Private Credit News Weekly Issue #103: The Man Who Shorted Subprime Is Now Betting Against Insurers
Lee Robinson turns his crisis-era playbook on private credit's biggest backers as the redemptions grind on and advisers push a "no-brainer" arbitrage
Lee Robinson turned $20 million into $200 million betting against subprime mortgages in 2008. He’s back, and this time the target is the insurance companies that quietly bankrolled the private credit boom.
Robinson isn’t shorting private credit directly. It’s hard to do, and he sees a cleaner trade in the second-order effects. His London firm, Altana, is building credit-default-swap positions against Lincoln National, MetLife, and even Berkshire Hathaway, the insurers piling into the asset class for yield. “In August 2008, we were pulling our hair out, wondering how on earth volatility is at this low level,” he said. “It feels a little like that now.”
He’s not alone. Net notional bets on US insurers’ CDS climbed to $5.6 billion by late May from under $4.9 billion at year-end. JPMorgan and Goldman are building protection products for clients asking the same questions. A Moody’s analysis found a fifth of US life insurers’ $4 trillion fixed-income book now sits in illiquid assets, mostly private credit, up from 18% a year earlier. The shift runs deepest at insurers owned by Apollo and KKR.
The retail side, meanwhile, isn’t healing so much as scabbing over. Ares capped its $22.6 billion Strategic Income Fund at 5% after requests hit 14.4%, up from 11.6% in the first quarter. Antares gated its $2.1 billion fund after 10.3% sought out. Funds keep meeting partial demand and calling it resilience.
Len Tannenbaum sees a darker problem building underneath. Software-heavy BDCs are using payment-in-kind loans to make impaired debt “disappear,” he argues, dressing up portfolios that are sicker than they look. His acronym for it doesn’t translate to a family newsletter, but the gist is that the pile builds quietly until liquidity drains and it all surfaces at once.
And the arbitrage trade everyone’s whispering about keeps getting louder. Listed BDCs trade at a median 25% discount to NAV while their non-traded siblings sit at par. “When the same credit manager is running a non-traded BDC at its net asset value and a listed sibling fund at a 24% to 27% discount, that’s not a philosophical debate, that’s a math problem,” said CEF Advisors’ John Cole Scott.
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Key Market Themes
1. The Subprime Short Seller Comes for Insurers
Lee Robinson, who turned a $20 million position into $200 million shorting subprime in 2008, is now amassing CDS positions against insurers exposed to private credit. His targets include Lincoln National, MetLife, and Berkshire Hathaway. Altana is launching a new fund, seeded with its own capital, to play what Robinson sees as an inevitable private credit downturn, an AI cooldown, and the drag of fading liquidity on corporate valuations.
His argument is narrow. He doesn’t expect a Lehman-style insurance collapse. He thinks the market isn’t pricing the risk of writedowns in a corner of credit that’s never been through a slump. Net notional bets on US insurers’ CDS rose to $5.6 billion by May 22 from under $4.9 billion at year-end. Lincoln National’s five-year CDS last traded around 142 bps, wider than it was but still nowhere near distressed levels, which is exactly why Robinson likes the asymmetry. MetLife pointed to its CFO’s comments that 95% of its private debt is investment grade.
Why it cuts through
Robinson found the trade everyone wanted but couldn’t execute. You can’t short private credit cleanly, so he’s shorting the balance sheets stuffed with it. The setup rhymes with 2008: low volatility, tight spreads, and a widespread belief that an untested asset behaves the way the models say. The Moody’s data on life insurers moving from 18% to 20% illiquid holdings in a single year shows how fast the exposure built. Robinson isn’t predicting the insurers fail. He’s betting their CDS gets repriced when the first writedowns land, and at 142 bps the downside if he’s wrong is small.
2. Tannenbaum’s PIK Warning
Len Tannenbaum, who sold Fifth Street to Oaktree nearly a decade ago, thinks some BDCs are masking distress with payment-in-kind loans. PIK lets a borrower roll interest into the loan balance instead of paying cash, which can carry a healthy company through a rough patch or hide a dying one. “PIK is POOP, Principal On Outstanding Principal, and it doesn’t matter how much, POOP smells,” he said. “That pile of stuff builds up and when liquidity is draining, it all shows up.”
