Private Credit's Negative Month

CNBC, the finance world's ultimate cheerleader, recently put out an article declaring private credit's 'zero-loss fantasy' was coming to an end. When even your biggest fan sounds concerned something is up. Now, there have been a lot of negative headlines around private credit for the past six months--mainly tied to business development companies ("BDCs"). What started out as a botched attempt by one lender, Blue Owl (albeit one of the industry's biggest players), to give its investors liquidity has morphed into fundamental concerns about the asset class itself following a few high-profile defaults. And liquidity.

Many of private credit's biggest investment vehicles are private, semi-liquid BDCs marketed to retail clients, who want (and need) liquidity. Private credit managers make 5-year loans to levered private equity-backed companies that don't trade. These loans often offer a 3-4% premium to public market fixed income (the 'liquidity premium'). Historically, they were sold to institutions, such as pension funds and endowments that have long investment horizons. But private credited needed to grow, so they targeted wealthy individuals. 

The innovation was evergreen funds that offered quarterly liquidity. Yay! Illiquid assets in a liquid-y investment vehicle. Retail investors could have their cake and eat it too! There was a catch of course (which most people didn't seem to pay much attention to). Liquidity? Sure; but...up to only 5% of fund's net asset value ("NAV") in any given quarter. In normal circumstances, any individual investor could get all their money out at the end of the quarter; but what if many investors wanted to get out at the same time? Well, then the gates would come down to avoid a run on the bank scenario. In that case, it could, in theory, take you 20 quarters or 5 years to get all your money out. But gating often that just creates more panic and brings about a self-fulling prophecy as redemption pressure increases. 

In Q4 2025 Blue Owl Technology Income Corp. ("OTIC") and Blue Owl Credit Income Corp. ("OCIC) saw redemption requests of 15.4% and 5.2% of NAV. In Q1 2026, Blackstone Private Credit Fund ("BCRED"), the industry's $83 billion behemoth, received redemption requests totaling 7.9% of NAV; likewise, Oaktree Strategic Credit Fund ("OCREDIT") received 8.5% in redemption requests in Q1. To their credit, these funds have managed to, or plan to, honor 100% of repurchase requests for the quarter by utilizing credit facilities, new capital, maturing loans, and, in the case of Blackstone, employee commitments. But others have not, as these measures naturally impact future operations. Apollo Debt Solutions ("ADS"), Ares Strategic Income Fund ("ASIF"), and HPS/ BlackRock Corporate Lending Fund ("HLEND") have all received redemptions well in excess of 5% of NAV and plan to gate investors. Collectively, these seven funds manage more than $200 billion of gross assets. And there are many more cases as withdrawals have spiked across the asset class in recent months, as shown below (click to enlarge).

Until recently, all these challenges hadn't really translated into negative returns for investors in the above funds. They are private, non-traded BDCs that report monthly. They don't really have to mark-to-market. Instead, they mostly carry loans at par till there's a default, which can be a subjective measure (extend-and-pretend anyone?). But in February, many of the biggest non-traded BDCs recorded their first monthly loss in almost four years, suggesting they are beginning to mark down questionable loans. 

ASIF, ADS, BCRED, OCIC, OTIC, HLEND, and OCREDIT were all negative in February, ranging in losses from -7bps to -219 bps, as shown below (click to enlarge). Funds with more software exposure tended to have worse performances. The urgent worry among investors, as noted by Goldman Sachs, is that "money managers have loaned too much to software and technology companies vulnerable to disruption from AI." 

Source: Public websites of funds, SEC, and Mantabye.

This may just be the beginning for managers. Sell-side analysts, including UBS' Matthew Mish, forecasts defaults could reach up to 15% in an extreme scenario. What does that mean for fund investors? To do the math, we need two additional pieces of information: (i) the recovery rate on defaults and (ii) leverage. Defaults (failure to make timely payments on loans) doesn't mean a total loss for the lender. When a borrower defaults, lenders typically can recover a portion of the principal through bankruptcy restructuring or asset sales. Historically, for senior secured loans (which are the relatively 'safe' type of loans these funds predominantly provide), the recovery rate has been 70-80%. Let's assume 70% for our example. Second, most of these funds are levered at least 1:1; i.e., for every $100 of their investors' money they lend out, they borrow another $100 from banks to increase the total loan amount. Leverage can increase returns but also amplify losses.

