Price ~$44 · Target ~$75 (12–18 mo) · Core / Multi-year

Everybody knows you sell shovels in a gold rush. What people forget is that you sell a man one shovel and then you’re done with him. The money that keeps coming is in the stuff that gets used up: the blasting powder, the mercury that washes downstream and has to be replaced. Sell that and you have a customer for as long as the mountain pays out.

We’re in a gold rush, and for two years the market has been buying shovels. It paid up for the chips. Then it paid up for the machines that make the chips. This year it finally worked its way down to the companies that build the guts of those machines, and the moves were violent. Ultra Clean is up 230% in 2026. Ichor is up 268%. Nobody calls either one an AI stock at a dinner party, and they tripled anyway. It hasn’t gotten to the consumables yet.

Element Solutions sells the chemistry that gets consumed making chips, circuit boards and advanced packages. It gets plated, printed and soldered into the product, and then the customer orders more next week. It is the same demand that just tripled Ultra Clean and Ichor, one level lower in the stack, and it still trades at a chemicals multiple because the ticker happens to sit in the chemicals coverage group.

The awkward part first, because you’ll see it the second you pull a chart: the stock has already moved. It’s up around 80% over the past year and trades near $44. Most people will glance at that and decide they missed it. They didn’t. What’s happened so far is a cheap stock becoming a fairly priced one. The fundamentals more than justify ESI’s move. What I’m buying is growth in the highest-margin segment and a the re-rate to the semiconductor-materials companies it’s quietly turning into, plus a product launching this fall that almost nobody has in their model. I think it’s a $75 stock over the next 12 to 18 months, from $44 now.

WHAT THE MARKET SEES

A chemicals company. does about $2.5 billion in revenue at a low-20s EBITDA margin, grows mid-to-high single digits, carries a fair amount of debt, and has a sleepy business plating chrome onto car parts. The sell-side shelves it next to the paint and fertilizer names and puts a chemicals multiple on it, around 18x EBITDA, which makes it the cheapest electronic-materials stock on the board. That’s a reasonable read if that’s all it is.

THE ORDER OF OPERATIONS

AI doesn’t re-rate the whole supply chain in one shot. It works outward from the obvious. Nvidia went first, two years ago. Then the tool makers, Applied and Lam. This year the crowd reached the subsystem shops, the unglamorous outfits that build the gas and fluid modules that go inside the tools. Ultra Clean and Ichor both more than tripled the moment investors connected them to rising wafer volume. The consumables come next, and that’s where Element sits.

Every wafer those tools help produce burns through plating chemistry, copper deposition and solder paste, and a lot of that is Element’s. Same volume, same driver, one rung lower. It hasn’t re-rated because the market still reads it as “chemicals” instead of “semis.” That label is the opportunity. The crowd bought the shovels and skipped the powder.

WHY CONSUMABLES IS THE PART THAT MATTERS

Read more

Finding the vulnerability was never the hard part. Knowing which of the thousands in your specific environment will get you owned this week, and getting someone to close it before then — that is the hard part. That is the whole job. And it is the part the market has just decided no longer has any value. That decision is the opportunity.

I am initiating a large, (likely) multi-year core position in Tenable at roughly $27 cost. I think it is a $100 stock inside of two to three years. The reason it is cheap is a clean, nameable error the market is making in real time — and underneath that error sits a category leader with a greenfield in front of it, a deliberately underinvested growth engine, and an AI roadmap, anchored by a partnership with Anthropic, that turns the thing everyone fears into the thing that pays.

THE MISREAD

AI is the demand, not the disruption

Eighteen months ago the frontier labs began shipping models that read source code and surface software flaws on their own. Anthropic’s Mythos is the one everyone cites. The market took one look — a model that scans, pointed at a company that scans — and concluded the machine eats the scanner. Vulnerability management is a melting ice cube. The sell-side put it in writing; the phrase circulating the desks is that the category is “secularly challenged.” The stock fell from a real software multiple to roughly three times sales.

Read more

I want to be precise about the fear, because the fear is not stupid. The whole back half of this market is priced on discounted cash flows for artificial intelligence, and a discounted cash flow is dressed up arithmetic — it tells you, with guessed decimals, exactly what the value of a company is. Nudge the terminal growth rate, shave the discount, push the margin out a year. It quietly becomes a different model, and the price that was a fortress on Wednesday is a tent by Monday. That is why these things trade like memecoins.

My stuff got hit too. Hard. I’m less fearful because the typical name in the Mispriced Assets portfolio is meaningfully cheaper than the typical thing the typical person owns — that’s the whole point — and cheaper things still go down when everybody is selling the same morning. We’ll get into the market, the degrossing, the what-now, in the chat.

But not this morning. Today I want to tell you a story, because I think you’ve earned a laugh, and because the story is, against all odds, true.

❧ ❧ ❧

A man appears, yelling

Josh Cohen came onto my radar in December the way a smell comes into a room — you don’t go looking for it, it simply arrives and announces that something nearby has gone wrong.

He was the CEO of Azure Holding Group, ticker $AZRH, and he was on the internet doing the single most clarifying thing a microcap promoter can do: he was furious at short sellers. Screaming about them. Threatening them. Building entire afternoons around them. And the beautiful, almost tender absurdity of it was that AZRH was an OTC name that you essentially cannot short. There were no shorts. He was a man shadowboxing in an empty gym and selling tickets to the fight.

That got my attention.

So in January I went up and debated him, live, for the better part of two hours. I went in expecting a guy who was stretching. I came out understanding I had badly underestimated the scope of the stretch. This was not a man rounding up. This was a man who had built a cathedral out of rounding up.

And here is where we are now, five months later: a thing that once carried a north-of-$100-million valuation is, today, functionally worthless. The stock went from $2.40 to about six cents. And on Friday, Josh Cohen was arrested — picked up at his home in Nassau County, New York, on a felony warrant out of West Texas.

This may be the true reason the market exploded and everyone degrossed on Friday. Somewhere a portfolio manager saw the headline, felt a chill he couldn’t name, and sold his AI book. Maybe.

The work: a banana stand with a coil-tubing problem

My contribution to this saga, the thing I actually did, was unglamorous, which is how you know it was real work. I went after the liquidity.

You may have seen the thread. The fight came down, in the end, to one line item: $14.3 million of “inventory,” booked onto AZRH from a joint-venture partner, CTT — a partner that, right before it went dark into the expert market, was sitting on $48,000 of cash, negative cash flow, and no revenue growth. And we are asked to believe that this $48,000 entity somehow spent five to eight million dollars building tools and then contributed them at a fourteen-million-dollar mark.

I asked the only question that matters: how does a business with no cash build a warehouse full of eight-figure tools? There was no answer. There is never an answer. There is only posture.

Josh willingly sent me the docs!

So I went into the tools themselves — the “jars,” valued at $7.65 million. The claim was a number. The reality, from his own documents, was that 48 jars were “ready to run” and the rest sat in “shop” status: disassembled cores, parts, half-built units, the skeletons of equipment. Using the used-market prices Cohen himself supplied, the 48 working jars came to maybe $480,000 to $550,000. Be generous — use replacement cost, value the shop parts kindly — and you might struggle to a million dollars total. Against $14.3 million booked.

A fourteen-times gap.

Accounting 101: inventory is carried at the lower of cost or market. Not at list price because you’re an optimist. The defense, when I pressed it, was not arithmetic. It was a feeling, delivered as incantation: these were distressed assets. I’m cleaning up a mess. I’m being conservative. You don’t understand GAAP. Sit down and let the CPAs handle it.

Now hold that last line — let the CPAs handle it — because it is about to become the funniest sentence in this entire saga. We’ll come back to it. I promise.

Here is the whole standoff in two lines.

Me: the math is impossible — you have five hundred grand to a million of real inventory, not fourteen.

Him: trust me, I bought a mess, and you don’t understand the business.

And the thing I kept trying to say, the thing that doesn’t fit on a banner but is the entire ballgame: the GAAP fouls don’t even matter. There is no quantity of accounting generosity, no charitable reading of any rule ever written, under which a $48,000 company contributes $14.3 million of value. Mark the inventory honestly and the equity is zero — and that’s before anyone wanders over to the $148 million in oil and gas properties sitting next to it.

Markets don’t run on trust. They run on numbers. And when the numbers won’t reconcile, that isn’t strategy. That’s a flag… the red kind. 🚩

“Mille,” and the most expensive vocabulary lesson on the internet

While I was in the warehouse counting jars, an anonymous account on Twitter named Kyle Mitchell was doing the patient, devastating work on the other side of the balance sheet — the oil and gas. Kyle built a twenty-five-year stripper-well model and showed, line by line, that the company had spent roughly $155 million to acquire 811 wells and 28,000 acres producing something like thirty to forty-seven barrels a day. That’s about $4.2 million per flowing barrel, against a market that pays fifty to a hundred thousand. His model ran a quarter century into the future and never found a single year where the thing made money. “Scaling production,” he wrote, “only scales losses.” Go read him — all of it — linked at the bottom, and treat it as required.

But the part of this saga that belongs in a museum, the part I will be telling at dinner parties for the rest of my life, is the reserves.

Cohen went around the internet waving a third-party estimate that, he insisted, showed something on the order of six billion dollars of reserves. Billion with a “b”. And the actual oil-and-gas men of Twitter — the ones with calluses, the ones who’ve read a reserve report before — looked at the number and gently, then less gently, sat him down for a lesson in the one piece of vocabulary the entire industry runs on.

Here is the trap, and it is a genuinely good trap. In oil and gas, the prefix “M” means thousand. It comes from the Latin mille — a thousand — the same root that gives you the French mille and the Roman numeral M. So a thousand barrels is Mbbl, and a million barrels is MMbbl: “M times M,” a thousand thousand.

Now here is why it’s a trap and not just a quirk: it is backwards from the rest of the modern world. Everywhere else — the metric system, finance, the spreadsheet you opened this morning — “M” means million. Mega. A megabyte is a million bytes. “$5M” is five million dollars. Every instinct a Penn State accounting grad has ever had tells him M is a million. The convention is so reliably confusing that the Society of Petroleum Engineers officially recommends people stop using M and MM for barrels precisely because outsiders read it wrong every single time.

Josh Cohen read it wrong every single time.

He took a reserve figure written in the petroleum dialect — where M is mille, is thousand — and ran it through his civilian brain, where M is a million. Which means the number he had been parading around the internet, the cornerstone of the entire valuation, the figure he was screaming at imaginary short sellers about, was off by a factor of one thousand.

Let the CPAs handle it

Remember the line. Sit down and let the CPAs handle it. You don’t understand GAAP.

Josh Cohen has an accounting degree from Penn State. He worked as a junior auditor at PwC for about three years. And then — this is Kyle’s reporting, and Cohen said it himself, out loud, on the internet — he failed the CPA exam. Specifically, in his own words, he “couldn’t pass the regulation/legal section.”

The regulation section. The rules part.

So the man lecturing me on generally accepted accounting principles, the man telling me to defer to the CPAs, the man marking $48,000 up to $14.3 million and calling me the one who doesn’t understand the standards — is a man who could not personally pass the part of the CPA exam about the standards. He failed the rules and then spent two years inventing his own. There’s a thesis in there somewhere about the entire microcap complex, and it fits on a coaster.

The greatest hits, for the people in the back

I could write the careful version of this section. I’m not going to, because it would be a disservice to the material. Here, with as little editorializing as I can manage, is the rest of it.

Mom.

When the criticism mounted, an X account called @poppy848 appeared to defend Cohen with the ferocity that only family provides, running critics through Grok and crying defamation. Same energy showed up on InvestorsHub under Trader484, and a third, MidnightLab686. Note the suffixes — 848, 484, 686 — three random digits, every time, like a man who learned exactly one trick for making a new username. Kyle traced the breadcrumbs to Pittsburgh, to a “my Josh” in Dublin in 2012, to a Facebook photo, and landed on the answer: it was Cohen’s own mother. The “controlledoilandgas” board persona praising him in the third person? Also him. The brother who supposedly ran it? Also him. And my favorite detail in the whole exposé: Mom publicly swore she owned zero $AZRH “as I didn’t want to take risks of any potential conflicts” — and then, weeks later, the same account cheerfully announced she was “buying more of $AZRH.” Oops.

The house.

Cohen boasted, repeatedly, about his “$3.5 million, 8-acre property” two minutes from the Sound, in one of the most expensive zip codes in America. Kyle pulled the records. The house last sold for about $300,000, is worth maybe $1.5 million, and belongs to Marcus Laun — the same Marcus Laun who keeps turning up as the advisor on every deal, who runs another penny stock, and whom Cohen later floated as an “independent director.” When caught not owning the house, Cohen’s response was not to walk it back. It was to announce he would simply acquire the companies Laun controlled, with AZRH stock.

The résumé.

Cohen sold himself as a roughneck with “two decades in oil and gas since I was a teenager.” He was a Penn State accounting grad and a PwC junior auditor. The two decades of derrick experience were, like the reserves, off by about an order of magnitude.

The cap table is on Instagram.

A Dallas family office spent twenty-four hours and eleven polite emails asking for the absolute basics — audited financials, a real reserve report, a share count. Every request for a document came back as a narrative. Ask for financials, get a calendar. Ask for the reserve engineering, get the names of other people’s wells miles away. Ask for the cap table, and you are told, and I am not embellishing, that it’s on Instagram. The investor walked away with his capital intact.

The shell you buy to satisfy the shell rules.