Tannenbaum wants a sharper shakeout, comparing it to how Bear Stearns’ 2008 collapse kicked off years of cleanup. The big diversified managers won’t fail, he said, but somewhere there’s a canary. He’s planning a new BDC with his son to lend into the correction, targeting lower-middle-market deals with $5-25 million EBITDA where spreads are widening. “Those deals are great. Real cash flows, real sponsors. So I’m happy to come back in.”
Why it cuts through
PIK is the metric to watch because it’s where bad credits go to look temporarily fine. A loan paying in kind isn’t defaulting, so it doesn’t show up in default stats or non-accruals, even as the borrower’s balance sheet quietly bloats. Tannenbaum’s point about timing is the dangerous part. The PIK pile doesn’t hurt while money flows in. It surfaces when redemptions force funds to actually value what they hold. His decision to launch a new fund into the wreckage tells you he thinks the cleanup is real and the post-correction lending is worth it.
3. Ares and Antares Join the Gating Crowd
Ares capped its $22.6 billion Strategic Income Fund at 5% after investors requested 14.4%, up from 11.6% the prior quarter. Antares limited its $2.1 billion fund after requests hit 10.3%, returning about 73% since that topped its 7.5% cap. Antares said $78 million of inflows more than offset the repurchases and pointed to roughly 8x coverage of the repurchase amount across its liquidity sources, with net leverage at 1.06x.
The Ares figure stands out because demand accelerated, not eased. Apollo, BlackRock, Morgan Stanley, and Blackstone all capped this quarter after requests cleared their thresholds. Antares, for its part, marked down its First Brands first-lien loan by 37% after the company collapsed late last year, cutting the position from $3.5 million to $1.3 million.
Why it cuts through
The second-quarter numbers killed the recovery narrative. Investors who got partially blocked in Q1 came back asking for more, and the requests rose across nearly every fund that reported. Antares’ letter is a clean example of how managers are spinning it: real liquidity, low leverage, strong coverage ratios, all true and all beside the point if requests keep climbing each quarter. The funds can meet 5% indefinitely. What they can’t control is whether 14% becomes 20% next time, and the trend line isn’t bending their way.
4. The Arbitrage Trade Gathers Steam
Advisers are pushing clients to dump non-traded BDCs and buy their listed siblings at a discount. The logic is stark. Cash out of the private fund at full NAV, then buy a comparable listed vehicle trading at a median 25% discount. “If you want BDC exposure, take it in the publicly traded vehicles,” said Savvy Advisors’ Josh Barone. “You get daily price discovery, transparent leverage, real redemption mechanics, and the market is already telling you what these books are actually worth.”
The price-to-book ratio for publicly traded BDCs sits around 83%, below the long-term average of 95%. An index of BDCs is down 11% this year against a 1.38% gain in leveraged loans. Ares’ listed BDC trades at about an 8% discount. The trade is trickier than it looks, though. Private and public BDCs from the same manager often hold different assets at different risk and leverage levels, and Clearstead’s Aneet Deshpande called the swap an “apples and oranges comparison” for his more institutional holdings.
Why it cuts through
The arbitrage exposes the lie at the center of non-traded BDCs. The same manager runs one fund at par and another at a 25% discount, and the only difference is that one trades and one doesn’t. The public market has already priced in the markdowns the private vehicles haven’t taken. Scott’s “math problem” framing is right, though the execution caveats matter. Deshpande’s apples-to-oranges point is the honest counter: not every private BDC is the same book as its listed twin. But for the software-heavy retail funds bleeding redemptions, the gap is the market calling the bluff.
5. JPMorgan Pitches Monthly Liquidity
JPMorgan got regulatory clearance to offer monthly redemptions on a new interval fund spanning private and public credit. The JPMorgan Public and Private Credit Fund will buy back at least 2% of shares monthly and up to 7.5% quarterly. The bank framed it as a comfort feature: investors who skip one repurchase only wait a month for the next, not three.
The launch lands as Apollo, BlackRock, Morgan Stanley, Blackstone, Ares, and Antares all capped quarterly redemptions. T. Rowe Price’s private credit fund is planning its first high-grade bond sale, and Allianz Global Investors secured $744 million for the first close of an Asia Pacific credit fund. The product race is on to offer liquidity terms that calm nervous retail money.
