Marked to Fantasy

Private equity controls $9.4 trillion and marks its own homework. I built the receipts.

I have an odd fascination with prostate exams.

It’s time private equity gets one.

Nobody asked me to do this. I just started looking. And the deeper I looked, the more I found. Polyps. Growths. Abnormalities in every direction. Some benign. Some suspicious. And some — the ones I’m going to show you today — are cancer.

Not the kind that kills you in a day. The kind that’s been metastasizing quietly, spreading through node after node of the financial system, growing while everyone around it either didn’t notice or chose not to look.

$9.4 trillion in assets under management. 11,500 companies owned. 11 million workers employed by those companies. This isn’t a niche corner of finance. This is a shadow banking system with a PR budget.

And the polyps are malignant. The polyps have names.

I Don’t Know Finance

When I started writing about this, I got two responses. Exactly two.

Response one: Interest. People who don’t work in finance — nurses, teachers, truck drivers, small business owners — sharing it, sending it to their parents, saying finally someone is explaining this. People with pensions and annuities and 401(k)s reading about what’s being done with their money and getting angry. Not confused. Angry. And finance people too. Bankers. Journalists. Portfolio managers. Industry people who know the math because they’re on the ground — paid to deploy the capital at all costs and they know exactly what that means. Some of them have been giving me leads.

Response two: The other finance people. The ones who think they’re God’s gift to capital markets. “You clearly don’t understand how this works.” Not on defense because the data is wrong. On defense because the data is threatening.

That second group has a special place on my shitlist. I do not rest. The job is not finished.

Because “I don’t know finance” is exactly what the entire system is counting on. It’s the moat. Not complexity. Not sophistication. Not math. Just the assumption that you’re not qualified to understand what’s happening.

You are qualified. You just haven’t been shown.

You don’t need to know finance. You need to know arithmetic.

The whole thing — the entire private equity and private credit industry, the $9.4 trillion machine — can be distilled into four sentences:

1. Buy a company with borrowed money.

2. Charge fees regardless of whether the company makes a dime.

3. Mark your own homework.

4. When it blows up, someone else holds the bag.

That’s it. That’s the whole scam.

The complexity isn’t the product. The complexity is the camouflage. Every layer of jargon — IRR, NAV, EBITDA add-backs, continuation vehicles, PIK toggles — exists to keep you from seeing that the emperor is leveraged six-to-one and naked and riddled with herpes.

The Polyps

The Marks Are Fake

Private credit’s official default rate is 2.1%. The number in the pitch decks. The number your pension fund sees.

The real default rate is 6.4%.

They don’t count distressed exchanges. Borrower can’t pay? Restructure the loan. Extend the term. Convert cash interest to IOUs. None of that counts as a default. Distressed exchanges run at five times the rate of conventional defaults. The industry just doesn’t include them.

The reported number is a fiction. By design.

Recovery rates have collapsed. First-lien secured loans recovered 76 cents in 2022. By 2024: 39 cents. The supposedly safest tranche.

What is the liquidation value of a car wash? Hoses and soap. Zips filed for bankruptcy with $654 million in debt and $1 million in cash. Unsecured creditors wiped out. Mister Car Wash going private at $7 — 63% below its IPO price. What do you think the value of magic carpet ride parts are on corporate eBay?

The collateral underpinning trillions in “senior secured” private credit is goodwill, customer relationships, and enterprise value assigned by the same people who made the loan. Envision Healthcare — KKR’s $9.4 billion bet — “senior secured” lenders recovered 10 to 15 cents.

Senior secured by what, exactly?

The Fee Machine

Two percent of $9.4 trillion is $188 billion. Per year. Win, lose, or bankrupt the company — the fee gets paid.

Then the 20% carry on “profits.” Except profits are calculated using internal rate of return — a number the GP controls through the timing of cash flows and the marks they assign to unsold assets. Great IRR, never return your investors’ money. Recent vintages have returned less than half their capital after five to seven years of fees.

You can’t deposit an IRR.

