Your Retirement Is the Collateral

Part 2 of my private credit rant. Yesterday I told you these people aren’t investors. Today I’ll tell you where the money actually comes from.

Yesterday I published a piece called “These People Are Not Investors” about $3.5 trillion in private credit deployed by dealmakers who are paid on volume, not accuracy. It struck a nerve. A restructuring professional on Twitter quoted my description of PIK mechanics — “Your loan gets bigger. You book the income” — and said it was either AI slop or proof I don’t understand finance. He has “Restructuring” in his handle. He sees where these loans end up. Disingenuous.

Another guy — a meme account whose core competency is not investing but glorifying financiers on the internet — told me they’re just smarter than me. Maybe. Maybe their people skills and powerpoint IQs are higher.

But a lot of you asked the right follow-up question: where is the money actually coming from?

Because $3.5 trillion doesn’t materialize out of thin air. Someone is writing the checks. And when you trace the capital upstream, past the BDCs and the fund structures and the origination platforms, you end up somewhere that should make your stomach turn.

You end up at your retirement.

The Insurance Game

The single largest source of “permanent capital” flowing into private credit is the insurance industry. Specifically, life insurance companies and annuity providers.

Here’s how the machine works.

You buy an annuity. Maybe you’re 62 and your financial advisor tells you it’s the safe, guaranteed-income play for retirement. You hand over your life savings. The insurance company now has a liability — they owe you monthly checks for the next 25 years. And they have your cash, which they need to invest somewhere to earn enough to pay you.

Historically, insurers parked that money in investment-grade bonds. Treasuries. Boring stuff. Safe stuff. The yield was low, but so was the risk, and the whole point was that grandma gets her check.

Then private equity discovered this pile of money.

Apollo Wrote the Playbook

In 2009, right after the GFC, Apollo co-founded Athene. The thesis was elegant in its audacity: buy an insurance company, take control of the investment portfolio, and redirect the assets into higher-yielding private credit originated by — wait for it — Apollo.

Athene is now roughly $400 billion in assets. That’s about half of Apollo’s total $938 billion in AUM. The insurance company is the balance sheet.

And here’s the part that matters: Apollo doesn’t need to fundraise for this capital. Nobody can redeem it. A 65-year-old with an annuity can’t call up and ask for their money back. The capital is locked for decades, matched against long-duration liabilities. Apollo calls this “permanent capital.” They mean it.

This isn’t some edge case. This is the core strategy. Apollo’s CEO Marc Rowan has said publicly that 80% of what Apollo does is now credit, and the origination machine exists primarily to feed Athene’s balance sheet. They buy between 25% and 50% of their own deals. The closed loop is the feature, not the bug.

And everyone is copying it. KKR has Global Atlantic. Blackstone manages insurance capital through separately managed accounts with Corebridge, F&G, and L&G. Every major alternative asset manager is now either buying an insurer or partnering with one. Athene alone represents about 40% of all new capital entering the insurance industry. Let that sit for a second.

This is a bastardization of what Warren Buffett did with Berkshire Hathaway.

The Bermuda Shuffle

Now here’s where it gets really cute.

When a US life insurer holds a publicly traded bond, it gets marked to market. Regulators can see the risk. Rating agencies can see the risk. The volatility shows up in capital ratios.

When that same insurer holds a private credit instrument, it gets marked based on models. The manager’s models. The actual credit quality might be identical or worse, but the reported volatility is near zero because nobody is pricing it in real time. On paper, the insurer looks more stable. Their capital ratios look better. They can write more policies against the same equity base.

But it gets better. Many of these PE-affiliated insurers are ceding massive blocks of liabilities to Bermuda-based reinsurers — often their own offshore affiliates. Total offshore life reinsurance reserves transferred by US insurers surpassed $1.1 trillion by the end of 2024, with Bermuda capturing over 40% of total ceded reserves. Nearly 70% of those offshore reserves went to affiliated reinsurers, and firms backed by PE sponsors accounted for 46% of those affiliated transactions.

Why Bermuda? Capital efficiency. Which is a polite way of saying: the capital charges are lower there. You can hold riskier assets against the same liabilities and the math still “works” on paper. Bermuda-based life reinsurance assets more than doubled from $500 billion in 2018 to over $1.2 trillion by 2022 and have kept growing since.