When that same investor pointed out AZRH might not have enough shareholders of record to uplist, Cohen explained the fix: he would simply acquire another public shell specifically to import its shareholders — buy a company to borrow its list of owners, at “less than 1% dilutive effect.” A shell, to fix a shell. It’s shells all the way down.

The war criminal’s nephew.

This one nakes me laugh every time. A source, testing Cohen’s judgment, invented a fake prospect — “Milosh Milosevic,” supposedly a relative of Slobodan Milošević, the Serbian president who died at The Hague facing genocide charges. Cohen’s reaction to learning his new partner was a war criminal’s nephew was “chef’s kiss.” He enthusiastically offered to write a 150-page book rehabilitating Milošević’s image — “misunderstood,” he said — and distribute it through American schools via his email platform. When the source escalated to openly criminal nonsense to see where the bottom was, Cohen’s contribution to a human-trafficking scenario was a logistics question: “So I would collect payment from the Men, and then send the money to Milosh correct?” The associated $320,000 wire, mercifully, never came, because the man on the other end was fictional. When exposed, Cohen produced Merrill Lynch screenshots claiming $38.7 million in assets and threatened the FBI on people.

“I’m so broke.”

On March 28, 2026, after the merchant cash advances came due and the partners turned and the vendors started talking, the CEO of a once-hundred-million-dollar company posted, in public, the three-word obituary for the whole thing: “$AZRH I’m so broke.” The stock was six cents.

The one apology.

Cohen threatened everyone — $50 million John Doe suits, $60 million, RICO, posting the home addresses of every “Kyle Mitchell” he could find in two states (none of them the right one). I never got mine wither. The only opponent he is on record apologizing to was a suspended attorney, formerly of the Proud Boys, who was suing him on behalf of creditors. He made peace with exactly one person, and it was the one with a lien.

The architecture: a revolving door with a name on every chair

Step back from the jars and the wells and the mother and look at the machine, because the machine is the actual story, and related-party disclosure exists precisely to catch what these deals were built to hide.

CST Drilling Fluids was acquired after Cohen had already sat on its board — buyer and seller shaking the same hand. Vision Oil and Gas, the merger that supposedly transformed the company, consolidated assets from people who then immediately took senior roles at AZRH, so the line between “seller” and “beneficiary” simply dissolved. Freedom Well Testing was bought for stock in November 2024 and then sold back to its original owner for one dollar in June 2025 — not a counterparty so much as a revolving door with a person in it — and on the way out, $1.8 million of undisclosed vendor debt fell out of its pockets. Threaded through all of it, like a name you keep finding in the margins of a bad will, is the same advisor, Marcus Laun, and Cohen’s own private vehicle, Controlled Investments.

Recurring counterparties. Insiders structuring and valuing their own deals. Economic interest rolling forward into control with every transaction. That is not a coincidence you wave off with “I’m cleaning up a mess.” That is the exact shape of the thing the rules were written to expose.

And this is the real cost, to the founders and funds reading along. The reverse-merger shell game pollutes the whole pond. Every legitimate small company trying to raise an honest dollar in this space now has to swim through the chum these guys leave behind. The opportunity gets muddied for everyone. That’s the part that actually makes me angry.

The bill comes due

Here is what the warrant says, because the warrant is now the most reliable document in the entire AZRH corpus.

District Attorney Sarah Stogner — 143rd Judicial District, Reeves and Ward and Loving Counties, the actual oil patch, and yes, the same DA Cohen spent months telling to “GET BACK TO WORK” — charged him with two first-degree felonies: theft of services exceeding $300,000, and engaging in organized criminal activity. Theft of services is the dry legal name for the oldest move in the West Texas book: order the drilling, the testing, the equipment, the labor, let real men do real work in the real heat — and then the payment that’s “already sent” somehow never lands. Organized criminal activity means the State isn’t alleging he did it alone. It alleges a combination. At least three people, working it together.

He was arrested Friday at his home in Nassau County, New York — a long way from Reeves County, which he had apparently assumed was far enough. Extradition to Texas is expected. His famous line was “I didn’t take in an outside dollar,” and Kyle put the perfect point on it: the flip side of never taking a dollar in is that someone always didn’t get paid. The stock was the currency, the promises were the change, and the contractors in the Permian were left holding the receipt.

Stogner’s statement, after months of being heckled by a man in New York, was the only one that needed issuing: don’t come to my jurisdiction and steal from my constituents.

For two hours in January I tried to out-argue this man, and you cannot out-argue him; no one can; it isn’t a format he loses in. But you can make a prediction:

The bill always comes due. It just doesn’t always come due where you’re shouting.

What’s next

Apparently there’s a documentary in the works, which feels correct — this story has always wanted to be footage. I’m told I turn up in it, somewhere between the warehouse and the wells, and I suspect a few of you will be entertained to see how the sausage of due diligence actually gets made: badly, in public, against a man who will not stop talking.

We’ll be back to the real market — the fear, the AI multiples, the degrossing, what to do with all of it — in the chat and (if you’re a jockey) on Discord this week. Bring your senses and your nerve.

But I wanted to give you this one first. Because somewhere under the jokes is the entire job: it is my work to value a business, and no amount of accounting generosity, no posture, no lawsuit, no third-party PDF read three orders of magnitude wrong, changes what a thing is actually worth. Mark it honestly. The equity is zero. It was always zero. The numbers were telling you the whole time; the trick is just refusing to look away.

Markets run on numbers. The numbers don’t forgive. And they don’t, it turns out, accept “mille” as “million.”

❧ ❧ ❧

That maneuver has a name now, the drop-down, and it is only one entry in a catalog. The catalog has a name too, supplied by an industry with a gift for anesthetic language: the Liability Management Exercise. An LME is what happens to a leveraged company in the interval after it is plainly finished and before it is willing to say so. The point is not to save the company. The point is to decide, while there is still something left to fight over, who gets the good assets and who gets the bill.

A restructuring lawyer walked me through the moves last week, in the flat, unbothered tone of a man describing plumbing. The drop-down is the first one: take the valuable assets — the real estate, the trademarks, the equipment — and push them down into a subsidiary the existing lenders can’t touch, then borrow fresh against them there. The new debt is structurally senior to everyone above it, and the old lenders are left with a claim on a hollowed-out shell. J.Crew did it. Pluralsight did it. Mattel did it.

Then there’s the uptier. The borrower cuts a deal with a bare majority of its lenders to issue new super-senior debt and lets that majority roll their old paper into it, ahead of everyone who wasn’t in the room. Serta Simmons ran one in 2020 and the lenders who got left behind spent years in court establishing that yes, this was permitted by the document they had signed. The double dip is subtler: engineer two independent legal claims against the same pile of assets so the favored creditors can recover twice. The pie does not get bigger. Your slice simply moves onto someone else’s plate.

“If you have the right lawyer,” he said, “you can create new tranches of debt that sit senior to everything that already exists.” He did not say it with relish. He said it the way a structural engineer talks about a load-bearing wall.

There are supposed to be protections. They are called sacred rights, the handful of terms in a credit agreement that cannot be altered without your consent: no one can force you to lend more, extend your maturity, or cut your rate. I asked whether they held. They held, he said — and then he explained how little that was worth. He had never once forced a reluctant lender to put up more money against his will. He had never needed to. “I made it so miserable for them if they didn’t that it was kind of the same as forcing them.” He’s crafting a legal unlock for that right — not that it matters.

This is what “sophisticated” means when the people selling private credit apply the word to themselves. Not underwriting. This. He described a situation involving Apollo in which a group of lenders signed into a coalition — a co-op, and you want to be inside it, because the inside is where the survivors are. They signed the non-disclosure agreement that bound them to one another. Then they allegedly discovered that Apollo had quietly structured the thing as five separate co-ops of one member each, with every line of communication routed through him alone. Everyone else negotiated blind, against a firm who could see the whole board. It is the kind of trick that only works on people who assumed they were among allies.

The firms that do this work are not fringe operators. They are the most prestigious names in American law. Latham & Watkins is excellent at it. Kirkland & Ellis is, in the lawyer’s word, notorious. Their edge in this corner of the market is being the best in the world at legally separating a careless lender from his money, and the demand for that skill has never been higher, because the amount of bad paper waiting for its turn has never been larger.

None of it is illegal. That is the part worth sitting with. We are conditioned to wait, in a story like this, for the moment someone is led out in handcuffs, and the moment never comes, because nothing here breaks the law. And the law has plasticity. The whole apparatus runs on documents that everyone read and everyone agreed to, and the losses fall, with perfect predictability, on whoever negotiated the weakest covenants with the cheapest lawyers.

The people who practice it have a term of art for the whole genre. They call it creditor-on-creditor violence, and they say it almost fondly, the way you might describe a hard tackle in a game you love. It’s an honest phrase in a dishonest business. It tells you exactly what is happening and exactly who it happens to. The only thing it leaves out is that the violence is contractual, agreed to, and that the agreement was always going to be enforced against the person holding the weaker hand.

❧ ❧ ❧

My readers know the private-credit games. Money raised against booked revenue instead of cash. PIK interest printed onto principal and then counted as income. A management fee charged on the gross carrying value, so the worse the loan gets the longer it sits on the books generating fees, and the wrapper — the rated CLO, the institutional syndicate — is engineered so the loss has somewhere to go, and that somewhere is retail. We have traced the vanishing footnote. We have read the scrubbed non-accruals. None of this is new. Most of it is poorly covered or filibustered, but the Mispriced Assets readership knows.

What is new is a company that has taken the same architecture and pointed it at a different problem: not how to hide a loss, but how to manufacture a gain, harvest a fee on it, and then hand the bill for the whole arrangement to its own public shareholders.

StepStone Group reports fiscal fourth-quarter and full-year results after the bell today. The sell side will talk about private wealth inflows, about SPRING’s return, about AUM crossing thresholds. They will treat the thing that actually matters — a soon to be $3 billion liability — as an accounting footnote. It is not a footnote. It is the equity story. Heroically, they are actually spinning it into a positive. “Accretive” they say.

If you have followed the sector, you already hold the comparables in your head, and StepStone is what you get when you fuse three of them into one animal.

It is Cliffwater’s model — write the enormous check to buy your way into the co-invest, pay up for access, and inherit the negative selection that rides along with being the marginal buyer who validates someone else’s mark; the deals you are allowed into are the deals someone else priced and passed on.

It is Brookfield’s opacity — hundreds of single-name SPVs and consolidated blockers where you cannot see what you own or what it is honestly worth.

And it is Hamilton Lane’s markups — paper appreciation booked as performance and skimmed as a fee. Any one of those is a reason to keep your hand on your wallet. StepStone is all three, stacked in one ticker.

And unlike the others, it comes with a catalyst — a date and a number — the massive dilution that starts sooner than people seem to understand.

This is a short report. I am positioned for this stock to fall, and below the line I lay out exactly why, in numbers you can check against tonight’s filing.

I. The bill comes due in June

In November 2022, StepStone struck an arrangement with the management team of its private-wealth business, SPW. The executives received a profits interest. Concurrently they signed an option agreement. Strip away the language and it says one thing: starting June 30, 2026, those executives — through an entity named CH Equity Partners — can put their interest back to StepStone and force the company to buy them out. StepStone can pay in cash, or it can elect to pay up to 75% in units that convert into Class A stock. The company itself, in its own risk factors, calls the price “substantial” and concedes it “may need to seek equity or debt financing” to fund it.

A year ago, in the filing for the year ended March 31, 2025, StepStone estimated the cash required to settle this liability at somewhere between $165.3 million and $661.1 million. That was the company’s own number. Then SPW did what it was built to do — it grew, it marked up, it crystallized fees — and the liability grew with it. By December 31, 2025, the liability-classified award on the balance sheet had ballooned to $2.166 billion, up from $663.9 million nine months earlier. Management has floated $3 billion as the eventual figure. The cash piece alone is now drifting toward $750 million against a “$661 million tops” estimate that is barely a year old.

The single fastest-growing, most-celebrated part of this company is the part public shareholders do not cleanly own — and the better it performs, the larger the check the public shareholders have to write to buy it. The purchase price is formulaic: SPW earnings, incentive components, a multiple that runs up to 20x. Bulls are capitalizing SPW’s growth into the stock at the same moment that growth is mechanically inflating the liability that will dilute them out of it. The flywheel and the noose are the same rope. The shareholders will be diluted ~30% for the business they think they already own.

II. Where the gains come from

So where does SPW’s growth — the growth that sets the put price — actually come from? Open SPRING.

The StepStone Private Venture and Growth Fund holds $3.34 billion in net assets. It carries those assets at a fair value of $3.22 billion against a cost of $2.41 billion — an $809 million, ~34% markup over what the fund paid. In the most recent six months, the fund booked $424 million of unrealized appreciation and $1.4 million of realized gain. Not a typo. For every dollar the fund actually realized, it marked up three hundred. The reported “performance” is almost entirely the adviser writing up its own positions — positions held through single-name SPVs, valued, per the fund’s own footnote, using marks that “have not been calculated, reviewed, verified or in any way approved by any general partner, manager or advisor” of the underlying companies.

And on those paper gains, the manager takes a cut: roughly $61 million of incentive fees booked in six months, against $1.4 million of realized profit. The fee is real and paid. The gain is a mark.

This is the machine. Buy a private position into an SPV, mark it up, book the markup as performance, charge an incentive fee on the markup, let the fee flow into SPW’s economics, let SPW’s economics inflate the buyout liability, and sell the whole experience to retail investors at the marked-up NAV, because retail is who you need — retail is the exit liquidity.