Banks earn 29.2% return on equity lending to private credit. 7.9% for traditional lending. They weren’t confused. They were incentivized. 100% of bank lending growth in 2025 went to the shadow banking system. $2.3 trillion. Quadrupled since 2016.

Everyone in the chain is getting paid. The question is who holds the bag.

The PIK Death Spiral

PIK. Payment-in-kind. Borrower can’t pay cash interest. So it pays you in more debt. The loan balance grows. The lender reports the accrued interest as income. The fund “earns a return.” In reality, it earned an IOU from a company that already can’t pay.

Some funds pay cash dividends using this phantom income. Real cash out. Fictional cash in. Blackstone’s BREIT: payout ratio of 519% — five dollars out for every dollar earned. MacKenzie’s tender offer valued it at 38% below Blackstone’s stated NAV. The market says the marks are lies. Blackstone says the market is wrong.

$44.63 billion in PIK outstanding. 57% added after origination — couldn’t pay from the start. PIK now accounts for 15% of total private credit income. The income is theoretical. The loss is real.

The incentives are perfectly aligned. Just not in your favor.

The Insurance Trick

Buy an insurance company. Redirect policyholders’ premiums into your own private credit deals. Mark at cost. Cede the riskiest liabilities to an affiliated reinsurer in Bermuda where oversight is lighter.

139 PE-owned insurers in the United States.

Apollo’s Athene: $430 billion. 50% in private credit originated by Apollo. 535,000 pensioners. Athene pumped ~$18 billion per year into NAV loans — borrowing against portfolios marked by Apollo itself. KKR’s Global Atlantic: $219 billion, 40% private credit. Blackstone’s insurance platform: $442 billion, targeting $1 trillion.

They mark the assets with their own models. Audit them with their own accountants. Rate them with their own agencies. Sell them to their own insurance companies. There is no independent check.

PHL Variable — Golden Gate Capital — $2.2 billion capital deficit. Deficit grew during rehabilitation. Now in liquidation. 777 Partners’ Bermuda reinsurer: cancelled. Three insurers insolvent. Co-founder indicted. Tricolor: CEO and COO indicted. Kroll cut its rating from AAA to CC. JPMorgan took $170 million.

The NAIC found ratings inflation. Private letter rating filings surged 112% in a single year. PE-owned insurers hold 40% of all private placements despite being 14% of industry assets. The Chicago Fed: PE-owned insurers are the single largest driver of private credit growth.

Nobody told grandma her retirement check depends on a PE firm’s credit picks being right.

The Pension Exposure

$718 billion of public pension money in private equity. Teachers. Firefighters. Steelworkers. Corrections officers.

Oregon PERS: 26.9% allocation — highest of any major U.S. public pension. PE returned 4.1%. The Russell 3000 returned 38.4%. Oregon disclosed $3.7 billion in PE losses — largest single pension PE write-down in U.S. history. Oxford found U.S. buyout funds underperformed a leveraged small-cap index by 3.1% per year since 2006. They could have beaten it with an index fund.

Ohio STRS: board members accepted gifts, trips, and speaking fees from PE firms while voting to allocate billions. FBI investigating. $12 billion in PE commitments under scrutiny. Multiple board members resigned.

Pennsylvania PSERS: FBI investigation over PE fee disclosures and performance calculations. The board previously “corrected” its returns to justify increased PE allocation. Whistleblowers triggered the probe.

Colorado PERA: voted to increase PE allocation from 8.5% to 11% — despite PE returning 3.2% below its public equity benchmark over ten years. Board members with PE industry ties drove the vote. Retirees protested outside the meeting.

Workers legally cannot learn which specific investments lost their money. The allocations are disclosed. The losses are not.

The Exits Froze

2021: 1,210 PE exits. 2023: 323. The door shut.

29,000 unsold companies in PE portfolios. 16,000 held more than four years. Average holding period: 6.7 years. $3.6 trillion in unsold value. Distributions at a decade low.