The IMF has flagged this. The Fed has noted a shift in insurer portfolio allocations toward “risky corporate debt, while exploiting loopholes stemming from rating agency methodologies and accounting standards.” That’s not me saying it. That’s the Federal Reserve.

Fox Hedge and the Frontier of Creative Accounting

If you want to see how far the creativity goes, look at Fox Hedge — a roughly $5 billion vehicle created for Apollo by a tiny Luxembourg firm called Advanced Credit Solutions. Bloomberg reported on this in detail.

Fox Hedge bundles a grab bag of assets into a structured vehicle, slices it into tranches, and sells the investment-grade-rated senior tranches to… Athene. About 86% of the debt was bought by Apollo’s own insurance company. The senior tranche pays 6.05%. The lower tranches pay up to 8.32%.

Apollo kept the unrated equity slice — the riskiest piece — off Athene’s balance sheet, which conveniently lets the insurer avoid the onerous capital charges that come from holding poorly protected assets.

This is financial engineering designed to make an insurer’s balance sheet look safer than it is while extracting higher yields. The risk hasn’t disappeared. It’s been restructured and relabeled and moved between affiliated entities until the regulatory framework can’t see it clearly anymore.

Remind you of anything?

The Asymmetry That Should Keep You Up at Night

Here’s the thing that kills me about this entire setup.

If Apollo’s credit bets work out and Athene’s portfolio performs, Apollo captures the upside through management fees, spread-related earnings, and AUM growth. Rowan gets his bonus. The stock goes up. Everyone’s happy.

If the credit bets go wrong — if the PIK-dependent borrowers default, if the SaaS company liquidation values turn out to be 30 cents instead of 80 cents, if the whole thing unravels — who eats the loss?

The annuity holders. The pensioners. The retired steelworkers.

Bloomberg reported on exactly this scenario. Retired steelworkers whose pensions were moved to Athene gathered in August for an update on their case against their former employer. As one of them put it: if Athene’s wagers go wrong, the money he lives off could be lost. If the bets work, Apollo reaps the profit. His monthly check won’t increase either way.

These pension risk transfers (like the massive ones involving AT&T and GE) are very real, and they are starting to see time in court. Interestingly, Athene actually won a dismissal in the GE lawsuit in September 2025. The judge ruled that the retirees had suffered no “classic economic injury” yet because their checks were still clearing.

But that actually proves the entire point: the risk is entirely invisible to the legal and regulatory framework until the exact moment the money runs out.

That’s the asymmetry. Private equity takes the fees and the upside. The retiree takes the risk and the downside. And the whole thing is structured so that the risk is invisible until it isn’t.

Norinchukin: A Preview of What’s Coming

If you want to know what it looks like when model-based valuations collide with actual liquidation prices, you don’t have to guess. You can look at Japan.

Norinchukin Bank is Japan’s second-largest bank, a cooperative institution backed by the country’s agricultural sector. For years, they did what a lot of institutions did during the low-rate era: reached for yield by loading up on foreign bonds. Treasuries. European sovereigns. CLOs. The stuff that’s supposed to be safe.

Then rates moved. And Norinchukin started selling.

In the first three quarters of fiscal year 2024, they reported roughly $9.2 billion in realized losses. Their CEO resigned in February 2025. But the reported losses aren’t even the real story.

Here’s what matters: they sold approximately $16 billion in face value of securities at around a 20% loss. Those were the most liquid, highest-quality assets in the portfolio — the ones they could sell. Now apply that same haircut to the remaining $235 billion they’re still holding. You get roughly $47 billion in implied unrealized losses against $26 billion in net assets.

That’s insolvency. On paper, they’re underwater.

But their reported unrealized losses? About $6 billion. Because the bulk of the portfolio is classified as held-to-maturity. And under held-to-maturity accounting, you don’t mark to market. You hold the position, you pretend the loss doesn’t exist, and you pray that rates come back before you run out of liquidity.

Sound familiar? It should. It’s the exact same accounting treatment that every PE-affiliated insurer uses for its private credit portfolio. The only difference is that Norinchukin’s assets were publicly traded bonds with observable prices. When they had to sell, the market told them exactly what the paper was worth. Private credit doesn’t even have that. There’s no market to discover the price. The marks live in the manager’s model until the day a liquidation forces reality into the room.