If credit defaults do rise to 15%, with a 70% recovery rate, you'd expect losses around 5% for an unlevered fund. However, since these funds are all 1-1.25x levered (paying 8% or more in interest for borrowed funds) the losses could be 13-17%, based on the amount of leverage and the cost of debt. Even assuming that defaults don't happen all at once but over 2-3 years, it is still shocking for an asset class that is expected to have low single-digit defaults even under challenging market conditions. Which explains why retail investors are so eager to get out. And fund managers only incentivized them to do so. Managers didn't want to write down the value of their portfolios (not a good look) and were willing to cash out investors at par even though there is a very good chance these many of these loans could be worth less. The rationale decision of course is to take the managers up on their offer and get out as quickly as you can. And investors have. Too many have! Now you have gates and the start of valuation adjustments! Let's how see far write downs go and how painful it becomes for investors. 

BAM BAM: Adebayo Scores 83 Points!

On Tuesday, Miami Heat center Edrice Femi "Bam" Adebayo made NBA history when he thundered in 83(!) points to lead his team to a 150-129 victory over the Washington Wizards. The incredible performance overtook Kobe Bryant's 81 points (set on 01-22-2006) for the second-most in NBA history. Yes, second. The highest single-game scoring performance still belongs to Wilt Chamberlain, who, on March 2, 1962, scored 100 points!! (That game was not televised, and no video footage of the performance exists.)

Back to Adebayo. He had an explosive first quarter scoring 31 points--the fourth highest in NBA history--that put Bryant's milestone in reach. After a relatively 'quiet' second quarter when he scored 12 points, he went on to drop 20 points in each of the next two quarters. A pair of free throws with just over a minute allowed him 83 points, the most for any active player in the NBA. Adebayo's performance was outstanding by itself but it also stacks up well against Bryant's and Chamberlain's highest scoring games. The table below from Essentially Sports breaks down Adebayo's performance and compares it to that of the two legends.

Source: essentiallysports.com

Adebayo hit as many three-pointers as Bryant but made twice as more free-throws. In fact, Adebayo now holds the record for the most free-throws attempted and made in a single game. Bryant was generally more effective with his shots hitting 53% of threes and 61% of two-pointer compared to 31% and 47%, respectively for Adebayo. However, Adebayo was frequently tripled teamed making his 40 points from field goals even more impressive and also explains the high amount foul shots. Chamberlain's 100 points, including 72 points from the field, and 25 rebounds was just utter dominance. Could he do it in today's game? Who knows? At the end of it, Adebayo's 83 points is something we may not see again for a long time. For basketball fans it was, as Heat coach Erik Spoelstra explained, "an absolutely surreal night." Here's a video of all 83 points. Enjoy!

  

The Future of Jobs: South Park Edition

For the past few months, Wall Street has been fretting about artificial intelligence--the force behind the powerful three-year rally in stocks. Since OpenAI launched ChatGPT on November 30, 2022, the NASDAQ Composite had rallied more than 106% on the promise of huge productivity gains for businesses. But lately, financial analysts had begun to worry about the impact AI could have on the business models of Software-as-a-Service ("SaaS") companies that make up nearly a third of the U.S. stock market. These fears spiked in early February when Anthropic released a legal GenAI tool that could "do document reviews, flag risk, and even compliance work." AI went from being revolutionary for businesses to being an existential threat for many of them. Through March 6, the S&P 500 Software Industry Index is now down over 30% from its peak.

Anthropic didn't stop there. A few days ago, it released a white paper mapping out which jobs AI could potentially replace. And it's not pretty...particularly for college educated white-color workers. The radar chart below (click to enlarge) shows what % of jobs in a particular industry can be done by AI (blue shade) versus what is % is actually done by AI currently (red shade).

Source: Anthropic. Massenkoff and McCrory (March 5, 2026)

What Anthropic is predicting is that AI will soon take over nearly all the jobs in management, finance, computer science, engineering, life sciences, legal, and office administration! Conversely, AI will not really touch traditional blue-collar work: farming, construction, plumbing, food & serving, security, driving (Waymo?). That begs the question is a $300,000 college education really worth it in tomorrow's job market? Perhaps?

But, as usual, it is South Park that manages to capture the zeitgeist and provide some wonderful insights about where technology is taking society. Enjoy.

Carlos Supreme: Alcaraz Achieves Career Grand Slam

On Sunday, Carlos Alcaraz made history when he became the youngest man ever to complete a career Grand Slam after defeating Novak Djokovic at the Australian Open to claim his seventh major title. Alcaraz dropped the first set, but he rallied to win 2-6, 6-2, 6-3, 7-5. Here are the highlights of an electrifying match:

The career Grand Slam is a rare feat. Only five players have achieved it in the Open Era (the period starting in 1968 when both amateurs and professionals were allowed to compete in the major tournaments). Agassi, Federer, Nadal, and Djokovic were the other others. Moreover, they were all in their mid to late 20s when they did it. Alcaraz is just 22 years and 272 days old!