When you can’t sell, you innovate. Continuation fund: GP sells assets from Fund A to Fund B. Same manager. Same assets. New fees. $75 billion in 2024. Abu Dhabi’s sovereign wealth fund sued over $400 million in fabricated markups — first sovereign to sue over this.

It’s easy to get good returns when you’re selling to yourself.

The Bankruptcies

54% of the 35 largest U.S. bankruptcies in 2025 were PE-backed. In Q1 2025: 70%. Moody’s confirmed PE-backed companies default at roughly twice the rate of non-PE.

Steward Health Care: $9 billion in liabilities. Cerberus extracted $800 million. Five hospitals closed. The CEO had two yachts. Envision: KKR’s $9.4 billion — equity wiped out. 69,000 workers. Claire’s: bankrupt twice. Forever 21: all 350 stores closing. Eddie Bauer: bankrupt three times. PE owns 93% of all distressed healthcare debt.

2009 vintage PE funds: 18.5% IRR. 2022 vintage: negative 1.6%. Entry multiples at an all-time high of 11.8x EBITDA. Bain’s own report: “Easy multiple expansion is gone for the foreseeable future.”

The entire model depended on selling at higher multiples. That game is over.

This Is Not a Black Swan

Black swans are unpredictable. This was predicted. By everyone. On the record.

Boaz Weinstein, Saba Capital: “We are in the super-early innings of the wheels coming off the car.” Then launched tender offers to buy Blue Owl fund stakes at 20 to 35% below stated NAV. Blue Owl stock dropped 50%.

Howard Marks, Oaktree Capital: “The race to the bottom in private credit underwriting standards is well underway.” His own fund then cut its dividend.

Jamie Dimon, JPMorgan: “When you see one cockroach, there are probably more.” Referencing Tricolor — which defaulted on loans JPMorgan held — and First Brands, whose founders were criminally charged for defrauding lenders of billions.

Moody’s: PE-backed companies default at twice the rate of non-PE.

The Fed’s Financial Stability Report: elevated private credit to a top-tier systemic risk for the first time.

The Boston Fed: “The growth of private credit renders the financial system less stable, not more.”

The BIS — central bank of central banks: private credit’s push into retail is a systemic risk.

Treasury Secretary Scott Bessent: the government has “limited visibility” into $1.7 trillion in private credit. Then did nothing about it.

Senators Warren and Reed demanded the Financial Stability Oversight Council stress-test private credit funds. FSOC acknowledged the letter. No stress tests were conducted.

The CFA Institute identified seven red flags of a classic speculative cycle — record fundraising, declining returns, valuation inflation, NAV lending explosion, GP-led secondaries, retail democratization, insurance channel growth — and concluded: “Private markets have entered the late stage of a classic speculative cycle.”

Everyone saw it. Nobody stopped it.

The EBITDA manipulation. Add-backs turned real 5x leverage into “3.5x” on paper. Synergies that haven’t happened. “One-time costs” that recur every year. The adjusted EBITDA is a fantasy. The debt is real.

76% of PE deals are add-on acquisitions. Not new companies. Just bolting smaller ones onto larger ones and calling it “growth.” Zero organic growth. They raise prices and acquire. The majority of what they buy is declining.

The banks knew. All of them. JPMorgan: $50 billion committed to private credit. Goldman Sachs: $145 billion in alternative credit. Bank of America: $25 billion. Citi partnered with Apollo. Morgan Stanley’s advisory revenue jumped 47% on PE deal flow.

100% of bank lending growth in 2025 went to nonbank financial intermediaries. $2.3 trillion. The banks aren’t observers. They’re the fuel pump.

And while they fueled the fire, the OCC and FDIC rescinded the 2013 leveraged lending guidance. “We are removing barriers to lending.” No leverage caps. No underwriting standards. The last guardrail, removed.

SEC enforcement hit a decade low. PE lobbying hit a record $200 million. The referees left the field and the industry paid them to stay gone.

Blue Owl, Q3 2025 earnings call: “We continue to see limited stress in our portfolio.” Three months later they halted redemptions, froze NAV, stock dropped 50%.

