The Next Financial Crisis Isn’t In Banks. It’s In Insurance & Private Credit | Nick Nemeth

Summary

Nick Nemeth warns that the next financial crisis will originate in insurance through private credit, not in the banking system. He details extreme leverage in PE-owned insurers, compares the setup to 1929, and provides contrarian rankings of Apollo, Ares, Blackstone, and Blue Owl. He also highlights that AI will devastate many software companies currently held in private credit portfolios.

• Private credit has ballooned to roughly $1 trillion with subprime-like underwriting and fake EBITDA adjustments.
• Insurance balance sheets hold massive private credit exposure, levered 90–100x in some cases, with no FDIC-style backstop.
• Annuity surrender charges are low, and a single-digit spike in surrenders could trigger a run on vulnerable insurers.
• Defaults in private credit already exceed 2008 levels, and recoveries will be far lower than current marks suggest.
• Software loans face severe losses because AI frontier models are displacing niche enterprise software products.
• Among public asset managers, Nemeth sees Ares as most overrated, Blackstone as marketing-driven, and Blue Owl as underrated.
• Rating agencies are repeating pre-2008 mistakes by relying on low-quality credit raters for underlying CLO loans.
• The crisis could overwhelm the Federal Reserve and state insurance guarantee funds, leading to a loss of trust and a dollar crisis.