> IN THEIR OWN WORDS
What they said vs what happened. The hall of shame.
“LTVs on the private credit side are from good-times multiples on sponsor-marked bids.”
Private credit LTV ratios (typically reported at 40-50%) are calculated using peak-cycle EBITDA multiples from sponsor-to-sponsor sales — not market-clearing prices. If you re-mark the enterprise values to realistic exit multiples, LTVs are 65-85%. The 'low LTV' narrative is marked to fantasy.
“We are in the super-early innings of the wheels coming off the car.”
Launched tender offers to buy Blue Owl fund stakes at 20-35% discount to NAV. Blue Owl stock fell 50%.
“When you see one cockroach, there are probably more.”
Referencing Tricolor ($170M JPMorgan impairment) and First Brands collapses. Within months, Blue Owl crisis erupted.
“The concerns and the fears about the private credit market are odd and frustrating.”
10 days later, Blue Owl — the most direct peer to Ares in private credit — entered crisis mode. CNBC called it the 'canary in the coal mine.'
“These are not investors. They are dealmakers.”
The core thesis. PE/PC incentivized to deploy capital, not to be right. The money is made in the doing, not in the being right.
“Private credit is way too exposed to software.”
Software = 25% of PC market, 31% of all distressed loans. $46.9B at distressed levels. Default forecast: 15%.
“We're not stopping redemptions, we're moderating withdrawals.”
Blue Owl permanently halted OBDC II redemptions. BREIT capped at 43% of requests. SREIT slashed gates to 0.33%/month.
“Who underwrites car washes at seven times leverage?”
Zips Car Wash filed Chapter 11 with $654M in debt and $1M in cash. Unsecured creditors wiped out.
“The historical annualized net realized losses in corporate direct lending have been less than 1 basis point.”
Private credit default rate: 2.46% and rising. Shadow default rate: 6.4%. Recovery rates: 48 cents (vs 55 for syndicated). Distressed exchanges = 5x conventional defaults and NOT counted in headline.
“Private equity's reported volatility is pure fiction.”
PE reported vol: 9%. Real estimated vol: 24-100%. In downturns, true PE value drops roughly double the equity index. Listed PE funds trade at 70 cents on dollar.
“What is the liquidation value of a car wash? Hoses and soap.”
Car wash liquidation recovery: 10-25 cents on EV. Don't own property (sale-leaseback). Equipment: specialized, bolted-in. Senior secured by hoses and soap.
“Easy multiple expansion is gone for the foreseeable future.”
Entry multiples at 11.8x record high. But exit multiples compressing. The entire PE value creation model depended on selling at higher multiples. That game is over.
“Only when the tide goes out do you discover who's been swimming naked.”
The most relevant Buffett quote for PE/PC. When rates rose from 0% to 5%, the leverage that powered PE returns became the anchor drowning them. 2024-2026 is the tide going out.
“It's easy to get good returns when you're selling to yourself.”
Continuation fund volume: $75B in 2024. 90% of GP-led volume. Apex: $3.4B continuation. Vista: $5.6B continuation for Citrix.
“There are two kinds of people who lose money: those who know nothing and those who know everything.”
Marks warned that private credit lenders who thought they 'knew everything' about their borrowers were deluding themselves. Same information asymmetry, different packaging.
“The race to the bottom in private credit underwriting standards is well underway.”
Marks flagged that private credit lenders were competing so aggressively for deal flow that covenant protections had been gutted. Unitranche loans with EBITDA add-backs of 30-40% became standard. PIK toggles everywhere. The same cycle that preceded 2008 CLO losses.
“They ran out of pension funds to finagle, they ran out of insurance companies to finagle. Now they're coming for your 401(k).”
First private credit ETF launched 2025. Non-traded BDCs targeting retail. BIS flagged retail entry as systemic risk.
“Private credit has grown enormously, and we really don't have great data on what's happening.”
The Treasury Secretary admitted the government has limited visibility into $1.7T in private credit. No centralized reporting, no mark-to-market, no stress testing. He called for more transparency — then did nothing about it.
“After adjusting for leverage, fees, and risk, U.S. buyout funds have underperformed a leveraged small-cap index by 3.1% per year since 2006.”
Phalippou's peer-reviewed research demolished the PE outperformance myth. His data showed PE collected $370B+ in fees over a period where their net-of-fee returns matched or trailed levered public equity. The industry's entire marketing pitch — 'we generate alpha' — is statistically unsupported.
