Why the trader who pitched The Big Short spent the week Down Under

Private credit may generate painful losses without becoming a systemic crisis, while the long-dated US Treasury market is showing a more underappreciated vulnerability.

• Greg Lippmann argues that private credit is unlikely to recreate 2008 because funds have borrowed about $2 against $1 of assets, compared with banks’ $30 of debt for every $1 of capital before the global financial crisis.
• Rapid growth and weaker underwriting remain concerns: global private credit assets increased from $US416 billion in 2008 to $US1.1 trillion, with retail investors accounting for half of that growth.
• The collapse of Australian developer Bathla could create painful second-order effects, while Jacob Mitchell believes credit quality is overstated and that insurers’ growing role in private credit may be insufficiently regulated.
• Mitchell has taken positions against listed private asset managers, covering most of them after the trade worked for reasons linked to software-sector fears rather than private credit itself.
• Lippmann identifies the 10-year US Treasury as a potential source of market stress, with yields around 4.7%, their highest level since 2007, despite investors’ tendency to expect a return toward the 2.8% 20-year average.

Takeaway: Investors should distinguish between non-systemic credit losses and a banking-style meltdown, while treating high bond yields and complacent expectations of mean reversion as risks requiring particular caution.