The institutions who price secondaries for a living are not paying these marks. StepStone moved away from institutional secondaries because they can’t rip off the people that know better.

III. The premium, and the analysts who defend it

A short thesis this clean usually shows up as a crowded short and a cratering multiple. Not here. Short interest sits around 7.5% — not crowded — and the stock trades at a premium. There is, as far as I can find, not one skeptical analyst covering it. The coverage is uniformly constructive, and it is constructive precisely because it has agreed to look at the wrong number.

The analysts wave away GAAP. GAAP net income is hundreds of millions negative every quarter, and the Street’s line is that this is “non-economic” — a non-cash remeasurement of the SPW award, noise, ignore it. That is exactly backwards. The GAAP charge is the economic cost. It is the accounting system telling you, quarter after quarter, what these executives are owed and what the rest of you will pay to satisfy it. Calling dilution “non-economic” does not make the shares you are about to be issued go away. It just means no one underwriting the stock has priced them.

IV. UBS math is not mathing

The bull rebuttal, the most coherent version of it, came from UBS about a month ago. Three claims: there is a lockup on the stock consideration, so dilution is deferred; the cash piece will be covered by debt; and the SPW executives are unlikely to exercise the put anyway. Take them in order, because none survives contact with the documents.

The lockup. The transfer restrictions are not a wall, they are a staircase: roughly 30% unrestricted immediately, then about 23.3% / 23.4% / 23.3% unlocking after years one, two, and three. That is not “dilution deferred.” That is a third of it live on day one and the rest on a clock. A lockup that releases is a timing argument dressed up as an economic one.

The debt. StepStone would need to raise on the order of $600–750 million in cash into a balance sheet that already pays out more than it earns in cash. Over the first nine months of FY26 the company generated $89.7 million of operating cash flow — and paid $94.4 million of dividends to public Class A shareholders, $125.4 million of distributions to legacy partners, employee owners, and other non-controlling-interest holders, and $12.6 million more under tax receivable agreements that route 85% of certain tax savings to the Class B/C/D partners and pre-IPO institutional investors. This is not just a dividend story. Cash is also leaving through the Up-C plumbing, and the public shareholder is one claimant among several who were written in ahead of him — all while the company carries existing debt and rising interest expense. And then there is the covenant nobody on the bull side seems to have opened: the company’s note agreement carries a 3.50x total net leverage covenant, and the definition of net debt only lets them net cash up to $100 million — not the full balance. You cannot park a billion dollars of cash on the balance sheet and net it away to stay onside. Layer a debt-funded buyout on top of that and you trip your own senior. The debt door the bulls are counting on is smaller than the thing they need to push through it. Michael Beatty’s debt financing idea is what I like to call a capital markets war crime.

They won’t exercise. Four men — Bob Long, Timothy Smith, Neil Menard, and Tom Sittema — hold the right to crystallize a multi-billion-dollar paper claim against a structure that is visibly destabilizing — negative GAAP equity on the horizon, a financing plan that doesn’t math, a stock priced for a story that the put itself contradicts. The assumption that they will politely sit on that option, year after year, rather than ring the register the first quarter they can, is not analysis. The cash portion of this windfall is many multiples of their combined career earnings.

V. The shape of it

Step back and the architecture resolves, the way it always does. The institutions wrote themselves 70% of SPW’s economics and a put with a 20x cap. The retail buyer funds the marks that set the price. The public shareholder absorbs the dilution that pays the bill. The analysts certify the number that hides it. And the people who built the structure get to choose the day it detonates.

The bear case does not require a collapse in private-wealth inflows. That would merely be accelerant. The problem is more elegant, and more annoying: the better SPW performs, the more expensive it becomes for StepStone’s public shareholders to buy the economics back. StepStone can keep raising money. SPW can keep growing. SPRING can keep marking up. The private-wealth machine can keep working exactly as advertised — and that is precisely the problem, because every dollar of success mechanically inflates the bill public shareholders have to fund.

Sometimes a footnote is a receipt. This time the receipt is two billion dollars and counting, it is on the balance sheet in plain sight.

After the bell, we find out how much bigger it got.

Nothing here is investment advice. I am short path through shares and puts and may exit my position at any time and without notice. Do your own work.

Read more

The setup is the kind that doesn’t show up often. The operating business trades at five to seven times 2026 free cash flow. Roughly a third of the current market cap is authorized for buyback. Ortex — the best short data there is — puts short interest near 60%.

I c…

Read more

A tired little bazaar

kept its windows dusty

so the crowd walked past.

I found the paint still wet,

the hinges still gold,

and a lock that opens

when enough hands turn it.

When GameStop ran in early 2021, I was late, though not the worst kind of late. I had recognized in 2020 that gaming was about to have its moment, made a LinkedIn video showing the stock at four bucks, and then I waited. I got long around fifteen.

Twitter Spaces had just launched — Dorsey had rolled it out a few weeks before — and GameStop was a $3 billion company trading at around sixty bucks a share. I was sitting in my COVID apartment in Miami, listening to a Spaces room with somewhere between a few thousand and ten thousand people on it, waiting my turn for the mic, and when I finally got it I was so excited I could barely sit still. I told the room what I had been telling anyone who would listen: GameStop was not going out of business, short interest was over 100%, the market cap was three billion dollars, and somebody could throw three billion at this thing and there would be no way out. No way out. The shorts had been comfortable for ten years because Amazon was eating retail and the trade had worked, so their reflex was to keep pressing rather than to cover. Which turned out to be stupid.

There is something about my personality that wants to move the pieces. I do not look at a chessboard and accept the position I am handed, and I have never quite understood the kind of investor who does — who plays the board passively, as though the arrangement of pieces were a law of nature rather than a temporary state of affairs. I try to change the board. If you can talk about a business in a way that shifts the narrative, you have done something real, and people forget that businesses themselves can change, and that investors — the ones actually paying attention — can push that change.

Read more

There are good quarters, there are great quarters, and then there are quarters where a company casually reminds the market that it is one of the greatest companies of all time.

Alphabet reported $109.9 billion of revenue in Q1 2026, ahead of the Street’s $107.1 billion estimate. Operating income came in at $39.7 billion, versus estimates of $36.2 billion.

Google Cloud did $20.0 billion of revenue, against estimates of $18.4 billion.

But the bigger number is the backlog.

Google Cloud remaining performance obligations just went vertical. The chart looks fake in the way only very real things can look fake: years of steady growth, then suddenly the bar leaves the frame. RPO went from roughly $108 billion in Q2 2025, to $155 billion in Q3, to $240 billion in Q4, to $460 billion in Q1 2026.

…

That is future revenue.

For two years, the lazy bear case on Google was that AI would destroy Search, compress ad economics, and turn the company into some lumbering incumbent caught between OpenAI on one side and Microsoft on the other.

Maybe that still happens someday. Markets are humbling. Empires rot. MBAs eventually find a way to put a laminated process flow over every good engineering culture.

Google is one of the few companies on earth with the balance sheet, distribution, model capability, infrastructure, cloud platform, chip stack, and existing customer base to actually monetize this AI cycle at absurd scale.

It can spend $35.7 billion of capex in a quarter and still print almost $40 billion of operating income.

That is the difference between AI as a business model and AI as a GoFundMe page with a GPU lease.

The market spent a lot of time wondering whether Google was going to be disrupted by AI and search actually did outstanding.

Google is outstanding, I have two calls. Everyone owns it and yes it’s exciting.

Now, lets talk about a stock only exciting to investors that know micro-cap ball.

Read more

I have no access to loan docs, balance sheets, or cash flow statements. The methodology I run on those filings is, I’d argue, closer to economic reality than the marks the funds publish. Even if you don’t buy that — take this one: I run the same methodology on every BDC. My skin does not crawl equally.

I hate what these guys are doing like a fat kid hates celery. I cannot tell you how aggravating it is to hear the bullshit they spew. Alas — let’s begin.

❧ ❧ ❧

Ares Capital has two loans to Pluralsight marked 94 cents apart.

Same borrower. Same date. Same maturity. Same label. One trades at par. One trades at 6 cents. Both are on page 13 of the Q1 2026 10-Q, filed April 28, 2026:

Pluralsight, LLC and Pluralsight Holdings, LLC and Paradigmatic Holdco LLC. First lien senior secured loan, 6.67% SOFR+3.00, acquired 08/2024, matures 08/2029. Principal $21.8M. Cost $21.7M. Fair Value $21.8M.

Pluralsight, LLC and Pluralsight Holdings, LLC and Paradigmatic Holdco LLC. First lien senior secured loan, no coupon shown, acquired 08/2024, matures 08/2029. Principal $23.1M. Cost $21.9M. Fair Value $1.3M.

You do not see junior debt at pennies and senior debt at par in public markets. You can’t. When a public company gets in trouble, the whole capital structure moves together. Carvana senior at 70 cents — Carvana unsecured at 30. AMC senior at 60 — AMC sub at 5. They all bleed in unison because they’re all looking at the same default. The market prices default, not the label.

ARCC’s first 1L at Pluralsight is at par. ARCC’s other 1L at Pluralsight is at 6 cents. Same borrower. Same day. Same words on the page.

That is impossible in a market. It is routine in a model.

There is a private contract between the lenders that says one loan eats first and the other eats whatever’s left. The contract is called an AAL — agreement among lenders. ARCC doesn’t disclose it. There’s not even a footnote. They label both lines the same way and let the reader assume if they know how to know better.

Why is the gap there at all? Because Pluralsight is dead. It is a shittier version of Chegg. Chegg sold homework help to college students and got mauled by ChatGPT. Pluralsight sells pre-recorded video courses to developers — an audience even less sticky than students, even more AI-native, with zero loyalty to a streaming library when GitHub Copilot, Cursor, and Claude Code will answer the same question in the editor for free. Vista paid $3.5B for it in 2021. They marked the equity to zero in May 2024. Lenders took the company in August 2024. Here we are: page 13 of the Q1 2026 10-Q, two same-day senior loans, 94 cents apart, both still labeled “first lien senior secured loan.”

What follows is a line-by-line rebuttal of what Ares said on the April 28 earnings call. Management told you the software book is fine. The marks were “spread widening.” EBITDA grew 9%. The 67-quarter dividend streak is intact. Three names — out of about 600 — are “high risk.”

The same 10-Q the press release came out of tells a different story on every one of those claims. Below: their quote, the filing, what it means. At the end is the list of names management did not call high risk. There are at least 30.

1. “The software book is fine. 1% high AI risk. 3 names.”

That’s the load-bearing claim from the April 28 earnings call. An “independent consultant” reviewed the software book. 85% low risk. 14% medium. 1% high — three names, sponsor-backed, 0.3% of the total portfolio. Can you feel the McKinsey?

Software hides everywhere it’s not labeled. AthenaHealth — a healthcare-revenue-cycle SaaS — sits in Health Care Equipment & Services, page 23 of the SOI. Symplr, also healthcare compliance SaaS, page 23. Himalaya / BCPE Hyperlink, payor SaaS, page 23. GHX, healthcare supply-chain SaaS, page 23. Vista Higher Learning — digital language learning K-12, the same business model that wiped Pluralsight — sits in Consumer Distribution & Retail, page 43. Imaging Business Machines, document scanning being eaten by AI vision, sits in Capital Goods, page 49. Add it up: $1.16B of “healthcare,” another $400M+ scattered across business services, insurance, capital goods, consumer.

Reclassified by what the businesses actually do, about $4.5B of ARCC’s portfolio sits at medium-or-higher AI risk. Equity NAV is roughly $14B. That’s 32% of NAV.

15× the headline. 5× the full at-risk number. 3 names became 50.

The consultant’s job was to give management a number low enough to anchor on. The job got done.

2. “NAV moved on spread widening, not credit.”

This was the framing for the −$416M net unrealized loss on the Q1 press release. Spreads moved. The marks moved. Not a credit problem.

Read the SOI quarter-over-quarter.

I matched 768 debt positions across the Q1 2026 SOI and the prior-period schedule (also in the same filing). 144 of them were marked down by 1 cent or more in one quarter. Strip the FX-flagged Euribor and SONIA positions, strip the principal paydowns that drag fair value without changing marks, and you’re left with about $255M of clean credit-driven markdown.

122 of those 144 are NOT on non-accrual. They’re “proactive” markdowns — the manager cut the price but did not classify the loan as impaired. Cornerstone OnDemand’s full stack — 1L revolver, 1L term, 2L — got cut about 17 cents across the board, page 7 of the SOI, with no non-accrual flag. ATI Restoration’s four debt tranches all moved 100c → 87c, also without a non-accrual flag. Symplr’s six tranches each moved between −14 and −17 cents.

Spread widening doesn’t write Cornerstone down 17 cents and leave Anaplan alone. Spread widening doesn’t take Symplr down across six tranches at the same time. That’s specific borrower deterioration, lots of it, surfaced through marks before it surfaces through non-accrual.

The proactive bucket is 88% larger than the deepening-non-accrual bucket. That’s the part the non-accrual line hasn’t caught up to yet.

Now do the math on what the non-accrual line should actually be.

ARCC reports non-accruals at 2.1% at cost — about $622M. The proactive bucket is the bridge to where the number is going. Cornerstone should already be on non-accrual; AlixPartners is engaged. Symplr should already be there; every tranche is down 14 to 17 cents. ATI Restoration’s four tranches all moved 100c → 87c. AllClear’s legacy paper sits inside an executed recap. Add those and the smaller proactive cuts and you reach roughly $1.4-1.5B of credit-impaired exposure that belongs on the non-accrual line. Call it 5% at cost, not 2.1%.