Why it cuts through
Monthly redemptions are a direct response to the quarterly-gate trap that’s defined this year. The problem with a 5% quarterly cap is that blocked investors pile back into the next queue, inflating requests and forcing more gating. Monthly liquidity smooths that by giving smaller, more frequent exits. Whether it actually works depends on the underlying loans, which don’t get more liquid because the wrapper offers monthly windows. JPMorgan is selling a structural fix to a structural problem, and the mismatch between monthly redemptions and five-year loans doesn’t disappear because the prospectus says 2% a month.
6. Insurers Draw Regulatory Heat on Both Sides of the Atlantic
The insurance-private credit link is drawing scrutiny beyond the short sellers. The ECB warned about potential insurer losses, noting European giants Allianz, Generali, Aviva, and Axa have seen their CDS widen against the region’s high-grade index. The Bank of France flagged structured products built on private credit as the hardest exposure to measure on financial institutions’ balance sheets, warning it could breach trust the way 2008 did.
Moody’s analysts said risks are emerging in middle-market direct lending, driven by weaker credit quality and rising borrower stress. The Federal Reserve Bank of Chicago found the move into private credit especially pronounced among life insurers owned by KKR and Apollo. Spectrum Asset Management’s Mark Lieb expects insurers to partially write down investments. “Some insurance companies have gotten a little more aggressive with their private placements.”
Why it cuts through
Regulators on two continents are circling the same node: insurers as the pressure point where private credit stress could spread into the regulated financial system. The Bank of France’s worry about structured products is the sophisticated version of the concern. Once private credit gets repackaged and sits on insurer balance sheets, nobody can cleanly measure the exposure. The Chicago Fed singling out Apollo- and KKR-owned insurers points at the vertically integrated model, where the same parent originates the loans and houses them in its insurance arm. Robinson is betting on the same structure the regulators are warning about.
Deals of Note
Eolo - Apollo in advanced talks over roughly €500M to refinance the Italian internet provider’s €375M of 2028 bonds plus revolver
La Trobe Financial - Brookfield seeking $525M loan for the Australian non-bank lender to fund an investor payout and refinance debt
Vingroup hospitality arm - A Temasek unit and Oman’s sovereign fund investing in $255M private credit financing for the Vietnamese conglomerate
European Credit Company - Apollo launching €10B platform for European mid-sized businesses
One South Wacker - Blackstone Mortgage Trust nursing a $343M office-tower default in Chicago, on its watchlist since 2022
Allianz Global Investors - Secured $744M first close for latest Asia Pacific private credit fund
Manchester United - Acquired land from a Blackstone-owned company for a new 100,000-seat stadium near Old Trafford
The Reality Check
Robinson shorting insurers instead of private credit is the smartest read on this market in months. You can’t easily bet against the loans, so he’s betting against the balance sheets holding them, and at 142 bps on Lincoln National the cost of being early is trivial. His 2008 comparison isn’t nostalgia. Low volatility and tight spreads in an untested asset class is exactly the setup that preceded the last blowup. The Moody’s jump from 18% to 20% illiquid holdings in one year shows the exposure is still building, not unwinding.
Tannenbaum’s PIK warning is the one to file away. A loan paying in kind doesn’t default, doesn’t hit non-accrual stats, and doesn’t disturb a NAV until someone forces the fund to sell. The pile grows invisibly while inflows mask it. Drain the liquidity through sustained redemptions and the smell, as he puts it, finally reaches everyone.
The arbitrage trade is the market settling the valuation argument without waiting for the managers. A 25% gap between a non-traded BDC at par and its listed twin is the public market pricing in markdowns the private vehicle refuses to take. The execution caveats are real, since not every private fund is the same book as its public sibling. But the gap itself is a verdict.
Ares at 14.4% and Antares at 10.3% buried the recovery story that took hold last month. Requests are rising, not falling, and the funds meeting partial demand while citing strong coverage ratios are answering a question nobody asked. They can pay 5% forever. They can’t make investors stop wanting out, and the regulators now circling insurers on both continents suggest the worry has moved past retail into the system itself.