The world is richer on paper, but the quality of that wealth is weakening. McKinsey Global Institute estimates that the global balance sheet reached nearly $1.8 quadrillion in 2025, while household wealth rose to $570 trillion. The key issue is that only 20% of household wealth growth came from real capital formation, while nearly 60% came from asset price gains above inflation. That means a growing share of wealth is being driven by valuation, not by new productive investment. This matters because it creates a widening gap between asset prices and the real economy. When asset values rise faster than GDP, balance sheets can look stronger than they really are. That can support higher valuations, more leverage, and easier financing in the short term, but it also increases the risk of repricing if rates stay high, liquidity tightens, or market sentiment changes. In other words, paper wealth is not the same as durable economic strength. The Impact - Valuation risk: Higher asset prices can support richer multiples, but they do not always reflect sustainable earnings or cash flow. - Credit risk: Rising wealth does not automatically mean stronger repayment capacity, especially where leverage is already elevated. - QoE focus: Buyers should separate operating performance from balance sheet gains driven by market appreciation. - Deal structuring: Financing assumptions deserve more scrutiny when liquidity and exit conditions depend on stable markets. - Capital allocation: Businesses with real cash generation and disciplined balance sheets will be better positioned if asset prices reset. For dealmakers, the focus should stay on cash flow quality, leverage discipline, and whether reported wealth is backed by real economic output.