Push harder. About $1B of forced-equity preferred is accreting at 10-15% PIK, marked at par. Another ~$1B of “performing” first liens carry meaningful PIK components — the full list is in section 4 below. That’s roughly $2B of phantom income — accreted to principal, booked as earned, never paid in cash. None of it is reaching the cash flow statement. If you treat it as economically non-accrual — which is what the cash flow statement already does — the rate lands closer to 10-12% at cost. Roughly 5x to 6x what management reports.

ARCC reports 2.1%. That number is below the BDC peer median of about 4%, and management cites it as proof of credit quality. Oh? It is also a rate that excludes 122 names quietly cut on the marks line, $1B of forced equity at par, and another ~$1B of PIK accreting on “performing” first liens. The peer median is a low bar. Everyone in this business marks from spreadsheets.

3. “Portfolio company EBITDA grew 9%.”

A small detail. On the Q4 2025 call, management said “9% organic EBITDA growth.” On the Q1 2026 call, the word “organic” disappeared. Now it’s “9% on a comparable basis.”

That word did the work. “Organic” means same-store, ex-acquisitions. “Comparable” lets in roll-up math — buy a company in March, count its full-year EBITDA in April. PE owners love bolt-ons. Bolt-ons are how a flat operating company turns into a “growing platform” in a deck. The word that disappeared was the word that mattered.

The 9% is also a weighted average. No dispersion. No deciles. No count of how many borrowers grew, how many shrank. In credit, the average is meaningless. You collect cents per year of carry on every loan; you lose 100 cents of principal on any one. ARCC’s book needs a hit rate north of 90% to make money. The question isn’t what the average grew. The question is what fraction of the book shrank, and by how much. The 10-Q does not show that.

For comparison: the Lincoln Private Market Index, 1,600 borrowers across 175+ funds, had Q4 2025 EBITDA growth at 4.7% — decelerating. ARCC’s 9% is roughly twice that. Lincoln includes bolt-ons too, so the comparison isn’t pristine — but Lincoln publishes a methodology and a sample. ARCC publishes a number. ARCC’s own non-accruals also climbed 1.5% → 2.1% in twelve months. If borrowers were genuinely growing 9%, non-accruals would be falling. I don’t need to tell you what non-accruals are not being counted as they’ve been counted. You are looking at apples-to-apples deterioration.

4. “67 consecutive quarters of stable or increasing dividend.”

Maintained at $0.48 per share for Q1 2026, per the press release. Core EPS was $0.47.

The dividend now exceeds core earnings.

What’s covering it? PIK accretion — payment-in-kind, which means the borrower can’t pay cash interest, so the unpaid amount is added to principal. Non-cash income on the income statement. The 10-Q books it as earned. The cash never arrives.

Read down the SOI and tally the PIK preferred carried at par:

• AthenaHealth, $309M Series A pref at 10.75% PIK, page 23

• Digicert, $208M Series A pref at 10.5% PIK, page 8

• Cornerstone OnDemand, $179M Series A pref at 10.5% PIK, page 7

• Centralsquare Technologies, $111M Series A pref at 15% PIK, page 7

• Banyan Software, $95M Series A pref at 14% PIK, page 6

• Cardinal Parent, three series totaling ~$80M at 11% PIK, page 6

• Kaseya, $34M preferred at 14.33% PIK, page 11

• ZenDesk, $10M Series A pref at 13.17% PIK, page 17

That is roughly $1B of forced equity wrapped as preferred, all marked at par. PIK accretes the principal balance every quarter. ARCC books the accretion as income.

Then the PIK components of “performing” first liens — another ~$1B of phantom income hiding inside loans that look like they’re paying:

• Adonis Bidco — 2.88% PIK on $237M, page 5

• Severin Acquisition — 2.25% PIK on $145M, software section

• ID.me — 5.25% PIK on $130M, software section

• Himalaya / BCPE Hyperlink — 2.25% PIK on $254M, page 25

• GHX Ultimate Parent — 2.5% PIK on $109M, page 25

• HS Purchaser / HelpSystems — 3.25% PIK on $63M, software section

These are the loans where ARCC collects most of the coupon on paper and a fraction of it in cash. The PIK accretion is income on the income statement and zero on the cash flow statement.

Now the legal trap. ARCC is a Regulated Investment Company. By law, RICs must distribute at least 90% of taxable income each year to keep pass-through tax status. PIK accretion is taxable income — even though no cash arrived. ARCC isn’t just paying the dividend out of phantom income. They’re legally required to.

What that means in cash terms: PIK accretes to principal → 90% of it must go out the door as a cash distribution → cash dividend exceeds cash interest received → the gap fills from new equity issuance or new debt.

Speaking of debt. ARCC reports debt-to-equity at 1.10x. That means borrowings are 110% of NAV. Roughly $15B of debt against $14B of equity. Plus indirect leverage stacking through IHAM (a $12.5B PIV running its own facilities) and SDLP (a JV with its own debt). When the underlying marks move, the equity absorbs it first. The 67-quarter streak depends on the marks not moving.

5. “Pluralsight was an isolated event.”

Pluralsight is the visible one. The 10-Q has eight more.

I scanned every borrower for the same fingerprint — two same-borrower, same-maturity loans both labeled “First lien” with a mark gap above 50 cents:

• Pluralsight, page 7. 94-cent gap. Vista Equity wipeout closed August 2024.

• Kellermeyer Bergensons, 95-cent gap. Janitorial roll-up where Cerberus equity is no longer named in the post-2024 cap structure (KKR / Ares / BlackRock recap announced March 25, 2024). ARCC put on non-accrual August 2025.

  

• Eagle Football Holdings, sports section. Two pairs (83-cent and 67-cent gaps). Cork Gully appointed administrator March 27, 2026 under Ares’ qualifying floating charge.

  

  

• VPROP / V SandCo. Two pairs (83-cent gaps). Already emerged from Vista Proppants Chapter 11 case 20-42002, N.D. Tex., June 9, 2020, plan effective November 6, 2020. The 2024 “rescue” 1L is at SOFR+950 PIK.

  

  

• AllClear Aerospace & Defense. Two pairs (60-cent and 58.8-cent gaps). June 9, 2025 “comprehensive recapitalization” — senior lenders took majority ownership; CEO demoted; prior sponsor’s residual equity extinguished.

  

  

• Florida Food Products. 50-cent gap. October 2025 amend-and-extend — $92M new 1L plus extension of >$750M, 100% existing-lender support, Paul Hastings on the lender side, Weil on the company side.

  

Plus Visual Edge Technology, page 38, where there’s a four-deep ladder: 8.85% cash → 10.85% partial PIK → 15.85% full PIK → 15.85% PIK, all maturing 01/2029, all labeled “First lien.” Four tiers of internal subordination, one disclosure label.

Plus the Bain pattern — token cash 1L plus giant PIK preferred at par — across AthenaHealth, Himalaya / BCPE Hyperlink, Highstreet Insurance Partners (the cleanest of the four; insurance brokerage is sticky), and Cornerstone OnDemand.

Plus Apex Service Partners — the laundered counterfactual. The 14.25% PIK rescue tranche that ARCC carried in 2022-2023 disappeared from the SOI after Alpine Investors closed a $3.4B single-asset continuation fund in October 2023 (PEI Secondaries Deal of the Year, Americas). New term loan, lower coupon, no PIK in sight. Same operating company.

Pattern, not exception. We met Apex in my first dive into Cliffwater marks, and at this point the modus operandi is getting tired.

What’s already exposed

Three names was the floor. Three was the bare minimum management could publish without being caught lying. The rest of the list — the names where distress is already on the public record, in the 10-Q itself, in court filings, in administrator appointments — got bucketed below “high risk.”

Sponsor already wiped or company already taken by lenders:

• Pluralsight — Vista wipeout, August 2024

• Kellermeyer Bergensons — Cerberus exit March 2024; ARCC non-accrual August 2025

• AllClear Aerospace & Defense — senior lenders took majority, June 9, 2025

• Eagle Football — Cork Gully appointed administrator March 27, 2026; Botafogo Recuperação Judicial April 22, 2026; Crystal Palace 43% sold July 24, 2025

• VPROP / V SandCo — emerged from Vista Proppants Ch11 in 2020; the 2024 “rescue” 1L at SOFR+950 PIK is the workout, not new lending

• Florida Food Products — October 2025 amend-and-extend, 100% existing-lender support

• Cornerstone OnDemand — AlixPartners retained for debt restructure, restructuring within 6 months

Already on non-accrual in the same 10-Q ARCC just filed:

New in Q1 2026: Avalign Holdings, Team Acquisition Corp, Convey Health Solutions, Bamboo Purchaser.

Continuing from prior periods: Pluralsight, Kellermeyer Bergensons, Daylight Beta (marked 8 cents), Absolute Dental (three tranches), Pathway Vet Alliance, BAART Programs, KBHS / Alita Care, PS Operating, Continental Acquisition, Florida Food Products (legacy tranche), Teasdale Foods, VPROP / V SandCo.

Already written down to a fraction:

• PCG-Ares Sidecar — 11.1 cents on cost. The only PIV ARCC will admit is impaired.

• Visual Edge Technology — sub note write-off Q3 2023 ($48M loss already booked); the four-tranche AAL ladder of “First lien” loans is what’s left.

Quietly marked down 10+ cents in Q1, but not on non-accrual (the proactive bucket from section 2):

• Cornerstone OnDemand full stack — 1L revolver, 1L term, 2L all between −16 and −19 cents

• Symplr Software — every one of six tranches, −14 to −17 cents

• ATI Restoration — all four 1L tranches, 100c → 87c

• CoreLogic 2L — −7.6 cents, page 6

• Cloud Software Group 2L — −8.1 cents, page 6

• EP Purchaser (TPG entertainment) — 73c → 63c

That’s at least 30 names with documented distress, written-down marks, executed restructurings, or non-accrual flags on the public record before the call took place. Management called three of them “high risk.” The other 27+ got bucketed below.

That’s not an oversight. That’s the bare minimum.

6. The “First lien senior secured loan” label.

Seven words. Every credit investor reads them as a single thing: senior, secured, first claim on the collateral.

The 10-Q proves the label can mean two different things at the same borrower.

ARCC knows how to disclose AAL structure. They do it for some borrowers. CEB Acquisition gets explicit “First Out” and “Last Out” suffixes, page 27. Denali Holdings, Sundance, BAART use the word “Unitranche” in the description. The technique exists in the same filing.

For Pluralsight, Kellermeyer, Eagle Football, VPROP, AllClear, Florida Food, Visual Edge — they don’t.

I’ve argued for months that the “unitranche” label oversells safety. That argument stands. This is bigger. This is one loan literally subordinated to another loan in the cash-flow waterfall, both filed under the same words.

2L is being filed as 1L. The mark dispersion is the strongest public signal that the priority isn’t equal — the AAL itself is private, but a 94-cent same-day same-maturity gap on identically-labeled paper is hard to produce any other way.

That isn’t unitranche optics. That’s the disclosure label and the cash-flow priority describing different things.

The pricing model, in plain sight

The 94-cent gap on same-borrower paper does more than fail at disclosure. It tells you exactly how these positions get priced.

A bond in the public market trades. Every day a buyer and a seller agree on a number, and the number reflects three things: probability of default per year, recovery in default, and carry — the cash interest collected between today and the end. Those three things produce a price, and the price moves when any of them moves.

That is not how ARCC marks Pluralsight.

ARCC takes a spreadsheet enterprise value for the borrower — what someone in a dark room thinks the company is worth — and pours it down the cap stack in waterfall order. First-out gets paid first to the spreadsheet limit, then last-out, then equity, until the spreadsheet runs out. Whatever is left over is the mark. I walked through this with a Lincoln professional earlier this year. He explained the mechanics in detail. He seemed pleased with how the math worked. It’s an open secret in the industry. It is still shocking to see the same plumbing carrying $300M of paper to a real operating company in the largest BDC in the world.

It’s bullshit logic built on bullshit logic.

It is trust on trust. I don’t trust. Fuck out of here with your trust.

The spreadsheet EV is a guess. Private companies don’t trade. There is no last print. Someone picks an EBITDA multiple and types in a number.

The waterfall is also a guess. The AAL is a private contract. The model assumes it works the way the lender says it works, until a workout proves otherwise.

There is no probability of default. No recovery distribution. No carry adjustment for PIK — and PIK is the thing that breaks carry. If the borrower can’t pay you cash today, you do not have carry. You have an IOU stacked on top of another IOU.

A real credit is priced PD × loss-given-default plus carry to maturity. ARCC’s are priced spreadsheet ÷ waterfall. That’s not a market. That’s a model. The model and the market agreed on Pluralsight at 84 cents in Q4. They agreed on 6 cents by Q1. The market got there first. The model is just catching up.

Markets don’t work like that. Models do. And every same-borrower mark dispersion in the SOI is the model’s fingerprint.

One more thing. Third-party valuation firms sign off on these marks. They use ARCC’s own inputs — the spreadsheet EVs, the AAL waterfalls, the borrower-reported EBITDA. Garbage in. Audited garbage out.

7. “Markdowns this quarter were preemptive.”