Ares CEO called concerns about private credit “odd and frustrating.” Ten days later, Blue Owl entered crisis mode. CNBC called it the “canary in the coal mine.”

And if JPMorgan, Goldman Sachs, and Morgan Stanley genuinely could not see what a 25-year-old with a spreadsheet could see — then they are stupid.

I don’t think they’re stupid.

29.2% return on equity doing this. 7.9% doing normal banking. Every incentive pointed in one direction. They followed the money.

That’s not ignorance. That’s complicity.

Marked to Fantasy

I built something.

markedtofantasy.com. Investigative data project. Every claim sourced. Every number verified. Every receipt filed. And it will grow.

· Interactive Map: PE-controlled companies, pension exposure, insurance entities — plotted geographically. See who owns what in your state.

· Fund Report Cards: Graded scorecards. Leverage. PIK usage. Bankruptcy rate. Continuation fund activity. The data they don’t put in the pitch deck.

· Screener: 491 PE firms. 179 pension funds. 96 global allocators. 119 BDCs. 440+ deals. Search, filter, sort. See who’s exposed to what.

· Stress Test: Model what happens under rate shocks, multiple compression, and default scenarios.

· Hot Potato Tracker: Follow the assets as they move from fund to fund to continuation vehicle to insurance balance sheet.

· Bank Fee Machine: How much each major bank earns from the PE ecosystem.

· Signal Dashboard: Every crack, every warning, every default — tracked in real time with source links.

· Quote Wall: The warnings. The denials. The admissions. All on the record.

It’s free. No paywall. No email capture. Just the data.

I didn’t build this to monetize your attention. I built it so you could see what I see.

From Vulture to Hawk

I started as a vulture. Looking for the carcasses. I still will.

But somewhere along the way, something shifted. It was the perps.

This isn’t a trade.

It’s a crusade.

I’m not anti-capitalism. I’m not anti-private-markets. I’m anti-fraud. I’m anti-marking-your-own-homework and charging a fee for it. I’m anti-bailout.

I am now a hawk.

Why I Care

I wouldn’t care if this was rich people’s money.

Rich people can afford to lose. If a billionaire’s PE allocation underperforms, he gets a smaller jet. The stakes are aesthetic.

This isn’t rich people’s money.

This is the steelworker in Youngstown who broke his back for 35 years in a mill, paid into his pension every paycheck, and trusted his pension board to protect his retirement. His board allocated 20% to private equity. He can’t sue. He can’t see which investments lost his money. He just gets told the fund is “performing in line with expectations.”

This is the retired teacher in Columbus whose pension board accepted gifts from the PE firms it was supposed to be overseeing. The FBI is investigating. $12 billion under scrutiny. She doesn’t know if her monthly check is safe.

This is the 90-year-old widow in Phoenix relying on an annuity to supplement her Social Security because her husband died six years ago and that check is all that stands between her and losing her home. She doesn’t know her annuity runs through a PE-owned insurer. She doesn’t know that insurer invests 50% of her premiums in private credit. She doesn’t know what PIK income is or why it matters. She just needs the check to clear.

That’s why I care.

Not because I have a position. Not because I’m short anything. Not because someone’s paying me.

I do this for the love of the game.

I do this as a student of the game.

It’s time to hold the right people accountable.

What You Can Do

I’ll go on the record. Any reporter’s questions. Any news show. Any podcast. I will sit across from anyone and walk through the data point by point.

I’ll be the proctologist if no one else will. But people need to carry the baton.

Share this. Send it to your pension board member. Your state legislator. The reporter at your local paper.

Ask your state treasurer: What is our PE allocation? What are the marks? Who audits them?

Ask your insurance commissioner: How many PE-owned insurers operate in our state? What happens to policyholders if the portfolio takes a 20% loss?

If you work at a bank, a PE firm, an insurer — you already know. The question is what you’re going to do about it.

Every claim sourced. Every number verified.

markedtofantasy.com

The music has stopped. It’s time to count the chairs.