larger story. The market is already substantial, but its potential addressable market is what truly captures the imagination. When you consider not just traditional middle-market lending but also investment-grade assets and other income-generating strategies, the potential opportunity is estimated to be in the tens of trillions of dollars. The asset class itself has diversified far beyond simple corporate loans, now encompassing everything from fund finance and supply chain financing to aviation debt, residential mortgages, infrastructure loans, and even music royalties. Yet, this incredible growth is built on a fragile foundation. The operational processes that support these assets are still fragmented, relying on a patchwork of intermediaries, legal agreements, and disconnected platforms. Simple tasks like subscriptions, redemptions, and capital calls often depend on manual, sequential handoffs between multiple parties. This lack of automation is so profound that settling a private credit trade can take up to 30 business days. As more capital and more participants flow into this ecosystem, this operational fragmentation is transforming from a minor inefficiency into a genuine bottleneck that threatens to cap the industry’s growth.
To address this, a fundamental redesign of the industry’s infrastructure is needed, built on four key pillars. The first is the creation of persistent identifiers. Public markets have long used standardized codes to track assets instantly, but private markets have no real equivalent. Ownership records and transaction histories are scattered across different systems, making it nearly impossible to get a single, current view of an asset. Digitizing ownership-level data would create a single source of truth, enabling real-time tracking and more consistent records. The second pillar involves making the complex legal agreements that govern private credit machine-readable. These documents are dense and bespoke, but with the help of AI, the key economic terms can be extracted and translated into smart contracts. This would make features like payment schedules and fee distributions programmable, allowing the loan itself to verify its own compliance and calculate payments automatically. The third pillar is ensuring certainty of settlement. Tokenization, combined with smart contracts, enables a process where the transfer of ownership and the movement of cash happen simultaneously, eliminating the delays and errors that plague manual processes. Finally, the fourth pillar focuses on collateral utility. Once an asset has a persistent identifier, programmable terms, and settlement certainty, it can finally be pledged and leveraged efficiently, opening the door to new forms of liquidity and financing.
A critical insight is that tokenizing an asset is only valuable if the token can actually move. Interoperability—the ability to shift tokenized assets, cash, and data seamlessly across different platforms and systems—is what determines whether tokenization becomes a true infrastructure or just another isolated experiment. The real value lies in transforming manual, fragmented processes into automated, always-on infrastructure. Without an interoperable layer, digital rails risk simply reproducing the same old fragmentation in a new, more modern form. This vision is not just theoretical. Other major financial institutions are actively exploring similar paths. J.P. Morgan and Apollo have tested architectures where tokenization and smart contracts could automate subscriptions, redemptions, and portfolio rebalancing. Citibank has gone further, partnering with others on proofs of concept to demonstrate how private assets could be tokenized and given new capabilities, and has also worked with a regulated digital securities infrastructure provider to develop a solution for tokenization, settlement, and custody of private-market shares. Even major competitors like State Street have developed integrated platforms designed to manage private assets through a unified, front-to-back system, offering consolidated views of public and private portfolios.
The most profound implication of this shift is where competitive advantage will lie in the future. Once the operational plumbing works efficiently, firms will no longer win by being better at navigating administrative friction than their rivals. The advantage will shift decisively to those who excel at the core investment activities: origination, underwriting, and the quality of their ideas. Financial institutions like BNY are positioning themselves at the center of this transformation by building bridges between emerging digital capabilities and the existing funding and risk frameworks that underpin global markets. The strategy is not to create parallel systems that fragment liquidity further, but to integrate new digital tools into the existing financial ecosystem. The report’s conclusion is clear: persistent identifiers, programmable terms, settlement certainty, and smarter collateral use are not optional upgrades. They are the foundational elements that will determine how far and how fast private markets can grow. This modernization is not just a technical exercise; it is a strategic imperative that will reshape the competitive landscape of the entire financial industry, making private markets more accessible, efficient, and integral to the global economy.