The “What’s already exposed” list above is the answer. KBS — Cerberus exited March 2024. AllClear — lenders took majority June 2025. Pluralsight — Vista wipeout May 2024. Eagle Football — administrator March 2026. Florida Food — October 2025 amend-and-extend with 100% existing-lender support. VPROP — emerged from Chapter 11 in 2020 and got refinanced in 2024 at SOFR+950 PIK, which isn’t new lending — it’s a workout dressed up as a deal.

The marks aren’t preemptive. They’re catching up.

What ARCC Doesn’t Show You at All

Two vehicles inside the 10-Q absorb capital and emit no position-level disclosure.

Ivy Hill Asset Management, wholly owned by ARCC, $12.5B of AUM. ARCC carries it at $2.66B fair value — $1.9B Member interest equity plus a $762M subordinated revolving loan. The sub revolver took a $232M new par draw in Q1. Underlying portfolio composition is not disclosed. No condensed schedule. No sector buckets. If IHAM’s mix mirrors ARCC’s direct book, implied software exposure inside it is about $3.6B — first-loss equity over a $12.5B portfolio. Unverifiable.

SDLP — the Senior Direct Lending Program JV with Varagon. $4.4B of 1L loans across 45 borrowers. The condensed schedule names the borrowers above 5% of capital and buckets the rest as “Other.” One of those 45 loans went non-accrual in Q1. The certificates moved 4 basis points because the bad apple disappears into the JV waterfall. ARCC won’t name the loan.

PCG-Ares Sidecar is already marked at 11.1c of cost, page 28. ARCC has shown they apply real markdowns to PIVs they admit are impaired. They don’t apply them to IHAM.

Closing

I look at the filings because they tell the story. It’s supposed to be the point of truth. In a world of lazy nepohires and copy-paste bankers, this is my edge.

The book is still marked at fictions. But since the 10-Q has to print Q4 next to Q1, the walkdown shows the direction because the math ties. That’s the one thing they can’t omit. Everything else they choose — what to write, what to bucket, which consultant to hire, what to call “spread widening,” whether the word “organic” survives between calls. They cannot hide where this is going.

The next four to six quarters will print more walkdowns. Cornerstone has AlixPartners in the room. Vista Higher Learning sits at 98 cents and looks a lot like Pluralsight did a year ago. Ivy Hill keeps drinking capital. SDLP keeps hiding non-accruals in the certificate math. The PIK engine keeps booking income nobody pays.

Each one will be called isolated when it prints. Each will get a “preemptive markdown” headline. Each will be defended through the next tranche of PIK. They have the story straight. The book isn’t.

Fluent credit on the call. Consultants by the hour. The 67-quarter streak recited like a prayer. They could not tell you what one of these positions is actually worth without the spreadsheet — and the spreadsheet’s inputs are guesses.

What kind of public bond trades at 6 cents while its same-borrower, same-lien, same-maturity twin, trades at par?

None.

The 10-Q says so on page 13.

— Nemo

❧ ❧ ❧

In the spring of 2026, yesterday, a software company called Medallia ran out of room. It owed its lenders three billion dollars. It earned about two hundred million in EBITDA — that is, in earnings before interest, before taxes, before depreciation, before amortization, and before the long row of subtractions that always seem to follow the word “before,” which in finance is the word that does the most work and tells the most lies. The lenders, who had nursed the loan along for five years on a thin diet of hope and paid-in-kind interest, finally said no.

Thoma Bravo, which had bought Medallia in October of 2021 for six and a half billion dollars at the absolute peak of software valuations, announced it was prepared to hand back the keys. The newspapers wrote the obvious story, which is that Medallia is going under. They are correct. But the more interesting story, and the one I want to tell you, is about a small parenthetical letter — m — that appeared in one Securities and Exchange Commission filing and quietly disappeared from the next one. That little (m) is the receipt for everything that is wrong with private credit.

I. What was bought, and at what price

In the summer of 2021, with money cheap and software multiples doing the kind of math you only see at the top of a market, Thoma Bravo decided that Medallia — a customer-experience software company best known for collecting feedback from grocery shoppers — was worth six and a half billion dollars. The deal closed in October. The acquisition vehicle, charmingly, was named “Project Metal Merger Sub.”

Most of that purchase price was equity, which Thoma Bravo provided. Some of it was debt, which Blackstone arranged and which Apollo, KKR Credit, and Antares Capital co-invested. The advertised size of the financing was one and three-quarters billion dollars, structured as a single unitranche loan — meaning one tranche, no second lien, no separate revolving credit, just one big drink that they all call “first-lien senior secured.” The instrument was a so-called recurring-revenue loan, a piece of financial engineering popular in software lending which underwrites against booked subscription revenue rather than free cash flow, on the cheerful theory that recurring revenue is its own kind of collateral. The interest rate was SOFR plus six and a half percentage points, with four of those percentage points payable not in cash but in additional principal. That last feature is called PIK — paid-in-kind — and it is what every credit person calls a great idea right up until the bill comes due. Being that this PIK was at origination, it is what the men in private markets call “good PIK.'“

No rating agency was asked to rate the loan. Not Moody’s. Not Standard & Poor’s. Not Fitch. Not even KBRA. The deal was placed privately, between consenting institutions, and from that day forward the only opinions on whether Medallia was likely to repay its debts were the opinions of the people who had lent the money. Which is, as it happens, the same people who would later be writing down the loan at their leisure.

II. The math that never worked

I am going to do the arithmetic with you because the arithmetic is the entire story, and because if you do it slowly it makes a noise.

Start with the original eighteen hundred million dollars. Apply four percent annual PIK for four years; you get roughly twenty-one hundred million in principal even before any new advance. Add some add-ons and the holding-company debt that gets bolted on in deals like this, and you arrive at approximately three billion dollars of debt outstanding by early 2026.

At three billion dollars and an all-in interest rate of about ten and three-quarters percent, the company owes about three hundred and twenty-five million dollars in interest each year. Of that, roughly two hundred million has to be paid in actual money — cash, wired, into the accounts of the lenders. The other one hundred and twenty-five million has historically been the PIK, which is to say more IOUs printed onto the loan, which would themselves grow at ten percent the next year.

You may have noticed that two hundred million dollars in cash interest is exactly equal to two hundred million dollars in EBITDA. And EBITDA, despite the kindly way it is usually presented, is not cash. It is what a company earns before taxes, before working-capital swings, before capitalized software development, and before all the other cheerful little drains that make a software company’s free cash flow run, in a company in Medallia’s condition, somewhere closer to one hundred million than two hundred. So you have one hundred million in real, spendable money meeting roughly two hundred million in real, owed money, with the remainder politely deferred each year onto the principal balance of the loan, where it can grow.

In the autumn of 2025, the largest lenders — Blackstone’s two retail credit funds (BXSL and BCRED), and HPS’s flagship — accepted a covenant amendment in which they gave up a half-percentage-point of spread in exchange for the borrower agreeing to pay all the remaining interest in cash, with no more PIK. The other six BDCs in the syndicate kept their PIK toggles. By year-end 2025, of the roughly two billion dollars of Medallia debt sitting in the disclosed BDC books, eighty-four percent was paying full cash interest, and sixteen percent was still PIK-ing. The loan was, on paper, healthier. On the ground, of course, it was not.

Then, on April 2, 2026, the lender group — led by Blackstone with about a billion and a half of exposure — refused to extend any further PIK accommodation at any layer of the capital stack. Pay all interest in cash, they said, or hand over the keys. Total annual cash debt service was now around three hundred million dollars. Earnings before interest, taxes, depreciation, and amortization remained, as before, two hundred. Even if Medallia fired every employee, stopped developing new software, and laid off the cleaning staff, it could not produce three hundred million in cash. Thoma Bravo did the math, looked at the equity check it would have to write to keep this going, and politely declined. The keys were tendered. The merger sub, “Project Metal,” reverted to a different kind of metal — the kind you find at the bottom of a workout.

III. The fee that was charged on a fiction

There is one detail in this story that does not appear in the headlines, and it is the one that ought to make you angriest if you are a retail investor.

A business development company, or BDC, charges its shareholders a management fee. That fee is calculated as a percentage of the BDC’s gross assets — meaning the carrying value on its books, not the fair value the market would pay. For FS KKR Capital, the public BDC jointly run by KKR Credit and Future Standard, the fee is one and a half percent annually. Year in and year out, on whatever sits in the Schedule of Investments, regardless of whether those assets are still worth what the books say they are worth.

Now consider what this means for a loan that is paying a chunk of its interest in PIK. The PIK is not paid in cash. It is paid in newly minted principal, added to the loan balance. Each year, the loan grows by the PIK amount. And each year, the BDC’s adviser collects its one and a half percent management fee on the new, larger principal balance — including the PIK that has been printed but not paid. KKR was being paid to hold a loan that was being paid in IOUs from a company that did not have the money to pay it, and the IOUs were themselves generating fee revenue.

Over four years of Medallia PIK, that is several million dollars of management fee charged on principal that was never going to come back. Multiply that across the dozens of similarly structured loans in any large BDC and the dollars become real. In 2025, FS KKR Capital paid its joint adviser three hundred and fifty million dollars in total compensation — two hundred in base management fee, one hundred and thirty in incentive fee, ten in administrative fees. The same year, the BDC posted four hundred million dollars in realized losses on its portfolio. The fee was paid in cash. The loss was paid by shareholders.

IV. Nine lenders, nine marks, one loan

Here is the part that is hardest to argue with, because the lenders themselves wrote it down.

Nine retail-facing business development companies disclosed Medallia exposure in their year-end 2025 annual reports. The aggregate par was just under two billion dollars. The aggregate fair value was about one and a half billion. The blended mark was seventy-eight cents on the dollar. The individual marks ranged from Apollo Debt Solutions BDC at seventy-three cents — a level the credit market generally considers distressed — to Antares Private Credit Fund at eighty-three. Blackstone’s two funds, BXSL and BCRED, marked the loan at seventy-seven and three-quarters. HPS at seventy-eight. FS KKR at seventy-nine. Monroe at seventy-seven and a half. Onex at seventy-nine and a quarter. Nine professional credit managers, looking at the same “first-lien” loan, with access to the same monthly financial reports from the borrower, arrived at marks that varied by ten cents. That is what passes for valuation discipline in a market without a public credit rating.

V. The footnote that was there, and then wasn’t

This is where the story becomes a magic trick. Watch carefully.

Open the FS KKR Capital 10-K filed in February 2025, for the fiscal year ending December 31, 2024. Find the Schedule of Investments. Look in the Software & Services industry section. There, on its own line, is Medallia, Inc. The carried fair value is $220.9 million on $226.0 million of par — ninety-eight cents on the dollar. Just to the right of the company name, in a parenthetical, is a small letter: (m). Now, flip to the legend at the back of the schedule. Footnote (m) reads, in its entirety: “Security or portion thereof was held within FSK CLO as of December 31, 2024.”

That little (m) is doing a lot of work. It is telling you that this loan, which the BDC marked at ninety-eight and reported as a healthy senior secured position, was at the time also pledged collateral inside FS KKR MM CLO 1 LLC — a middle-market collateralized loan obligation rated by S&P Global, with three hundred million dollars of senior notes carrying letter ratings of AAA, descending through AA and A down through the deferrable mezzanine, sold to qualified institutional buyers under Rule 144A. Pension funds, insurance companies, and endowments bought those tranches because they were rated investment grade and marketed as exposure to performing software credit. Among the loans those institutions thought they were buying was Medallia, sitting in the collateral pool at ninety-eight cents, marked for them as money good.

Through 2025, the mark on Medallia walks. Ninety-eight, ninety-four, eighty-nine, eighty-two, seventy-nine. The all-in interest rate climbs as the spread resets and the PIK doubles. By any reasonable reading of the CLO indenture, the loan now belongs in a stressed-asset bucket: too distressed for the OC tests, too rich in CCC-equivalent risk to sit comfortably in the senior tranche’s collateral pool. Something has to be done.

On December 18, 2025, FS KKR announces that FS KKR MM CLO 1 LLC has been redeemed in full. The senior notes are paid off. A small extinguishment loss of two million dollars is booked. The CLO investors get their money back, to the penny. They are made whole.

The very same day — the same calendar day — KKR-FSK CLO 3 LLC closes. Three hundred and ninety million dollars of fresh tranches, rated again by S&P. Class A-1 at SOFR plus 147 basis points, AAA. Class A-2 at 165, AA. Class B at 180, A. Class C at 210, BBB. Class D at 315, BB. A clean ratings ladder, top to bottom, sold to a fresh class of institutional buyers. The fund retains the eighty-seven million of equity, the residual that takes the first loss.

The loans inside the wound-down CLO 1 had to go somewhere. The performing ones rolled into CLO 3, where they got fresh ratings and were sold to a new generation of qualified institutional buyers. Medallia did not go with them. It could not. It was a sad, unwanted loan. By December 2025, distressed and PIK-heavy and approaching seventy-seven cents, it would have failed every eligibility test the new CLO had to pass.

So where did Medallia go?

Open the FS KKR Capital 10-K for fiscal year 2025, filed February 25, 2026. Find the Schedule of Investments. Find the Software & Services section. Find the Medallia line. There it is: par $234.6 million, fair value $184.7 million — seventy-eight and three-quarters cents. Look for the footnote. The (m) is gone. There is only (v) — the Level 3 valuation tag every illiquid private credit position carries. The loan is now sitting naked on the BDC’s balance sheet. Unwrapped. Unsecuritized. Unhedged. Forty-nine million dollars of unrealized loss, absorbed by FS KKR Capital common shareholders. The fools. The CLO investors are gone, paid in full at the redemption. The shareholders are still here, holding the bag.