“Build the model. Get the deal done. Book the fee.”
The incentive structure in three sentences. PE firms collect 2% management fees on $9.4 trillion regardless of performance.
“The rapid growth of private credit markets and the entry of retail investors may pose risks to financial stability.”
The BIS — the 'central bank of central banks' — explicitly flagged private credit's push into retail as a systemic risk. Cited opaque valuations, liquidity mismatches in semi-liquid vehicles, and the potential for correlated redemption demands. The warning was issued months before the Blue Owl crisis.
“Private credit and leveraged lending are an increasing source of risk to the financial system.”
The Fed's semi-annual stability report elevated private credit to a top-tier risk for the first time. Cited rising defaults, deteriorating underwriting, concentration in vulnerable sectors (software, healthcare), and interconnections with banks through fund-level leverage. Three months later, Blue Owl's crisis validated every concern.
“The car wash is a capital incinerator.”
PE-backed car wash roll-ups: Zips (bankrupt, $654M debt), Mister Car Wash (IPO at $15 → take-private at $7), Quick Quack, Tidal Wave all heavily levered. The sector has no pricing power, no barriers to entry, and no residual asset value. Capital goes in and never comes back.
“The growth of private credit renders the financial system less stable, not more.”
Boston Fed researchers found that private credit's growth increased systemic fragility because: (1) opaque valuations hide losses until they cascade, (2) fund-level leverage amplifies shocks, (3) insurance company allocations create transmission channels to policyholders, (4) interconnections with banks are deeper than reported.
“We are calling on federal regulators to conduct stress tests on private credit funds and their interconnections with the banking system.”
Warren and Reed demanded the Financial Stability Oversight Council stress-test private credit. Cited $1.7T in assets, opaque valuations, rising defaults, and insurance company exposure. FSOC acknowledged the letter. No stress tests were conducted.
“Senior secured debt — what's it secured by?”
Private credit sold as 'senior secured' but the collateral is often goodwill, customer relationships, and enterprise value — not hard assets. In Envision Healthcare, 'senior secured' recovered 10-15 cents. In Steward Health Care, secured lenders took massive haircuts. The label 'senior secured' provides psychological comfort, not actual protection.
“We see strong demand across our platform and continue to see limited stress in our portfolio.”
Three months before Blue Owl halted OBDC II redemptions, froze NAV, and saw its stock drop 50%. Boaz Weinstein launched hostile tender offers at 20-35% discounts to stated NAV. 'Limited stress' was the industry's last denial before the dam broke.
“Innovation doesn't come from leveraged buyouts. It comes from risk-taking in the public markets.”
Wood argued that PE's financial engineering model kills innovation by loading companies with debt that forces cost-cutting over R&D investment. Cited Toys R Us (couldn't invest in e-commerce), Envision (couldn't adapt to regulatory change), and multiple software companies where PE slashed R&D to hit EBITDA targets.
“When's the last time you took a 50% haircut on an IG bond? I rest my case.”
Private credit markets are selling leveraged loans to insurance companies and pension funds as 'investment grade equivalent.' But IG bonds have 99.7% historical recovery rates. Private credit 'senior secured' loans recover 48 cents in default. The risk is not IG. The label is a lie.
“Our valuations are based on rigorous, independent processes.”
86% of PE fund audits are performed by just four accounting firms, all of which earn more in consulting fees from PE clients than in audit fees. 'Independent' valuations use GP-provided assumptions. Continuation funds explicitly exist to avoid marking assets to market. The process is rigorous in the same way a fox rigorously guards a henhouse.
“Too much money going in... there are no returns.”
Palihapitiya declared PE 'totally screwed' — the industry ballooned to $5T+ in AUM (tripled since 2015) but exits have frozen. Most PE funds can't beat the S&P 500. The DPI crisis means LPs are paying fees on phantom gains.
“Zero organic growth. They raise prices and acquire. Majority of what they buy is actually declining.”
PE 'platform' companies in healthcare, car wash, dental, vet, and software show near-zero organic revenue growth. EBITDA 'growth' comes from acquisitions and price increases. When you strip out M&A and pricing, same-store comps are flat to negative across most PE portfolios.
“Private markets have entered the late stage of a classic speculative cycle.”
CFA Institute identified seven red flags: record fundraising, declining returns, valuation inflation, NAV lending explosion, GP-led secondaries, retail democratization, and insurance channel growth. Their conclusion: this is a textbook bubble.
“We expect to see a strong November.”
