Greg Lippmann, the former Deutsche Bank bond trader depicted in “The Big Short,” frequently addresses the “next big short.” He contends that systemic blowups are rare, and focusing solely on them can overlook how non-systemic shocks still destroy wealth. Lippmann, founder of LibreMax, a US$14 billion structured credit hedge fund investing in pooled debt securities, recently visited Australia as a guest of Sydney-based global equities manager Antipodes, a firm investing in shares worldwide.
During his visit, discussions turned to the private credit market. Lippmann acknowledged its rapid growth and potential for “sloppiness” due to unanticipated interest rate hikes. However, he disputes it poses a systemic threat comparable to 2008, citing significantly lower leverage within private credit funds and built-in investor withdrawal gates as key mitigating factors, even amidst local challenges like the Bathla collapse.
Antipodes founder Jacob Mitchell, conversely, views private credit as a viable short, if not a “big” one. He raised concerns about overstated credit quality, the sector’s increasing reliance on retail investors, and regulatory blind spots concerning private credit’s link to the insurance and annuities sector. Lippmann added that post-GFC regulations, while strengthening banks, have also curtailed their ability to act as market shock absorbers, potentially increasing the risk of 1987-style market disruptions.
Ultimately, Lippmann highlighted the bond market as an area warranting careful observation. He pointed to the US 10-year Treasury bond, yielding around 4.7 per cent – its highest since 2007. Despite this, he identified dangerous market complacency, with many assuming rates are at their peak and will revert to averages, overlooking that current yields align with a 60-year historical average. He noted that younger investors’ increased risk-taking might reflect broader socio-economic pressures.