The footnote is the receipt. It is the literal paper trail of a distressed loan being pulled out of a rated institutional wrapper and dropped onto a retail fund. The decision was made by KKR Credit, acting in its role as collateral manager of the CLO and investment adviser to the BDC. Same firm. Same personnel. Just a different pocket. The parent, the child, and the step-child were all audited by Deloitte.

VI. The same playbook, behind a wall you can’t see through

Blackstone’s BCRED holds one and one-sixth billion dollars of Medallia par — its single largest portfolio position. BCRED has a list of subsidiaries that runs to several pages: seven middle-market CLOs, three broadly-syndicated CLOs, more than twenty warehouse SPVs with names like Peak Funding Bard and Peak Funding Castle and Peak Funding Twin Peaks. Not one of those CLOs files an ABS-15G with the SEC. They are all 144A private placements; the obligor lists are paywalled or simply not produced. From the outside, you cannot see which of BCRED’s loans sits inside which of BCRED’s CLOs.

What FS KKR did to its shareholders with footnote (m), BCRED almost certainly is doing too. But you cannot prove it from public filings, because the disclosure architecture is deliberately built so you cannot.

VII. The fund itself is now distressed

The Wall Street Journal’s Jonathan Weil published a column Tuesday noting that FS KKR Capital trades at fifty-three percent of its December 31 net asset value. The market cap is three billion dollars. The reported NAV is twice that. The market is telling you, with whatever delicacy a forty-seven percent discount can muster, that the reported NAV is wrong by half.

The fund’s management is, in its annual June meeting, asking shareholders for the standing authority to issue new shares below NAV — a proposal appearing annually for more than a decade to finance the growth of the portfolio. Last year, when the discount to NAV was a more comfortable twelve cents on the dollar, management could not muster the votes to pass the proposal on the day of the meeting. They quietly adjourned. They spent the next two months hunting for additional support — soliciting pension custodians and retirement-account aggregators and whatever brokers would still take the call — and then reconvened on August fifteenth, the deepest part of the summer news vacuum, releasing the result the same afternoon, the way you mail a letter you do not want anyone to read. Even after two months of work, and even into a thinned-out August audience, twenty-two percent of the votes cast were against.

The proposal carried, but it carried by a procedural eyelash. Federal law lets a fund pass a below-market share issuance with sixty-seven percent of votes cast — but only if more than half of the outstanding shares actually show up to vote. Last year, after two months of chasing, they met the minimum by exactly twelve basis points.

A few dimes of a percent lower and the rule changes; the threshold becomes a majority of all outstanding shares; and management, having delivered a hundred million votes for and twenty-eight million against, would have needed forty more million votes it did not have. They cleared the procedural floor by less than a fifth of a single percentage point. This year the discount is not twelve cents. It is forty-seven. A junk-rated BDC trying to issue equity at a discount to the discount into a market that is already pricing it at fifty-three cents on the dollar of stated book is not a capital-raising strategy; it is broadening the fools. They are not just issuing at a discount to NAV because nobody would buy it. They are asking: “any takers at fifty?”

Why ask, then? Because to keep this toxic-dumping-ground piggy bank running, management needs one of three things: credit conditions to improve so reality changes, an invisibility cloak that keeps the wrong people from looking at the marks too closely, or the discounted share issuance authority renewed and not deployed. The first is not in their gift. The second is being torn off in real time by Bloomberg, the Wall Street Journal, Fitch, and Moody’s. That leaves the third.

The cushion they have the marks. The marks are the question. If the other two hundred and sixteen positions in the FS KKR portfolio are marked the way Medallia was marked at year-end — generously now — then one hundred and seventy-seven percent was already wrong on the day it was printed. And the ratio measures only the borrowings the regulators decided to count.

Beneath those sit the consolidated CLO tranches — hundreds of millions of dollars of senior notes sold to outside institutions, structured as non-recourse to the BDC and therefore excluded from the headline asset coverage figure, but secured by the same loans the BDC is otherwise carrying on its books. Medallia, on December 17, 2024, was one of those loans.

On April 9, 2026, Fitch downgraded FS KKR Capital from BBB- to BB+, with a Negative Outlook. Junk. The agency cited elevated non-accruals at five and a half percent of investments at year-end, additional realized losses, and asset-quality erosion. Two weeks earlier, Moody’s had moved its rating from Baa3 to Ba1 — also junk. Both agencies had FS KKR on the cliff, and both pushed.

Meanwhile, in the fiscal year just past, the joint adviser collected three hundred and fifty million dollars in fees.

VIII. The point of the whole arrangement

If you take five steps back from the specifics of Medallia and look at the architecture, the structure resolves itself with unsettling clarity.

Pension funds, insurance companies, endowments, sovereign wealth funds — the qualified institutional buyers of the world — buy the rated tranches at the top of the CLO stack. They get letter ratings, they get OC tests, they get covenants designed to protect them from credit losses on any individual borrower. When a loan goes bad, the manager, by design, removes it from the collateral pool to keep the rated tranches whole.

The retail BDC common shareholder is the place the bad loans are removed to. They may be lucky to get CLO equity. The 1.5% management fee continues to flow regardless of how impaired the asset is, because the fee is calculated on gross carrying value. The shareholder absorbs the writedown when it eventually arrives. The institution at the top of the CLO stack is paid in full at redemption.

This is not a bug. This is not an unintended consequence. This is the entire point of the architecture. Retail is functionally acting as a stop-loss for the institutional syndicate. Retail is the bag holder, by design. The wrapper is never supposed to hold the loss.

IX. What I have built, and who it is for

I have spent the last four weeks, working with collaborators, mapping this. It has not been one phone call; it has been many. The forensic examiner Tom Gober, who has been investigating insurance company fraud for forty years and whose Senate Banking testimony you can look up, has been generous with his time. So have a number of others — auditors who have seen the worksheets, lenders who have seen the marks, former rating-agency people who have written what they could and left when they could not, compliance officers whose departures from large credit firms involved a quiet conversation about what they would and would not be willing to certify. The funnel is not a metaphor. It is a list of phone numbers.

There is a trade against this. It is complex. It is expressible as a form of credit-protection purchase, although not where the “experts” think. It exists in places where institutional hands can still find each other, and if career men are willing to consider what they do not know, that is at the limit of what a man-of-the machine can be expected to know. The trade has been mapped. The triggers have been identified. The single points of failure have been circled in red.

This is not a trade for retail investors. If you are reading this from your kitchen table, the right thing to do is to call the hill. We are we are ninety-nine — with five more nines — percent. And we pay more the longer they snooze.

For the institutions reading — the family offices, the multi-family offices, the pension allocators, the hedge funds that have been quietly wondering whether the marks on their private credit allocations are real, the buildings that hired copy pastes — here I am. I am building the book for the people who can see the light without being told where to look.

The footnote went away. The loan stayed. Someone is paying for it. That someone is not the person who collected the fee.

— Nemo

Wyandanch Consulting LLC

April 2026

Yesterday’s watchlist had eighteen names. Some ran. Some did not. The tape picked.

The frame for all of it is two days back. Soros, reflexivity, the last bear in the room. Read it if you have time. The gist is: prices drive narratives and fundamental — counterintuitively. Not completely. But they do.

I was reminded of a stock I’ve been pitched a few times before. Most recently it was a meh, not its a holy shit.

The name is Groupon.

I know I may be losing you, so I spiced up the title to get you in the door. Give me five minutes and you'll see why I'm sized the way I am.

The company on the tape today is run by a Czech PE operator named Dusan Senkypl, who personally backstopped an $80 million rights offering at $11.30 a share, 17 months ago, because nobody else would. He and his CFO own about 35% of the equity. His PSU strikes go from $15 to $82 dollars. It’s trading at $15.

Around him sit three things nobody is pricing.

• $250 million buyback

• A stake in SumUp — a European payments business the market is whispering at ten billion — worth somewhere around $170 million to Groupon.

• Short interest at 53% of the float according to S3 and 57% on Bloomberg. S3 Squeeze Risk: a hundred out of a hundred.

This is so dumb.

Look at

Goldman is at SELL with a $10 PT. Their note is not dumb. I will walk through it. Goldman plays the game they are paid to play. I am playing a different one. You know which one. The one that says the price is wrong, and the setup is ideal — more ideal than you may already think.

Obviously, there is a bear case. No bear case justifies stupid trading and this short interest. “It’s going to zero” shorting will get you killed.

Paid subscribers get the numbers and color.

Read more

Yesterday’s post was the argument. The Soros frame, the reflexivity, the question of what a man does in the last leg of a run he has correctly diagnosed as unreal. Now I’m going to get specific on the tickers I think have the most potential energy.

I do not care about fundamentals on these names. I say that plainly. Most are richly priced, several are expensive in a way that does not bear close examination, and one or two are jokes. The thesis is not earnings. The thesis is that every short who covers is a buyer, every PM who’s been underweight is a buyer, every AI headline is a buyer, and the last bear in the room does not get to leave until somebody has run him over.

Am I certain? No. There are six or seven reasons to think the index should be twenty percent lower than it is today, and it is not. The question is whether to stand outside saying this is dumb, or join in while saying this is dumb. I am inclined toward the second one. I have been inclined toward the second one most of my life.

The vehicle is weekly calls. TSLA prints Wednesday and has zero-day contracts on Monday for anyone feeling frisky. Other can pick a megacap, Mon, Wed and Fri all have zero day options now. I’ve been looking at strikes about five percent out of the money. I am not buying all 18 of these. This is a watchlist to read-and-react to. The tape tells me which ones have the bid, and I put small, defined-loss money on the ones that are moving. It’s a kitchen and you can make yourself a sandwich.

I am not a financial advisor. OK? Now let’s talk animal spirits.

Read more

Nothing here is investment advice. Even if it seems like I’m telling you to do something, I am not. This is just another viewpoint from a Substack author. Consider t…

Read more

One is at the top of my list.

Going to paywall this, because it would be ridiculous not to.

This stock is in the same conviction tier as COHR last year — and one of those more than pays for a yearly subscription.

Read more

I am bearish on complexity. It is the recurring theme across everything I have published — Cliffwater, Athene, and the insurance capital structure. Complexity is where risk hides, and Brookfield has more of it than anything I have seen: six holding companies spanning three continents, two offshore reinsurers, 85,120 controlling shares, and a trillion dollars under management. The Financial Times spent six months investigating and concluded it was “not so much a company as a giant circular flow of cash.”

I am not calling for bankruptcy. This is a valuation call with catalysts. The capital quality issues are structural, the related-party circularity is documented, and the regulatory and legal catalysts are already in motion. The securities trade as if none of this exists.

Executive Summary

Brookfield Corporation and Brookfield Asset Management operate the most complex alternative asset management structure in the world — a trillion-dollar cascade of holding companies, insurance subsidiaries, and offshore reinsurers controlled by 85,120 shares held by 45 executives.

BAM trades at an 85% forward P/E premium to peers on a fee stream that is increasingly captive, earns nearly zero carried interest ($209 million on $1 trillion in AUM versus $2 billion at KKR), and pays a dividend exceeding its fee-related earnings. BN trades at 83x trailing GAAP earnings with an Altman Z-Score of 0.45.

The insurance arm (BWS) went from zero to $157 billion in assets in four years — the fastest build in the industry’s history — and has never been tested through a credit cycle. Statutory filings reveal $5.3 billion in assets that count as capital only under captive rules, a 43% capital decline at the Texas subsidiary, $811 million in undisclosed related-party loans to junk-rated holding companies, and $7.8 billion in affiliated investment purchases in a single year.

The Financial Times spent six months investigating and described the structure as “a circular flow of cash.” AM Best downgraded the Texas subsidiary’s credit rating, citing “quality of capital.” Two SEC investigations remain undisclosed, the S&P 500 inclusion bid failed, and institutions are net sellers of BAM.

The short case is not that Brookfield suddenly becomes fragile but that the market stops granting a premium multiple to a structure whose earnings quality and capital quality are becoming harder to ignore — and the catalysts are already there.

I see 10–20% upside and 50% downside. The bear case requires one thing: the market does the work.

I. The Structure

Brookfield Corporation is a holding company and Brookfield Asset Management is its listed subsidiary. In December 2022, Brookfield spun off 25% of BAM to unlock the “asset-light” fee stream multiple. BAM manages the money; BN owns 73% of BAM and the operating businesses — real estate, infrastructure, renewable power, insurance — that BAM manages. The asset manager and the asset owner are the same entity.

BAM earns fees on capital that BN controls, BN’s NAV depends on marks that BAM’s funds produce, and BAM’s AUM growth depends on BN’s insurance subsidiary buying BAM’s products. The entire 2024 restructuring — moving headquarters to New York, converting BN’s stake into voting shares — was designed to qualify BAM for S&P 500 inclusion and attract American passive flows. It did not achieve inclusion.

Who controls it? Partners Value Investments Inc. — a private holding company owned by approximately 45 current and former Brookfield executives. Partners Value holds 85,120 Class B limited partnership units of Brookfield Corporation, carrying the right to appoint 50% of BN’s board of directors. There are 1.64 billion Class A shares outstanding. The 85,120 Class B shares carry no meaningful economic interest — they exist solely for control.

