MARKED TO FANTASY
The Private Equity and Private Credit bubble, exposed with data.
“There are more PE-backed companies in America than McDonald's locations.”
THE SCALE
$9.4 trillion in assets. 12,500 companies. 11 million workers.
Private equity and private credit have grown from a niche asset class into a shadow financial system controlling more of the American economy than most people realize. Private credit alone deployed $593 billion in 2024 — a 78% year-over-year increase.
Private credit AUM hit $3.5 trillion in 2025, nearly doubling from $2 trillion in just two years, with Morgan Stanley projecting $5 trillion by 2029. The money machine has never been bigger. The question is whether the assets behind it are real.
THE INCENTIVES
Paid to deploy, not to be right.
“These are not investors. They are dealmakers.”
— Nick, Mispriced Assets
The PE business model is built on deployment, not performance. Firms collect 2% management fees on committed capital regardless of returns. On $9.4 trillion, that's nearly $188 billion per year in fees before a single dollar is returned to investors.
The Fee Machine
Build the model. Get the deal done. Book the fee. The money is made in the doing, not in the being right. Add-on deals now represent 76% of all PE-backed buyouts — buying small companies at 5-8x and bolting them onto platforms valued at 12-15x. The “value creation” is paper arbitrage.
THE MARKS
Shadow defaults 6.4% vs 2.0%. The PIK death spiral.
Reported Default Rate
KBRA, Q4 2025
Shadow Default Rate
Lincoln International, Q4 2025
The headline default rate of 2.1% is fiction. When you count distressed exchanges, PIK conversions, and amend-to-extend deals that never show up in the official numbers, the real rate is 6.4% — more than 3x the reported figure (Lincoln International, Q4 2025). In 2024, distressed exchanges were 5x conventional defaults.
The PIK Death Spiral
The EBITDA Add-Back Scam
PE sponsors inflate EBITDA to make leverage look manageable. S&P studied hundreds of deals and found the adjustments are almost always lies.
of LBO EBITDA is add-backs
S&P Global, 2020-2025
of deals miss projections by 25%+
S&P Fifth Annual Study, 2023
turns higher leverage than marketed
S&P, Year 2 post-close
Sources: S&P Global Ratings Annual EBITDA Addback Studies (2020-2025) • Bloomberg “PE Disaster Exposes Fuzzy Math” (Feb 2025) • PitchBook “EBITDA Adjustments Are Getting Ridiculous” (2026) • Moody's “EBITDA: Used and Abused” (2014) • PEI “EBITDA on Steroids” (Jun 2025)
THE LIQUIDATION GAP
Car washes, software, dental. Senior secured by hoses and soap.
“What is the liquidation value of a car wash? Hoses and soap.”
— Nick, Mispriced Assets
Car Wash
Recovery on Enterprise Value
Don't own property. Equipment bolted in.
Software
Recovery on Enterprise Value
No hard assets. Revenue evaporates.
Dental
Recovery on Enterprise Value
Dentists can walk. Patient loyalty follows.
First-lien recovery rates collapsed from 76% in 2022 to 39% in 2024. The “senior secured” claim is meaningless when the collateral is leased property with bolted-in equipment. Covenant-lite deals jumped from 4% to 21% in two years. Mega-deals over $500M: 50% lack financial maintenance covenants entirely.
THE HOT POTATO
Companies passed PE→PE→PE→bust. Musical chairs with leveraged debt.
Mister Car Wash — The Full Circle
53% decline from IPO. 70% from peak. Public market investors destroyed. Leonard Green owned 67% the whole time.
GP-led continuation vehicles hit $115 billion in 2025 — up from $75B in 2024. A GP sells a company from one fund to a new fund that the same GP manages. New fees, new carry, same asset. The CFA Institute published a report questioning the ethics. ADIC (Abu Dhabi) sued Energy & Minerals Group over an $800M self-dealing continuation vehicle.
THE INSURANCE TRICK
$1.1 trillion offshore. No mark-to-market.
The 6-Step Insurance Play
Failure Cases
PHL Variable Insurance
Golden Gate Capital. Capital deficit: $2.2B. Pursuing LIQUIDATION.
777 Partners / 777 Re
$500M fraud. 3 insurers INSOLVENT. Co-founder INDICTED. $2.1B pumped into football clubs.
THE PENSION EXPOSURE
$718 billion of retiree money in PE. The bag holders.
Oregon: The Worst Case
26.9% PE allocation — nearly 2x national average
$3.7B lost to PE overallocation
PE returned 4.1% vs Russell 3000 at 38.4%
Treasury staff disregarded allocation policies
Workers legally cannot learn which PE investments made or lost money
Negative net cash flow from PE in 2023
Reducing from 28% down to 20% target
THE CRACKS
Blue Owl. Morgan Stanley. Redemption gates. The wheels coming off.
