Hedge fund manager Lee Robinson, who became famous for turning a $20 million bet against U.S. subprime mortgages into a $200 million profit during the 2008 global financial crisis, is now warning about a new bubble, Bloomberg reported. Rather than shorting private credit directly, he is betting against some of its biggest backers, especially insurers, through credit default swaps, or CDS, on firms including Lincoln National, MetLife and Berkshire Hathaway.
Robinson argues that private credit, now worth about $1.8 trillion, is showing the same kind of complacency that preceded the subprime collapse. He said the market’s low volatility and historically tight credit spreads resemble the calm before Lehman Brothers failed in 2008. “In August 2008 we were tearing our hair out and asking ourselves how volatility could be so low. It feels a bit like that period,” he said.
Altana Wealth, the London-based firm Robinson founded and runs as chief investment officer, is launching a new fund that will invest its own capital as well. The fund is meant to protect against what he calls an inevitable slowdown in private credit, cooling enthusiasm for artificial intelligence and the impact of falling liquidity on valuations. He is not saying insurers face an existential threat, but he believes the market is underpricing the risk of losses, especially as life insurers increase their exposure to private credit.
Robinson’s strategy is also gaining traction elsewhere. Other hedge funds have started buying CDS protection on insurers, and J.P. Morgan and Goldman Sachs are offering clients products tied to the growing risks in the sector, according to people familiar with the matter. Net CDS positions on U.S. insurers rose to $5.5 billion on May 22 from under $4.9 billion at the end of last year, while trading volumes and protection costs have also increased, though only modestly so far.