Bruce Flatt, CEO since 2002, holds approximately one-third of the Class B shares through Partners Value. Flatt began his career as a Chartered Accountant at Clarkson Gordon — the firm that became Ernst & Young — before joining Brascan’s investment division in 1990. He has never managed a fund or sat on a trading desk; his instinct is for structure, not markets. Jack Cockwell holds another third. Cockwell joined Touche Ross in Cape Town in 1960 as a clerk, earned his CA, and was sent to Montreal in 1966 on a six-month placement. In 1968, the Bronfman family recruited him to Toronto, where he built the Edper cascade — the most complex corporate structure in Canadian history before it collapsed in the early 1990s, losing 90% of its market capitalization when Canadian real estate cracked. He is 82. The man who built the structure that collapsed was a chartered accountant, and the man who rebuilt it is a chartered accountant. The discipline at Brookfield has never been investing — it is accounting.

In February 2026, Brookfield named Connor Teskey, 38, as CEO of BAM. Teskey entered the industry doing corporate debt origination at a Canadian bank, joined Brookfield in 2012, and has never managed money through a real downturn. Flatt remains CEO of BN and Chair of BAM.

Touche Ross merged with Deloitte Haskins & Sells in 1989 to form Deloitte & Touche. Today, Deloitte LLP is the independent auditor for Brookfield Corporation, Brookfield Asset Management, Brookfield Infrastructure Partners, and Brookfield Business Partners — four of the five listed entities in the cascade. The fifth entity, Brookfield Renewable Partners, uses Ernst & Young. The concentration is not illegal and is not uncommon for a corporate group, but it means the same firm signs off on the marks at the top and the marks at the bottom. When $7.8 billion in related-party investments flows from the insurance subsidiary to affiliated funds and the same auditor blesses both sides of the transaction, the independence of the mark is a matter of trust. Cockwell joined Touche Ross sixty-six years ago and still holds the controlling shares.

Sources: BN Annual Filing FY2024, Partners Value Investments Inc. filings, BAM 2025 proxy statement, BIP and BBU management information circulars, Flatt biography (University of Manitoba, Clarkson Gordon/E&Y), Cockwell biography (Touche Ross, “The Brass Ring,” Best & Shortell, 1988)

The Edper Parallel

Cockwell’s prior structure — Edper, the Bronfman vehicle — was 360 subsidiaries cascading through minority public floats, appraisal-based marks on illiquid real estate, leverage at every level, and supervoting control. It collapsed in the early 1990s when the marks broke. “The Brass Ring” (Best & Shortell, 1988) called it “a spiderweb in which every unit seemingly owned the debt or the preferred shares of another.” Replace “debt or preferred shares” with “fund stakes and reinsurance treaties,” and the sentence describes Brookfield in 2026. The architecture is the same, and the sections that follow are not isolated observations but the same operating manual running across different entities, different decades, and different asset classes.

Sources: “The Brass Ring” (Best & Shortell, 1988), TSE historical records

II. The Flywheel

A retired schoolteacher in Cedar Rapids buys a fixed annuity from American Equity Life (AEL), an Iowa-domiciled insurance company. AEL is owned by Brookfield Wealth Solutions (BWS), which is owned by Brookfield Corporation (BN).

BWS takes the annuity premium and allocates it to a fund managed by Brookfield Asset Management. BAM earns a management fee. In 2024, BAM earned $162 million in fees from BWS, up from $40 million in 2022. The assets under management grew another 12% in 2025. The fee becomes part of BAM’s distributable earnings. BAM pays a dividend to BN, which owns 73%. BN uses the capital to grow BWS, which writes more annuities, which generates more float, which flows to more BAM-managed funds, which generates more fees. The teacher sees a 4.5% guaranteed rate. The structure extracts a fee at every turn.

Dan McCrum and Antoine Gara — in a six-month investigation for the Financial Times published March 6, 2025 — found that Brookfield “sold property to itself dozens of times.” Dividends from a loss-making property portfolio were added to Brookfield’s earnings, even as it injected more than a billion dollars back into the same business — what McCrum described as “a circular flow of cash.” Independent analyst Keith Dalrymple called Brookfield’s financial reporting “very deceptive,” noting that cash inflows are clearly stated while outflows require deep forensic digging.

McCrum documented $4.1 billion in Brookfield Property Partners (BPP) real estate assets sold to BWS at “existing valuations” — transactions where Brookfield was simultaneously the seller, the buyer, and the valuation agent. The BSREP IV fund stake is the clearest example: BWS purchased a $1.6 billion stake in a fund holding distressed European office assets (Alstria, Befimmo, Hibernia) that Brookfield acquired for $7 billion in 2022, near the peak. These assets are now parked on an insurance balance sheet at Brookfield’s own marks.

In 2024 alone, BWS purchased $7.8 billion in related-party investments from Brookfield entities.

Forensic work on the statutory filings uncovered $811 million in undisclosed related-party loans from the insurance companies to Brookfield’s private equity arm. American National lent $431 million to BBP Bermuda entities and BBU HoldCos. American Equity Life lent $380 million to BAM BBU preferred structures. Every loan was classified as “unaffiliated” — the Texas disclaimer of affiliation at work. Insurance policyholder money is flowing through Bermuda HoldCos to fund a private equity portfolio that is, by independent analysis, 93% rated deep junk or bankrupt.

Healthscope — the second-largest private hospital operator in Australia — collapsed into receivership in May 2025, a A$1.2 billion loss. One quarter before bankruptcy, BBU’s MD&A noted the unit’s “growing contribution.” Altera Infrastructure filed Chapter 11 in 2022; a quarter before filing, the MD&A highlighted its “higher contribution.” In both cases the bankruptcies never appeared in the marks until after they happened, but the management fees had already been paid and the carry had already been accrued.

In Q4 2024, Brookfield Corp unloaded $1 billion of BBU units to its own insurance subsidiary — at 2,000 times the average daily dollar volume. The insurance company — the one backstopping the teacher’s annuity — absorbed the position.

The chain runs in one direction: annuity premiums fund insurance companies, insurance companies lend to PE HoldCos through Bermuda, and those HoldCos invest in junk-rated companies that go bankrupt. The teacher in Cedar Rapids has no idea her retirement is collateral for a Bermuda-domiciled loan to a portfolio that is 93% deep junk.

Sources: Financial Times (McCrum & Gara, March 6, 2025), Dalrymple Finance (June 11, 2025), BN Annual Filing FY2024, ANICO and AEL statutory filings

III. Insurance and Reinsurance Capital Quality

BWS went from zero to $157 billion in insurance assets in four years. For comparison, Athene took 15, Global Atlantic took a decade, and Everlake took eight. Brookfield did it with three acquisitions and aggressive reinsurance, and the platform has never been tested through a real credit cycle — not a rate spike with simultaneous credit losses and policyholder surrenders. This structure was built in the lowest-rate, tightest-spread environment in history.

ANICO

American National Insurance Company, based in Galveston, Texas, was founded in 1905 and acquired by Brookfield in 2022. What followed is a four-move playbook:

Move 1: Cede. Brookfield ceded 95%+ of ANICO’s annuity reserves to Freestone Re, a Brookfield-affiliated reinsurer domiciled in Bermuda. Freestone’s annual disclosure runs approximately 19 pages. Liabilities that were on a Texas-regulated balance sheet — subject to TDI examination, risk-based capital requirements, and public statutory filings — are now offshore.

Move 2: Strip. ANICO’s surplus collapsed from $4.0 billion to $2.264 billion — a 43% decline in three years, driven by extraordinary dividends and reinsurance commissions. The surplus that took 117 years to build was nearly halved in 36 months.

Move 3: Plug. TDI permitted a $560 million stop-loss reinsurance agreement to count as admitted surplus — not equity or retained earnings, but a contractual promise from an affiliated Bermuda entity to cover losses. The reinsurance backstop appears materially weaker than headline presentation suggests, because the support relies on contingent arrangements rather than prefunded capital. AM Best downgraded ANICO’s Issuer Credit Rating, stating: “quality of capital, which AM Best views as negative.”

Move 4: Rotate. Brookfield rotated $4.8 billion of ANICO’s $20 billion investment portfolio into Brookfield-managed vehicles. To avoid triggering affiliated-investment limits, Brookfield obtained a “disclaimer of affiliation” from TDI — classifying these investments as “unaffiliated” despite being managed and originated by Brookfield entities. TDI refused to release the disclaimer document to the public.

AEL: The Same Playbook, Year One

Brookfield did not stumble into American Equity Life. It structured its way in. In October 2020, Brookfield acquired a 19.9% equity stake in AEL, a board seat, and a $10 billion reinsurance side-car covering AEL’s fixed index annuity liabilities. The deal was framed as a “cornerstone investment” to help AEL fend off a hostile takeover attempt by Athene and MassMutual. But the economics told a different story. Under the NAIC Model Holding Company Act — the template for most state insurance codes — control is presumed at 10% of voting securities. At 19.9%, Brookfield was already an affiliate with a presumption of control. It had a seat at the table, and through the reinsurance agreement it had investment management authority over $10 billion of AEL’s reserves. The policyholder assets were already flowing to Brookfield’s affiliated channels three and a half years before the acquisition closed.

In July 2023, Brookfield Reinsurance entered a definitive agreement to acquire all remaining AEL shares. The deal closed in May 2024 at $4.3 billion — $56.50 per share. AEL was rebranded as Brookfield Wealth Solutions and absorbed into the insurance platform. But the timeline matters: Brookfield achieved effective control of AEL’s investment portfolio in October 2020. It achieved legal control in May 2024. The Vermont captives were the plumbing in between.

The ANICO playbook is already repeating. In its first full year under full Brookfield ownership, AEL’s statutory capital declined $517 million (14%), the entity posted a statutory net loss of $747 million, leverage rose from 16.0x to 19.0x, and Schedule BA — the black box — grew 27% to $2.27 billion. Brookfield still paid $320 million in dividends out of this loss-making entity.

AEL’s Vermont-domiciled captive reinsurance entities hold $5.3 billion in assets that count as capital under Vermont’s captive rules but would not qualify under standard statutory accounting. AEL’s own filings state that without these Vermont entities, the insurance subsidiaries “would fall below minimum regulatory requirements.”

Without the captive, they fail the capital test.

AEL is also lending directly to Brookfield affiliates. Statutory filings show $415 million to Brookfield Securitization CFO Inc. and $165 million to BIP REU Holdings. That is $580 million of policyholder money flowing to the parent’s securitization and infrastructure arms. The teacher’s annuity premium is financing Brookfield’s toll roads.

The combined Bermuda disclosure runs about sixty pages, compared with 9,612 pages from Athene’s US entity alone — for an insurance platform that is 30% related-party, has never been through a credit cycle, and is four years old.

Sources: AEL statutory filings FY2024, ANICO statutory filings, Texas Department of Insurance, AM Best, BMA filings, Brookfield/AEL strategic partnership press release (October 2020), AEL Form 8-K (October 2020), Brookfield Reinsurance definitive agreement (July 2023), AEL acquisition completion press release (May 2024)

IV. The Marks

The DE-GAAP Gap

Brookfield reports two sets of earnings — distributable earnings (DE) and GAAP net income — and management tells the market to focus on DE. The market has largely obliged.

In 2024: Distributable earnings: $6.3 billion. GAAP net income attributable to shareholders: $641 million. A 9.8x gap.

The three-year prior average is 3.1x. 2024 is four times that average. GAAP net income per share has fallen 87% — from $2.39 to $0.31 — while DE per share is unchanged. The gap has widened every single year since 2021. For context: Blackstone’s DE-to-GAAP gap is approximately 2.4x. KKR’s is 1.1x. Apollo’s is 1.1x. Brookfield’s 2024 ratio is five to twelve times wider than any peer.

DE excludes unrealized losses, mark-to-market adjustments on the real estate portfolio, and the $3 billion in defaults — precisely the categories of loss most relevant to the bear case. That limits its usefulness as a stand-alone valuation anchor. The divergence between distributable earnings and GAAP is too large to dismiss as presentation noise and deserves a valuation discount until reconciled.

Revenue has declined from $96 billion in 2023 to $86 billion in 2024 to $75 billion in 2025 — down 22% in two years. Nobody notices because they look at DE. The market has accepted management’s preferred metric as the primary valuation anchor while the metric that must conform to accounting standards tells a radically different story.

Bruce Flatt has cited three different net asset values for BN in roughly the same period — $68, $100, and $102 per share — while the stock trades at $42. That is a 50% range in self-assessed value from a company managing a trillion dollars of other people’s money, and the market is not even willing to pay the lowest of the three.

Sources: BN Annual Filing FY2024, BN Q4 2024 earnings call, peer annual filings

V. The Conflicted Valuations

The marks are not just aggressive — they are structurally conflicted. When Brookfield owns the same asset as a third party and both must report a value, the numbers diverge, sometimes by orders of magnitude. Three examples illustrate the pattern, each involving a different asset class, a different decade, and a different counterparty. The accounting is the same every time.

NGPL: The Pipeline That Moved in Opposite Directions

Natural Gas Pipeline Company of America — approximately 9,100 miles of pipe serving the Chicago market, one of the largest interstate pipeline systems in the country. In February 2008, Kinder Morgan sold 80% of NGPL to a consortium called Myria Acquisition for $5.9 billion, retaining a 20% equity method investment. Brookfield acquired its stake indirectly through the 2009 acquisition of Babcock & Brown Infrastructure, which invested $1.1 billion for a recapitalization stake. Brookfield and Kinder Morgan co-owned the same pipeline for over a decade.

