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Happy Monday!
It’s not AI. It’s not tariffs. It’s who’s holding the bag on private credit.
Blankfein was on Odd Lots this week doing the book tour thing. Lots of Goldman stories, globalization takes, the usual. Most of it you’ve heard before if you’ve been paying attention.
But there was one part of the conversation where I kind of stopped and went back and listened again.
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They asked him about private credit, whether the stress building up there could go systemic. And his answer wasn’t really about private credit as an asset class. It was about who owns it now. Because here’s the thing, when a pension fund or some billionaire takes a loss on an illiquid position, the government doesn’t really care. That’s their problem. But when those same assets start showing up in retail investor accounts and on insurance company balance sheets, now you’ve got a different situation entirely. Now the people getting hurt are regular people. Voters. And insurance companies that have to stay solvent because they’re backing policies for, you know, actual families. That changes the politics of the whole thing very quickly.
And that shift has already been happening. The big alternative managers have been pushing hard into retail distribution and insurance channels for years now. Blankfein didn’t call anyone out by name but it’s not hard to figure out who he means.
The other thing he said that stuck with me was about the marks. He pointed out that we just had record equity prices, tons of liquidity, probably the best environment you could ask for if you’re trying to sell assets. And private equity and private credit shops are still sitting on a pile of stuff they haven’t been able to move. So if you can’t sell in that environment, what does that tell you about where these things are actually priced?
He was careful about it. He didn’t say the marks are wrong. What he said was, the consequences of the marks being wrong look very different depending on who’s holding the position. A sovereign wealth fund eats a writedown and moves on. A retail investor who bought in because the yield looked better than Treasuries, that person’s got a different kind of problem. And that creates a different kind of political problem.
The alternative asset industry spent the last decade telling people they were democratizing access to institutional returns. And maybe they were. But the liquidity mismatch is still there. These things don’t trade daily. They’re hard to price on a good day. And the people holding them now expect to be able to get their money back in a way that the old institutional buyer base never did.
Blankfein put it pretty directly. He said the people running these firms have fabulous lives and multiple houses, and they should think carefully before extending this business from institutions down to individuals. Because the risk you’re taking on at that point isn’t a financial risk that shows up on a balance sheet. It’s the kind that shows up in a hearing room.
