Abhinav Ramnarayan, Tasos Vossos and Liza Tetley
7 min read
(Bloomberg) -- Hedge fund manager Lee Robinson notched a 900% gain during the global financial crisis by turning a $20 million position into $200 million with timely bets against the US subprime mortgage sector.
Most Read from Bloomberg
Stocks Slide as Wall Street Gets AI Wake-Up Call: Markets Wrap
Oracle Cut 21,000 Jobs in 12 Months, Says AI Replaced Some Roles
'FOMO Really Got Me': Taiwanese Go Deep Into Debt to Amp 100% Stock Rally
Korean Stocks Tumble 10% as Extreme Volatility Rattles Investors
SpaceX Falls for Third Day, Erases $600 Billion in Market Value
Today, he sees a new opportunity as risks bubble up around private credit. But instead of betting directly against the sector, he's focused on potential second-order effects and is shorting some of the $1.8 trillion market's biggest backers: insurers.
Robinson is ramping up bearish wagers on firms from Lincoln National Corp. to MetLife Inc. and even Berkshire Hathaway Inc. through the use of credit default swaps, derivative contracts designed to protect investors against a default. His firm, Altana, is launching a new fund, into which it is also investing its own capital, to protect against what he sees as an inevitable downturn in private credit, a cooling-off in AI hype, and the impact of declining liquidity on corporate valuations.
He says there are parallels between the general calm that prevailed in the subprime mortgage market before the blowup of Lehman Brothers Holdings Inc. and markets today, where corporate yield premiums remain at historically low levels. That investor confidence — or overconfidence, as Robinson sees it — persists even as concerns simmer about private credit's exposure to software borrowers under threat from artificial intelligence, and as warning signs flash from a couple of corporate blowups.
"In August 2008, we were pulling our hair out, wondering how on earth volatility is at this low level," Robinson, founder and chief investment officer for London-based Altana Wealth, said. "It feels a little like that now."
It's not that insurers face an existential threat from their exposure. Robinson's argument is more nuanced: He believes markets aren't adequately pricing in the added risks of writedowns from an untested corner of debt that has shown itself prone to trouble spots. Holdings of private credit are rising in the industry, particularly among life insurers, and while the debt is still a relatively small part of many established firms' investments, it does present risks, he said. Another attraction of the trade is that it isn't easy to short private credit directly.