Michael Burry has highlighted new academic research warning that the rapid growth of private credit held inside private equity-owned life insurers could, in some failure scenarios, leave taxpayers indirectly bearing part of the losses through state insurance guaranty systems.
Posting to X over the weekend, the investor best known for predicting the 2008 US housing market collapse urged followers to read the paper, writing, 'This is important information of which all should be aware.'
Quoting one of its central conclusions, Burry added: 'A loan turns out to be worth less than was paid for it, and the majority of the loss, depending on the leverage, is borne by the guaranty system. That guaranty system ends with the taxpayer.'
The paper, 'Private Credit's State Backstop: How Private Equity Socializes Risk Through Insurers', was written by Andrew Granato of the University of Texas School of Law and Yale doctoral fellow Pranjal Drall.
It examines how private equity firms have expanded into the life insurance industry while increasing insurers' exposure to private credit assets that regulators often cannot value as easily as publicly traded securities.
Study Examines Growing Link Between Private Equity and Life Insurers
According to the paper, private equity firms including Apollo, KKR and Blackstone have acquired life insurers over the past decade and used them to finance broader asset-management businesses.
The researchers estimate that US life insurers now hold about $849 billion in private credit assets, more than double the amount recorded in 2014.
Unlike publicly traded bonds, many private credit investments are not actively traded, making independent pricing and regulatory oversight more difficult, the authors said.
They argue that the combination of opaque assets and private equity ownership has changed the role of some life insurers within the financial system.
How Losses Could Reach Taxpayers
The paper focuses on state insurance guaranty funds, which protect policyholders if a life insurer becomes insolvent.
Under that system, surviving insurers are assessed to cover policyholder claims after a failure. In many states, insurers can later offset those assessments against state premium taxes over time.
The researchers argue that the arrangement means part of the financial burden may ultimately fall on public finances through reduced state tax collections rather than remaining entirely within the private sector.
The paper does not argue that taxpayers are currently funding insurer failures. Instead, it examines how existing state guaranty mechanisms could transfer losses under certain insolvency scenarios.
Burry Has Raised Similar Concerns Before
Burry has previously expressed concern about private credit, structured finance and what he has described as hidden risks building outside public markets.
His latest post linked directly to the research and encouraged readers to examine its findings rather than offering his own detailed analysis.
'Read all about it!' Burry wrote.
Researchers Call for Greater Regulatory Scrutiny
Granato and Drall argue that the current regulatory framework has not kept pace with changes in ownership and investment practices across the life insurance industry.
They contend that existing disclosure requirements make it difficult for regulators to determine the value and risk profile of certain private credit assets held by insurers, particularly where investments move through affiliated entities.
The paper stops short of proposing a wholesale overhaul of the insurance guaranty system but recommends closer regulatory oversight of private equity-owned insurers and greater transparency around private credit holdings.
Neither Apollo, KKR nor Blackstone was accused of wrongdoing in the paper, which analyses industry-wide regulatory structures rather than the conduct of individual firms.