Norinchukin’s deposits fell by ¥1 trillion in a single quarter. Their repo funding dropped ¥3.1 trillion. Cash reserves are declining. They cannot raise capital despite what should be optimal market conditions. This is what a slow-motion liquidity crisis looks like inside an institution whose balance sheet was supposed to be conservative.

Now imagine this playing out across an insurance complex holding $1.2 trillion in Bermuda-reinsured private credit, where the assets don’t have observable prices, the marks are set by the same people who originated the loans, and the liabilities are annuity payments owed to retirees for the next 30 years.

That’s the scenario. It hasn’t happened yet. But Norinchukin just showed you the mechanics.

401(k)s Are Next

And if you think this is just an annuity problem, think again.

In August 2025, Trump signed an executive order enabling increased inclusion of private equity, private credit, cryptocurrency, and other alternative assets in 401(k) retirement accounts. The stated rationale is expanding access and increasing market liquidity. The practical effect is that the same asset managers who are already loading up insurance balance sheets with opaque private credit now get a direct pipeline into America’s $7+ trillion in defined contribution retirement savings.

Apollo has already purchased ARS, a technology company that integrates guaranteed income products into 401(k) target-date funds. The explicit goal is to embed annuity products — backed by Athene, invested in Apollo-originated credit — directly into the retirement savings infrastructure.

Think about what this means in the context of everything I’ve described. The origination machine that feeds the insurance balance sheet that cedes risk to the Bermuda affiliate that holds assets marked by the manager’s own models — that entire chain is about to be connected directly to your 401(k). The same closed loop. The same fee structure. The same asymmetry where the manager captures the spread and you hold the risk.

The fox isn’t in the henhouse. The fox bought the henhouse, redesigned it, and is now selling the hens a subscription service.

Same Movie, Different Cast

I keep coming back to 2008 because the parallels are structural, not superficial.

In 2008, the risk was in mortgage-backed securities held by banks whose capital ratios were juiced by off-balance-sheet vehicles and favorable accounting treatment. The underlying assets — subprime mortgages — were deteriorating, but the reporting structures masked the losses until they became uncontainable.

In 2025, the risk is in private credit instruments held by insurance companies whose capital ratios are juiced by Bermuda reinsurance affiliates and model-based marks. The underlying assets — leveraged loans to PE-backed companies — are showing stress through rising PIK and shadow defaults, but the reporting structures mask the losses because nothing is marked to market. Meanwhile, the publicly traded BDCs that hold the same stuff are borrowing money to pay dividends on phantom income, because the 90% distribution requirement doesn’t care whether your borrower actually paid you.

The venue changed. The mechanism didn’t.

And just like 2008, the ultimate bag-holder isn’t a sophisticated institutional investor who understood the risk. It’s a retiree in Ohio who was told their annuity was safe.

So What Do I Do With This?

Same thing I said yesterday. I’m not shorting it. I’m not buying puts on APO or ARCC or any of these names. The timing is unknowable and these firms are built to survive.

But I’m watching. I’m watching the PIK rates. I’m watching the BDC discounts to NAV. I’m watching the spread between what insurers are crediting on annuities and what they’re actually earning on their credit books. And I’m watching for the moment when the model-based marks can no longer hold — when an actual liquidation forces an actual price discovery and the whole daisy chain of affiliated valuations has to adjust to reality. Norinchukin just gave us a preview of what that looks like. The difference is their assets had observable prices. Private credit doesn’t even have that luxury.

When that happens, there will be a panic. And in that panic, there will be good publicly traded companies — companies with real revenue and real margins — trading at 4x earnings because their PE-backed competitor just blew up and dragged the whole sector multiple down with it.

That’s when I buy. Not the private credit. Not the insurance stocks. The collateral damage. The good businesses trading at distressed prices because the financial engineering next door finally broke.

Until then: patience.

The vultures wait.

If the facts I have presented make you mad, lets discuss like adults over a podcast or livestream. I can rent the studio. We can go to SFVegas.

This is Part 2 of what’s turning into an accidental series.

…went up yesterday. If you’re not subscribed, now’s the time.

This is not financial advice. I have no positions in APO, ARCC, OWL, BX, or any insurance company mentioned above. I reserve the right to buy or sell any security at any time.