Source: nbcnews.com

Yet, it's probably  not be all that surprising. Even a couple of years ago experts were commenting how Alcaraz had "the most complete game for a player his age men's tennis [had] ever seen." Ever seen? He's been frequently compared to the "Big Three" of Federer, Nadal, and Djokovic, almost as a sort of composite of the trio: having the creativity of Roger, resiliency of Rafa, and the "wow factor" of Novak. And why not? A 22, he's won as many Grand Slams as the three of them combined at that age. It's interesting to compare the career progression of the Big Three and Alcaraz and Jannick Sinner, a possible rival to Carlos in the years ahead if both stay healthy. The chart below shows the number of Grand Slam won by each over time.

Source: Wikipedia and Mantabye calculations.

There's number of interesting things to gleam from his chart. First, what's remarkable is the sheer number major titles won by this group since the turn of the century. Of the 91 Grand Slam tournaments since Roger won his first at Wimbledon in 2003 through today's Australian Open, 77, or 85% of the titles, have been won by one of the five! (As context, there are roughly 1,800 professional players ranked on the men's ATP tour) Second, Roger seemed to be at his best in his 20s and faded a bit in his 30s. Rafa, started winning early and except for a brief lull in his late 20s consistent won major titles until his mid-30s. Novak took a little time to really get started but then won Grand Slams with remarkable alacrity through his mid 30s; in fact, about half of his 24 Grand Slams have come after 30! The typical professional men's tennis player appears to peak at 25/26 years of age. He's a machine!   

Which brings us back to Alcaraz...he's on a blistering pace to get to 10 or perhaps even 12 Grand Slams by the time he's 25. If he's the complete player as people say he is--the finesse of Roger, strength of Rafa, and peak conditioning of Novak--and stays healthy he could get to 30 Grand Slams and stake a resoundingly claim to be the best ever? We'll see...

How Rich is the Supreme Court?

In our last post we wrote about how SCOTUS rulings today heavily favor the wealthy. And that there was also a clear split among Republican and Democratic appointed justices on how they voted on economic issues. But what about the net worth of the individual justices themselves? And how do they compare to ordinary Americans? 

There are currently nine justices on the Supreme Court (6 conservatives and 3 liberals). According to numbers crunched by Bloomberg (from 2023), the justices are collectively worth between $24 million and & $68 million. So, on average, between $2.6 million and $7.5 million per justice. But some of that skewed is by Chief Justice Robert's estimated net worth of ~$20 million. (Robert's net worth is the result of his private practice years at Hogan & Hartson, his wife's career, and a substantive investment portfolio.) Removing Roberts, the average is between $1.8 million and $5.2 million. Still richer than 90% of Americans. But not ‘ultra rich.’ While most justices are multimillionaires, only Roberts is really truly in the 1% (in 2023 to be a one-percenter you would have needed to have a net worth of at least $13.6 million). Nor is there is any statistically significant difference* in wealth between the conservatives and liberals on the court. So, the conservative justices do have principle, if not empathy. Below are individual justices' net worth based on financial disclosures (click to enlarge): 

H/T: unusual_whales on X. As of April 2023.

**Based on a two-sample t-test.

Supreme Inequality: SCOTUS Favors the Rich!

According to a January 2026 YouGov poll, 80% of Americans believe the rich have too much political and economic power. Indeed, both fiscal and monetary policies appear to favor the wealthy. For example, according to the Yale Budget Lab, President Trump's signature 'One Big Beautiful Bill Act' mostly favors the rich. And monetary policy? Well, even according to the Fed's own findings policy tools like quantitative easing ("QE") and ultra-lower rates have contributed to sharp increases in income inequality. And then, there's the 'Fed Put.' We've written in the past about compelling evidence showing the Fed has backstopped the stock market since the 1990s--because, who owns stocks?

Ok, so politicians and technocrats favor the rich, probably not that much of a surprise. But the Supreme Court? Isn't the judiciary supposed to be neutral? The NYT notes that "Supreme Court justices take two oaths. The first, required of all federal officials, is a promise to support the Constitution. The second, a judicial oath, is more specific. It requires them, among other things, to “do equal right to the poor and to the rich.” Commendable.

