Private credit and insurance: Lee Robinson’s latest bearish bet

The fund manager who made a 900 per cent return during the subprime crisis is once again taking a stand against distortions in the credit market. His focus is not directly on private credit, but on the intermediary system that underpins it: insurance companies.

Looking back: during the global financial crisis, Lee Robinson achieved a return of 900 per cent, turning a $20 million position into $200 million, thanks to short positions in the US subprime mortgage market. Today, through his firm Altana Wealth, Robinson sees parallels between the pre-crisis euphoria and the current state of the credit markets, characterised by tight spreads and volatility at historic lows. According to the fund manager, the market is underestimating the vulnerabilities that have built up in the private credit sector, a segment that has reached around $1,800 billion globally.

Unlike in 2008, Robinson is not focusing directly on private credit. The strategy is more indirect: taking short positions via credit default swaps (CDS) against insurance companies, which are among the sector’s main investors.

Groups such as Lincoln National, MetLife and Berkshire Hathaway are in the spotlight. The view is that insurers’ growing exposure to private credit could amplify losses should the economic cycle take a turn for the worse.

According to data from the Depository Trust and Clearing Corporation, the net notional value of US insurers’ CDS positions rose to $5.5 billion as at 22 May, compared with less than $4.9 billion at the end of the previous year. At the same time, the cost of protection against default is rising, although it remains at relatively low levels. For example, CDS spreads on Lincoln National were recently quoted at around 142 basis points.