Key Takeaways:
Hedge fund manager Lee Robinson, who turned a $20 million subprime bet into $200 million during the 2008 financial crisis, is shorting US insurers through credit default swaps as he bets the $1.8 trillion private credit market will trigger asset impairments.
"The market is not pricing in the risk of writedowns from private credit exposure," Robinson, founder of London-based Altana Wealth, said in an interview. His firm has built short CDS positions against Berkshire Hathaway Inc., MetLife Inc. and Lincoln National Corp.
Net notional bets on US insurers' CDS rose to $5.5 billion by May 22 from less than $4.9 billion at the end of last year, according to Depository Trust and Clearing Corp. data. The cost of protection has also climbed, with Lincoln National's CDS trading at about 142 basis points. Other hedge funds have followed Robinson's lead, with JPMorgan Chase & Co. and Goldman Sachs Group Inc. executing similar trades for clients.
The thesis hinges on what Robinson calls a "second-order effect" of the private credit boom. US life insurers held about $800 billion in private credit and other illiquid assets as of the end of 2025, roughly one-fifth of their $4 trillion fixed-income portfolios, according to Moody's Ratings. That share has risen from 18% a year earlier, driven by asset managers such as KKR & Co. and Apollo Global Management Inc. pushing insurance assets into higher-yielding private debt. MetLife alone held about $85 billion in private fixed-income assets as of March 31, the company disclosed.
Moody's analyst Manoj Jethani warned in a report this month that risks are "emerging, particularly in middle-market direct lending, where credit quality is weakening and borrower stress is rising." The European Central Bank has also flagged potential losses for insurers. In the US, American International Group Inc.'s CDS protection cost has exceeded the broader North American investment-grade CDS index this year. European insurers including Allianz SE, Generali, Aviva Plc and AXA SA have seen similar CDS widening.
Robinson's credit opportunity fund has returned 47.5% this year and 416% since its 2020 inception. His new fund adds single-stock options to the CDS positions. He said a single distressed insurer — "any one blowup" — could trigger contagion across the sector.
MetLife said its private debt portfolio is about 95% investment grade and "highly diversified with resilience across market cycles," citing Chief Financial Officer John McCallion. Allianz said it is comfortable with its private debt exposure. Berkshire Hathaway declined to comment. Lincoln National did not respond to requests for comment.
The short positions have room to run. Lincoln National's CDS at 142 basis points remains far from distressed levels, meaning a market dislocation could generate significant gains for bearish investors. Robinson compared the current low-volatility environment to August 2008, saying, "We were scratching our heads back then, completely unable to understand how volatility could be that low. It feels a bit like that now."
This article is for informational purposes only and does not constitute investment advice.