“We are in the super-early innings of the wheels coming off the car.”
— Boaz Weinstein, Saba Capital, February 2026
Permanently halted OBDC II redemptions. $1.6B OBDC II in liquidation. Stock at $8.78 from ATH $25.02. Saba Capital circling with tender offers.
North Haven ($8B fund) hit with 10.9% redemption requests in Q1 2026. Enforced 5% cap — met only 45.8% of requests. BlackRock also gating.
Record $25B below 80 cents — 31% of ALL distressed loans despite 13% index weight. AI disruption fears accelerating. 21% of 2025 restructurings were software.
PE behind 54% of 35 largest US bankruptcies in 2025. 70% in Q1 2025. 110 total in 2024. Saks Fifth Avenue files Q1 2026 with $3B+ debt.
BCRED: $3.7B redeemed in Jan-Feb 2026. Q4 2025: $2.9B across NAV BDCs, 200% QoQ increase. Blackstone added $400M of own capital.
THE FEE MACHINE
Banks earn 4x the return lending to PE. They profit at every step.
Banks earn nearly 4x the return lending to private credit funds
THE FEE CHAIN
Bank earns $3.5-8M per $100M in advisory + underwriting fees
Earns SOFR + spread while holding. 29.2% ROE.
1-2% structuring fee. Junk loans become 'AAA' tranches.
Athene, Global Atlantic, Brookfield Re. Reports at amortized cost.
Annuity holders, pension beneficiaries, retail investors bear the risk.
NDFI lending hit $1.32T — quadrupled since 2016. Banks earn 4x the ROE.
$1.32 trillion in NDFI lending — quadrupled since 2016
WHO HOLDS THE BAG?
Follow the risk — from origination to your retirement account
Acquires company at 12x EBITDA, 65% debt
Arranges debt, earns $3.5-8M per $100M in fees
Repackages B-rated loans into “AAA” tranches
PE-owned, reports at amortized cost
Pension funds, annuity holders, retail investors
Acquires company at 12x EBITDA, 65% debt
Arranges debt, earns $3.5-8M per $100M in fees
Repackages B-rated loans into “AAA” tranches
PE-owned, reports at amortized cost
Pension funds, annuity holders, retail investors
Every node takes a cut. The last node holds the loss.
UNDER THE HOOD
Narratives are one thing. Then you open the loan book.
“It's easy to get fooled by a pool. Then you look at what's actually in it.”
— Nick, Mispriced Assets
Everything above is macro — industry trends, aggregate statistics, structural incentives. But what happens when you open the hood on one actual fund and re-mark every single position?
I started with CCLFX — the Cliffwater Corporate Lending Fund. $49.8B in gross assets. The largest interval fund in America. Marketed to retail investors as “senior secured lending.” I pulled the N-PORT filing, parsed 2,330 positions, and re-marked every one against secondary market rates and fundamental analysis.
THREE-WAY COMPARISON
Cliffwater marks $5B+ in CLO equity tranches at 100 cents. CLO equity is the first-loss layer — no secondary market, no price transparency. Marked at par because they can.
Loans paying SOFR+6.5% or higher — implying significant credit risk — yet marked at par or above. If the market thinks the borrower is risky enough to demand 6.5%+, the loan isn't worth 100 cents.
Cliffwater lending to its own vehicles — KCLF, CW Credit Opportunity — and marking the resulting positions at full value. The fund is both the lender and the borrower's manager.
~30% of the portfolio ($11B+) sits inside PIVs that report at NAV — net of their own leverage. Actual gross exposure is $10-15B higher than what's on the balance sheet. CLO equity is first-loss: a 3-5% default rate triggers OC breaches that cut distributions to zero. Loss concentrates at each layer.
This is one fund. CCLFX is out now. More coming. Every major non-traded BDC, every interval fund — the same methodology applied to every position. When the narratives sound too good, open the loan book.
THE BUBBLE
Classic bubble mechanics mapped to PE/PC.
Genuine value. Post-GFC vintages bought distressed assets cheap. PE outperformed.
Money floods in. Fundraising surges $400B→$735B. Multiples climb to 11.5x. Standards drop.
Peak everything. $800B+ fundraising. 'Safer than IG bonds.' Citrix $16.5B. 1,210 exits.
Exits collapse to 323 in 2023. DPI at decade low. PIK surges. Record bankruptcies. 'Odd and frustrating.'
Blue Owl -65%. Morgan Stanley gates redemptions. BCRED: $3.7B withdrawn in 8 weeks. Moody's default rate 7.5%. Marathon warns 15%. Music stopping.
Explore the Data
Every claim sourced. Every number verified. Dig in.