Said immediately after BCRED announced its first-ever dividend cut (9% reduction). The largest BDC in the industry cut its payout and the president's response was to predict a strong month. The denial is not accidental — it's the business model.
“Private equity betas are waiting twelve years to get paid back.”
PE 'alpha' vs. leveraged small-cap: Phalippou (Oxford) finds PE underperforms by 3.1%/year after fees. But PE locks up capital for 10-12 years. Same risk, worse liquidity, lower returns, higher fees. You can replicate PE returns with 1.5x levered Russell 2000 and get daily liquidity.
“Since 2006, private equity returns have largely tracked the S&P 500.”
CEPR research confirmed that PE, as a now-$7T industry, delivers returns that largely track public equity indices. The median PE fund underperformed the S&P 500 in 2024 even using the industry's preferred (and flawed) IRR measure. After fees, the value proposition has evaporated.
“The wheels are coming off.”
CNBC used this phrase in its coverage of the Blue Owl OBDC II redemption halt, calling it the 'canary in the coal mine' for the broader $1.7T private credit market. The phrase echoed Boaz Weinstein's earlier warning almost verbatim.
“Blue collar hick private equity is two years and done.”
Referring to PE roll-ups in blue-collar services (car washes, HVAC, pest control, dental, veterinary). The typical playbook: buy a platform, bolt on 20-40 add-ons in 18-24 months, never integrate, flip to the next buyer. The 'value creation' is just a bigger balance sheet.
“Our risk management is best-in-class.”
KKR's 'best-in-class risk management' produced: Envision Healthcare ($9.4B equity wipe), GenesisCare ($2B+ loss), First Data (multi-billion write-down), and Toys R Us (liquidation). Global Atlantic's portfolio is now 40% in KKR-originated private credit. The risk is managed by the same people who created it.
“The private letter rating system is broken. We found evidence of ratings inflation.”
NAIC investigation found smaller rating agencies issuing inflated ratings on private placements held by PE-owned insurers. Private letter rating filings surged 112% in 2024. Tricolor: AAA-rated by Kroll, then Chapter 7. Senior tranche recovered 78 cents, junior at 12.
“The real default rate is not 2.4%. It's 6.4%. They just don't count the distressed exchanges.”
Private credit headline default rate: 2.46%. But distressed exchanges (restructuring debt at a loss without formal default) are 5x conventional defaults and are excluded from the headline. Include them and the true rate is 6.4%. The entire industry reporting framework is designed to undercount losses.
“We are removing barriers to lending.”
The OCC and FDIC formally rescinded the 2013 leveraged lending guidance — the last remaining guardrail on bank underwriting of PE deals. No leverage caps. No underwriting standards. Banks are now free to underwrite 8x, 9x, 10x leverage with no regulatory constraint. This is deregulation as accelerant.
“Continuation funds are a win-win for all stakeholders.”
Continuation fund volume: $75B in 2024. GPs sell assets from Fund A to Fund B — both managed by the same GP — at GP-determined valuations. Abu Dhabi ADIC sued over $400M in alleged fabricated markups. The 'win-win' is: the GP wins the fee, and the GP wins the markup.
“You can replicate PE returns with a leveraged Russell 2000 ETF and get daily liquidity. Why would you pay 2-and-20 to wait 12 years?”
Phalippou's research showed 1.5x leveraged small-cap public equity replicates PE buyout returns with daily liquidity and near-zero fees. PE's 'alpha' is leverage + illiquidity premium. Strip those out and there's nothing left but fees.
“Growth has outpaced the ability to underwrite prudently.”
McKinsey confirmed private credit AUM doubled from $875B to $1.7T in three years. Direct lending is now larger than the US high yield market. But the underwriting infrastructure did not scale with the capital. Fewer analysts per dollar, faster diligence, weaker covenants.
“We believe private credit offers compelling risk-adjusted returns for conservative investors.”
BCRED cut its dividend for the first time in 2025. BREIT's payout ratio hit 519%. MacKenzie valued BREIT at 38% below Blackstone's stated NAV. 'Conservative' is doing a lot of heavy lifting in that sentence.
“They mark the assets with their own models, audit them with their own accountants, rate them with their own agencies, and then sell them to their own insurance companies. What could go wrong?”
The PE-insurance nexus in one sentence. Apollo marks Athene's portfolio. KKR marks Global Atlantic's. Blackstone marks Corebridge's. The entire chain from origination to valuation to rating to end-buyer is vertically integrated. There is no independent check.
