“The Big Short” investor Michael Burry is sounding the alarm over a "shell game" involving private equity, private credit and life insurers, highlighting a new academic paper that argues the structure could ultimately shift losses onto taxpayers.
The Private Credit “Shell Game”
Michael Burry recently highlighted a 65-page academic paper that breaks down how private equity (PE) firms exploit insurance regulations.
Written by Andrew Granato and Pranjal Drall, the paper asserts that PE firms acquire life insurers to load their balance sheets with “private credit assets that are opaque and difficult for regulators to value.”
Burry praised the authors for taking down the “private credit/private equity/insurance shell game.”
Socializing Risk Through Insurers
The issue centers on state-based guaranty funds designed to protect policyholders when life insurers fail. Unlike traditional corporate bankruptcy, these funds assess surviving insurers to cover insolvency shortfalls.
Because these assessments are “fully creditable against state premium taxes over time,” this framework transforms an industry-funded safety net into a public backstop.
The authors of the study shared by Burry argue that this allows PE firms to extract value upfront through fees while shifting losses onto competitors and the public. This setup socializes losses far more sharply than federal deposit insurance.
Apollo Global, KKR, and Blue Owl in Focus
The report identifies Apollo Global Management (NYSE:APO), KKR & Co Inc. (NYSE:KKR), and Blackstone Inc. (NYSE:BX) as key players transforming from traditional buyout shops into diversified asset-management platforms.
Apollo, for example, uses the life insurer Athene Holding Ltd. (NYSE:ATH) to hold billions in affiliated assets. Additionally, Blue Owl Capital Inc. (NYSE:OWL) is cited for selling an underperforming loan portfolio to its managed insurer, Kuvare, showing how PE firms use insurance subsidiaries as a “buyer of last resort.”
Ultimately, this “structural transformation” allows PE-owned life insurers to capture value while leaving taxpayers exposed to the fallout.
Market Performance: PE Giants and Key Insurers in Focus
To see how the market is currently valuing this sector, here is a breakdown of recent performance for the key ETFs tracking these private equity giants and the broader private credit market.
| ETFs | 1-Month | 6-Months | YTD | 1-Year |
| Invesco Global Listed Private Equity ETF (NYSE:PSP) | 4.12% | 2.88% | -7.74% | -11.86% |
| ProShares Global Listed Private Equity ETF stock (BATS:PEX) | 3.51% | 4.37% | -3.61% | -15.27% |
| State Street Financial Select Sector SPDR ETF (NYSE:XLF) | 1.26% | 12.40% | 5.28% | 7.59% |
| VanEck BDC Income ETF (NYSE:BIZD) | 7.58% | 3.41% | -5.92% | -16.78 |
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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