However, in a new study, "Ruling for the Rich," researchers from Yale and Columbia reveal some sobering truth about the nation's highest court. Economists Prat, Morton, and Spitz analyzed Supreme Court cases involving economic issues since 1953 and finds SCOTUS increasingly favors the wealthy. Based on the outcome of thousands of cases, they found "Supreme Court justices now rule for wealthy parties 70% of the time, up from roughly 45% seven decades ago." So, we went from a roughly 50/50 probability for SCOTUS cases in the 1950s to a point now where we could consistently make money betting on decisions (if allowed) on Kalshi! The study further finds a strong and growing partisan divide. Naturally. In the 1950s, "justices appointed by the two parties appear similar in their propensity to cast pro-rich votes. Over the sample period, [we estimate] a steady increase in polarization, culminating in an implied party gap of 47 percentage points by 2022. Republican appointees today side with wealthy parties 82% of the time compared to just 35% of the time for Democratic appointees.

The WSJ Editorial Board (unsurprisingly!) had issues with the paper's findings and the took time out of a busy news week to attack the study's methodology. While the paper's authors concede "there is a subjective component to classifying rulings as 'pro-rich'...they defend what they said was a transparent and replicable protocol" that is based on outcomes. The study's findings appear to "validate Justice Ketanji Brown Jackson’s June 2025 dissent, in which she wrote that “moneyed interests enjoy an easier road to relief in this court than ordinary citizens.”"

But what if the justices are just doing their jobs and aren't the real problem? Back to the two oaths the Supreme Court judges take. The first is to adhere to the Constitution and the second to be impartial amongst parties, regardless of economic status. What happens if those two oaths conflict? Per the NYT piece highlighted earlier..."at his confirmation hearings in 2005, Chief Justice Roberts mused about whether he would stand up for the powerless...“Somebody asked me, you know, ‘Are you going to be on the side of the little guy?’” he said. “And you obviously want to give an immediate answer, but, as you reflect on it, if the Constitution says that the little guy should win, the little guy’s going to win in court before me. But if the Constitution says that the big guy should win, well, then the big guy’s going to win, because my obligation is to the Constitution. That’s the oath.” This is particularly true among the conservative justices, who are more likely to be Originalists that interpret the Constitution based on its original intent rather than on the context of current times. Well, the Constitution was written (overwhelmingly) by elite property owners...so, what do you think the original thinking was? And how else is an Originalist majority on the SCOTUS supposed to rule?

A Golden Year

Tomorrow will be first trading day of 2026. So, it's a good time to look back at how different asset classes performed in the past year. 

Equities continued to surge ahead in 2025, once again powered by AI. The S&P 500 and NASDAQ Composite gained 18.7% and 21.1%, respectively continuing a run that began in November 2022 after OpenAI debuted ChatGPT. The two U.S. indices have now cumulatively returned 87.5% and 127.0%, respectively, over the past three years led by the likes of NVIDIA, Alphabet, Microsoft, and Meta. International stocks did even better last year, with the Europe's STOXX 600 Index rising 36.8% and the MSCI Emerging Markets index up 33.4%. Yet, for all the strong showing among equities, 2025 was really gold's year to shine. The yellow metal, long thought of as safe haven asset and inflation-hedge, soared 62.2%--its strongest annual performance in over four decades. Gold's powerful rally was driven by a number of factors, including a weakening dollar, aggressive central bank purchases, persistent inflation concerns, and geopolitical uncertainties. Livestock was another strong performer, as U.S. herd size shrank to its lowest level since 1951. 

On the other hand, oil and the U.S. Dollar weakened substantially in 2025. Oil's slide was primarily due to oversupply in the market after OPEC + increased production; U.S. shale boom and the emergence of new oil sources in Brazil, Guyana and Norway further contributed to the supply gut. The Dollar Index, which measures the greenback against a basket of foreign currencies, was down 9.4% last year largely as a result of President Trump's tariff policies and Fed rate cuts. Lastly, bitcoin stumbled after several years of strong performance...because? Well, who really knows--it's crypto! It was probably the usual mix of leverage and liquidations and perhaps investors' eagerness for gold, rather than crypto, to diversify away from traditional assets. In any case...here's summary of the winners and losers in 2025 (in USD):

Source: Bloomberg. As of December 31, 2025 (click to enlarge)

The asset class returns quilt below also shows how these same strategies performed over the past few years. Equities and crypto have generally been the consistent winners since 2020, but there have been some meaningful rotations into real assets, such as gold, oil, grains and cattle over the years (in USD).

Source: Bloomberg. As of December 31, 2025. (Click to enlarge)

Amar Mayor, Tomar Mayor!

At the stroke of midnight on January 1, 2026...Zohran Kwame Mamdani was sworn in as New York City's 112th mayor by New York Attorney General Letitia James inside the decommissioned Old City Hall subway station. It was a historic moment for NYC--by far America's largest city--on many levels: first Muslim, first South Asian, and first African-born person to hold the position. At 34, he is also the City's youngest mayor in over a century.