“We have limited visibility into the private credit market. That should concern everyone.”
Kashkari acknowledged the Fed cannot adequately monitor $1.7T in private credit because there is no centralized reporting requirement. The same opacity that allowed the 2008 crisis to build undetected is present in private credit today — arguably worse because the assets are intentionally not marked to market.
“PE-backed companies default at roughly twice the rate of non-PE-backed companies.”
Moody's confirmed PE-backed default rate of ~17% vs ~8.5% for non-PE. The aggressive use of debt and frozen exit markets create a doom loop: leverage prevents exits, which prevents distributions, which prevents new fundraising. The model requires perpetual asset appreciation. In a flat or down market, it self-destructs.
“PE is just leverage with a PR team.”
The operational improvement myth: McKinsey data shows PE exit multiples no longer exceed entry multiples. Phalippou shows returns are replicable with leverage. The 'value add' is the story PE tells to justify the fee. The actual value creation mechanism is debt.
“Private equity is bankrupting American healthcare firms — literally.”
Fortune documented PE healthcare bankruptcies spiking to 20%+ of all healthcare Chapter 11s. Envision ($9.4B), Steward ($9B), GenesisCare ($3B), Cano Health ($655M), TeamHealth (restructured). PE owns 93% of distressed healthcare debt. The common thread is leverage, not patient outcomes.
“Asset-liability mismatch risk has increased materially.”
Fed flagged PE-owned insurers operating at upper-quartile leverage with material asset-liability mismatch. Insurance liabilities are long-term and fixed. PE is investing those premiums in illiquid, credit-risky assets with uncertain recovery. When claims come due and assets are underwater, the mismatch becomes a crisis.
“If your insurance company is owned by a PE firm, your annuity check depends on their credit picks being right. Nobody told you that when you signed up.”
139 PE-owned US insurers identified by NAIC. Athene alone holds 535,000 pensioners' benefits. PE-owned insurers allocate up to 50% of portfolios to ABS/private credit (vs 25-33% industry average). PHL Variable: $2.2B hole, headed for liquidation. 777 Re: insolvent. The policyholders never consented to this risk.
“Our fund performance is in line with expectations.”
Apollo's 'expectations' included: Athene holding $430B in assets with 50% private credit concentration, offshore reserves of $266.5B in Bermuda entities, and private letter ratings found to be inflated by NAIC. When you set the expectations, you always meet them.
“Captive insurance capital is being deployed into sponsor-affiliated funds at an unprecedented rate.”
Chicago Fed documented PE-owned insurers as the single largest driver of private credit AUM growth. Insurance premiums collected from grandma's annuity are being funneled into the PE firm's own credit funds. The conflict of interest is structural and enormous.
“The Bermuda sidecar is not a risk reduction tool. It's a regulatory arbitrage tool.”
PE-owned insurers cede liabilities to affiliated Bermuda reinsurers (higher discount rates, GAAP instead of SAP, less regulatory oversight). Bermuda holds 84% of all US life reserves ceded offshore. 70% goes to AFFILIATED reinsurers. It frees capital in the US entity for riskier investments while the risk is hidden offshore.
“Dispersion is widening across platforms. The weakest quartile is deteriorating fast.”
KBRA's comprehensive BDC review found that while average credit performance looked solid, the dispersion was alarming. The worst-performing BDCs are deteriorating rapidly. First Brands collapse 'spooked the market.' The averages hide the carnage at the bottom.
“The DPI crisis is the PE industry's moment of truth.”
Distributions to paid-in capital (DPI) for 2019-2021 vintages are below 0.5x. LPs have been paying fees for 5-7 years on funds that have returned less than half their capital. The IRR looks great on paper — but you can't deposit an IRR. DPI is the only number that matters, and it's catastrophic.
“NAV lending is the last liquidity trick. When that stops working, the whole system seizes.”
NAV loans — borrowing against the stated (not market) value of PE fund portfolios — have exploded. Athene pumped ~$18B/year into NAV loans. The collateral is marked by the same GP that's borrowing. If marks drop, NAV loans trigger margin calls. It's leverage on top of leverage on top of leverage.
“The PE model worked in a zero-rate world. We are no longer in a zero-rate world.”
From 2010-2021, PE could borrow at 3-4%, apply 6-7x leverage, and sell at higher multiples. With rates at 5%+, borrowing costs have doubled, multiples have compressed, and exits have frozen. The entire model was a bet on permanent ZIRP. That bet lost.