Funny enough, James, an early supporter of the new mayor couldn't still quite pronounce his name! (If she can't many others will struggle too!) Here's a TikTok tutorial.  

Wealth Porn: Elon's Monopoly Money

Forbes' Matt Durot recently wrote about Elon Musk's monster December paydays which, given their scale, almost doesn't feel like real money. Early in December, SpaceX launched a tender offer for insider shares that valued the satellite maker at around $800 billion, up from $400 billion in August (private markets be wild!). This new valuation made Elon's 42% stake in the company worth $336 billion and made him the first person ever worth $600 billion. It also meant SpaceX, not Telsa, was the biggest source of his wealth...Challenged accepted. Four days later the Delaware Supreme Court overturned a lower court ruling that in 2018 voided a Tesla options pay package worth $56 billion. That verdict was source of great consternation for Musk; so much so, he re-domiciled both Telsa and SpaceX in Texas which promised him more favorable treatment. So now, a chastened Delaware (possibly fearing other business may do the same) made things 'right.' That options package is now worth $139 billion after gains in Tesla stock, bringing the total value of Elon's holdings in Tesla to $338 billion and restoring balance to the Musk empire. It also made Elon the first person ever worth to be worth $700 billion (at least on an unadjusted basis). 

So, what does that even mean? People have tried to make sense of this outrageous number by making comparisons. Here's one attempt by CNN: weighing Elon's estimated net worth against the economies of entire nations. It shows that (as of December 21) Elon's wealth exceeded the annual GDP of more than 170 countries (there officially 195 countries in the world, including Palestine and Vatican City).

Does this help to put Elon's wealth in context? Perhaps. Or do such comparisons just serve to further glorify and gamify staggering concentrations of wealth in society? Moreover, comparing an individual's wealth to a country's economic production is not exactly apples to apples for several reasons. First when it comes to wealth, there's cash and then there's paper valuation. Elon doesn't exactly have $749 billion of cash lying around in banks; what he does have is lots of shares of Tesla and SpaceX which are valued principally by investors based on what they see is the present value ("PV") of the future earnings of each company into perpetuity. Based on investors' sentiment of future growth that 'value' can fluctuate day-to-day; e.g., if investors wake up tomorrow and start to value Telsa more 'rationally' then Telsa's market valuation could drop from approximately $1.5 trillion to $200 billion (or, for the sake of argument, rise to $3.0 trillion) without any meaningful change in the company's actual operations. It really comes down to the story investors want to believe and Elon is an inspiring narrator. What it doesn't mean is that Elon is 'richer' than any of those 170 countries. Let's take the case of Belgium, one of the countries whose GDP lags Elon's net worth. Belgium's annual (nominal) GDP of $717 billion represents the sum total of all of its actual economic output (domestically) for the past 12 months (and not the PV of the country's expected economic growth forever into the future). It also doesn't mean Elon can pay for everyone in Belgium to take a year-long holiday. He just doesn't have that much money available; sure, Tesla is publicly traded...and he could probably sell billions worth of shares before its market price (and his wealth) starts to precipitously drop. Although Elon can, and does, regularly borrow against his shares, it would still be a drop in the bucket. So, the country comparison doesn't tell us much. So, Elon's not that wealthy? No, no...he's incredibly wealthy, just not (yet) 'richer' than entire nations based on how we are calculating value. 

Is there a better way to depict Elon's staggering wealth and put it into context? Yes, there is, and it was posted by Senator Bernie recently when he railed against billionaires (as he is wont to do). It compares wealth against (shocking) wealth. Based on analyses by economists at Realtime Inequality Sanders' chart shows that the bottom 50% of Americans aged above 20 years (roughly 125 million people) hold approximately $1.2 trillion in total wealth (savings, stock, real estate, etc. which can fluctuate in value, particularly if more of it is in financial assets rather hard cash). That comes to an average wealth of about $9,600 per working American. I another words, on paper, one person--Elon--holds more wealth than 78+ million Americans! 

Wealth inequality is a natural part of society and may even be inevitable...but Elon level of inequality can be both dangerous both socially and financially. Studies show the concentration of wealth today is the highest since the 1920, right before the Great Depression. There are no easy solutions (and that's a whole new post); particularly when society's/civilization's (?) definition of success is so closely intertwined wealth accumulation. So, we all play the game and wait in anticipation for when Elon's net wealth crosses the $1 trillion mark, like casually moving to the next level in the Legend of Zelda. And we may not have to wait long. As Durrot notes--in centi-billionaire speak--Elon is  "roughly one Larry Page away from achieving that milestone."