In November 2009, FERC launched a Section 5 investigation into NGPL for alleged over-recovery of cost of service — staff found an approximately 24.5% return on equity and an over-recovery of $149 million. On July 29, 2010, FERC approved a settlement requiring phased-in reservation rate cuts of 8%, followed by fuel retention factor reductions of 30–45%, costing NGPL approximately $70 million per year in earnings. Moody’s immediately downgraded NGPL’s senior unsecured debt from investment grade (Baa3) to junk (Ba1).

Kinder Morgan’s response was straightforward: a $430 million pre-tax, non-cash impairment charge on its equity method investment. On KMI’s income statement, earnings from equity investments swung from $221.9 million in 2009 to a loss of $186.2 million in 2010. PricewaterhouseCoopers signed the audit opinion, and the write-down was immediate, transparent, and commensurate with the regulatory event.

Brookfield’s carrying value moved in the other direction. BIP reports under IFRS, which permits — and Brookfield embraces — fair value revaluation of infrastructure assets through other comprehensive income. While Kinder Morgan was writing NGPL toward zero under U.S. GAAP, Brookfield was marking its share of the same pipeline at values that reflected management’s internal models, not the regulator-imposed impairment. Same pipeline, same FERC settlement, opposite directions on the balance sheet — and the auditors on both sides signed off. KMI’s was PricewaterhouseCoopers. Brookfield’s was Deloitte.

In 2015, both companies recapitalized NGPL: Kinder Morgan paid $136 million to go from 20% to 50%, and Brookfield paid $106 million to go from 27% to 50%, implying a $3.4 billion enterprise value — a 54% decline from the $7.4 billion implied by the 2008 sale. By 2021, they jointly sold 25% to ArcLight Capital for $830 million, implying a $5.2 billion enterprise value. Brookfield exited completely in 2025, generating $1.7 billion in total proceeds — an 18% IRR and a 3x multiple of capital.

Brookfield will point to the exit returns and say the marks were right all along. But that is not the point. The point is that for years, two owners of the same pipeline told two completely different stories about its value — and the auditors on both sides signed off. NGPL matters because it is the one case where an external co-owner provided a public, audited market check on Brookfield’s valuations, and the two diverged dramatically. Since BPP was taken private, there is no Kinder Morgan on the other side of any of Brookfield’s real estate marks.

Arteris: The Toll Road That Priced Itself

Arteris was a publicly traded Brazilian toll road operator — one of the largest in the country, with over 3,200 kilometers of concession roads in states accounting for approximately 65% of Brazil’s GDP. In October 2012, a joint venture between Abertis, the Spanish infrastructure company (51%), and Brookfield Infrastructure Partners (49%) acquired 60% of Arteris for approximately US$1.7 billion. The remaining 40% was public float, traded on the Novo Mercado in São Paulo.

Abertis owned roughly 30% of Arteris effectively. The stock exchange priced that stake at one value. Brookfield’s internal books, according to independent analysis, carried their share at approximately three times the market-implied valuation.

In September 2013, the Abertis-Brookfield JV launched a mandatory tender offer for the remaining minority float at R$10.06 per share. The acceptance rate was 96%. Brookfield simultaneously announced an additional R$490 million investment, increasing its direct ownership to approximately 31%. Arteris was delisted from the Novo Mercado.

Here is what matters: the take-private price — the premium paid for the public float, blended with Brookfield’s existing carrying value — landed at precisely the number where Brookfield would neither have to record a write-up nor a write-down. If the take-private price had been higher, Brookfield would have been forced to write up its existing stake to match — an admission that the prior marks were too low. If the price had been lower, Brookfield would have taken an impairment — an admission that the prior marks were too high. Instead, the price was exactly right. Exactly right is not how markets work. It is how accountants work.

BPP: Remove the Market, Keep the Mark

Brookfield Property Partners was the publicly traded real estate arm. While public, its marks were subject to market discipline — and the market consistently disagreed with them. BPP traded at a chronic 33% discount to its stated net asset value of $27 per unit. Lazard Frerès, the independent valuator hired for the take-private, assessed fair market value at $14.00–$18.50 per unit. BAM’s final take-private offer in July 2021 was $18.17 — a 25.6% premium to market but a 33% discount to Brookfield’s own NAV.

The public market was telling Brookfield that a third of its stated real estate value did not exist, and Brookfield’s response was not to mark down the assets but to remove the market. After privatization, BPP’s property-level valuations disappeared from quarterly disclosure. The marks became internal — Brookfield appraises its own real estate, reports the values to its own funds, and the funds report to Brookfield’s insurance subsidiaries.

Then the defaults started. Gas Company Tower, Los Angeles — defaulted on a $465 million mortgage. 175 West Jackson, Chicago — purchased for $306 million, sold in foreclosure for $41 million, an 87% loss. 777 Tower, EY Plaza, Houston Center, a twelve-building Washington, D.C. portfolio — all defaulted, all walked away from. More than $3 billion in defaults across the BPP portfolio since privatization, all non-recourse, all invisible in BN’s consolidated reporting. You do not default on assets worth more than the debt, and every default is evidence that the marks were wrong.

And the assets that did not default were rotated into the insurance subsidiaries. McCrum documented $4.1 billion in BPP real estate sold to BWS at “existing valuations” — transactions where Brookfield was simultaneously the seller, the buyer, and the valuation agent. The marks that the public market refused to pay are now sitting on insurance balance sheets backing teachers’ annuities.

The pattern across all three is the same: when an external check exists, the marks diverge; when the external check is removed, the marks hold. That is not evidence of accuracy but of control. And because they have gotten away with it — in pipelines, in toll roads, in real estate — the playbook is not shrinking but expanding, faster, into insurance.

Sources: KMI Form 10-K FY2010 (Note 6), Moody’s NGPL downgrade (July 2010), FERC Section 5 investigation (November 2009), BIP press releases (2015 recapitalization, 2021 ArcLight sale, 2025 exit), Arteris tender offer filings (September 2013), BIP 2013 20-F, Abertis annual report 2012, BPP take-private filing (July 2021, Lazard fairness opinion), Financial Times (McCrum & Gara, March 6, 2025), Bisnow, Commercial Observer

VI. Why BAM’s Fee Stream Is Lower Quality Than Peers

BAM trades at 23.9x forward earnings. The peer average is 12.9x — averaging Apollo (11.6x), KKR (14.5x), Blackstone (18.7x), Blue Owl (9.1x), and Carlyle (10.7x). That is an 85% premium to the group.

The fee stream is increasingly captive. BWS pays BAM approximately 25 basis points, roughly half the rate of third-party clients, so as BWS grows toward $300 billion the blended fee rate declines. Volume grows but margin compresses.

Carry realization is nearly zero. In 2024, BAM realized $209 million in performance fees on over $1 trillion in AUM, compared with $2 billion at KKR on $600 billion, $1.5 billion at Apollo on $700 billion, and $3 billion at Blackstone on $1 trillion. BAM’s carry is an order of magnitude below every peer.

The dividend exceeds fee-related earnings. BAM’s payout ratio on FRE is 109%. The company is distributing more than it earns from fees. This is sustainable only if AUM grows fast enough to keep management fees rising — which requires BWS to keep buying Brookfield products, which requires the annuity pipeline to stay open, which requires the marks to hold.

Sources: BAM Annual Filing FY2024, BN Annual Filing FY2024, peer annual filings

VII. Why BN’s NAV Deserves a Discount

BN trades at 83x trailing GAAP earnings with an Altman Z-Score of 0.45 — 13% below its own ten-year median of 0.52 and 87% below the asset management industry median of 3.49. The distress threshold is 1.8. I do not use the Z-Score to predict bankruptcy; Brookfield has levers to pull and has shown a willingness to move capital between entities to plug holes. I use it to illustrate that this is not a business operating with a wide margin of error. The capital shuffling that keeps the structure solvent is itself the risk — eventually, if the fee streams compress and the balance sheets deteriorate the way I think they will, there is less capital to shuffle. Can they sell assets to raise liquidity? Yes. But selling assets at cycle lows to plug holes in the insurance subsidiaries is itself a deration event. The optionality that keeps the Z-Score from being a death sentence today is the same optionality that disappears when the cycle turns.

Brookfield Corporation carries $259 billion in consolidated debt: $14.3 billion corporate recourse and $245 billion non-recourse at subsidiaries. The non-recourse defense is Brookfield’s favorite talking point — each subsidiary carries its own debt, losses don’t flow up, everything is ring-fenced. That is true in legal theory, but less so in economic practice.

When Brookfield Property Group’s interest expense hit 118% of net operating income in 2023, the real estate business could not cover its own debt service. Related-party financing from other Brookfield entities kept it alive — capital moved between silos, the ring fence had a gate, and Brookfield held the key. Non-recourse in the prospectus, circular bail-out in practice. The defense obscures how capital actually moves within the cascade and gives the market permission not to consolidate the risk.

NAV discount: 40–50% to management’s marks. Either BN is dramatically undervalued, or the marks deserve much more skepticism. Given the $3 billion in office defaults, the 9.8x DE-to-GAAP gap, and the 22% revenue decline, the simpler explanation appears to be the latter.

Oaktree — acquired in 2019 for $4.7 billion as the gold standard of distressed credit — needed $80 million from BN’s balance sheet to meet just 8.5% of redemption requests at the Oaktree Strategic Credit Fund, which raises questions about liquidity throughout the structure. Oaktree’s lock-up on 37 million BAM-equivalent shares expires in H1 2028, representing 8.5% of BAM’s free float and arriving in twenty-two months.

Sources: BN Annual Filing FY2024, Oaktree Capital Group filings

VIII. Catalysts

Market catalysts. Office debt wall: $5.3 billion maturing in 2026. Oaktree lock-up expiration: H1 2028, 37 million shares, 8.5% of BAM’s float. Private credit contagion is already visible — Apollo gated at 45 cents in March 2026, Blue Owl gated OBDC II in February. The S&P 500 rejection already happened; there is no passive floor. The traditional incremental buyers appear weaker — active institutions are leaving with net outflows of 60.6 million shares of BAM, Fidelity cut 23.4%, and BAM’s own buyback is propping the stock. Short interest sits at 4.2% of float with a 0.28% borrow rate — this is not a crowded short.

Balance sheet and insurance catalysts. One additional AM Best downgrade, or one state commissioner publicly questioning $5.3 billion in captive-admitted assets. A potential BN/BNT merger would mean less disclosure, not more. No major short seller report has been published on Brookfield. The complexity is the moat — not the business. The structure is too dense for most analysts to parse, and the incentives for sell-side coverage are structurally awkward: the Canadian banks that cover Brookfield simultaneously lend to it, hold its equity, and distribute its products to retail clients.

Legal and regulatory overhang. Two undisclosed SEC investigations. The first ran from 2014 to 2017; FOIA documents obtained by Dalrymple Finance describe the scope as “devices, schemes, or artifices to defraud.” The second began May 2022 and remains ongoing. The Raffaelli whistleblower lawsuit — approximately 100 pages — alleges fraud, bribery, whistleblower retaliation, and $100 million in inflated AUM. A separate Brazilian bribery investigation involved three Brookfield executives and seven municipal officials. These are allegations, not findings. But the current multiples do not appear to reflect any of this risk.

Sources: Dalrymple Finance, Raffaelli v. Brookfield court filings, Foundation for Financial Journalism, S&P Dow Jones, Apollo/Blue Owl press releases, BAM 13F filings

IX. Risks to the Short

Brookfield has a long record of monetizing complex assets, and some historically controversial marks have ultimately realized at attractive values. Much of its debt is legally non-recourse. The fee stream, while increasingly captive, is large and contractually durable. The short case is not that every mark is false but that the market is paying too high a multiple for a structure whose valuation depends so heavily on management judgment — at a moment when the external environment is turning against that judgment. The strongest counterarguments deserve specific treatment:

Brookfield has a long track record of value creation. The NGPL exit — 18% IRR, 3x multiple — demonstrates that management’s marks can ultimately prove correct. Some of the apparently aggressive carrying values may realize at or above book. This is the strongest bull argument: Brookfield has been marked aggressively before and been right before.

Much of the debt is legally non-recourse. A single subsidiary default does not trigger cross-default at the corporate level. The office defaults, while indicative of mark quality, did not impair BN’s corporate debt capacity. However, when a subsidiary requires related-party financing to survive — as BPP did in 2023 — the non-recourse boundary is less robust than the legal framing implies.

Insurance peers also use affiliated reinsurance and private assets. Apollo’s Athene, KKR’s Global Atlantic, and Blue Owl’s Kuvare all deploy policyholder capital into sponsor-originated product. The model is not unique to Brookfield. What is unusual is the speed of the build ($157 billion in four years), the concentration of related-party exposure, and the opacity of the Bermuda reinsurance layer.

The thin float creates squeeze risk. Short interest is 4.2% of float with a 0.28% borrow rate. BAM’s own buyback is supporting the stock. Canada’s Big Five banks collectively hold 15–17% of shares outstanding and are structurally unlikely to sell — they lend to Brookfield and distribute its products to millions of retail clients.

BAM’s fee stream, even if increasingly captive, is contractually long-duration. Management fees do not depend on realizations. Even in a downturn, the base fee income provides a floor. The bear case depends on the market reclassifying the fee quality, not on the fees disappearing.

Flatt could take BAM private. BN already owns 73%. Buying the remaining 27% float would cost roughly $24 billion at current prices. Partners Value controls 50% of the board, so governance is not an obstacle. I do not believe he will — BAM’s entire valuation thesis depends on its public listing and “asset-light” multiple, and a take-private would require significant new financing on a balance sheet already carrying $259 billion in consolidated debt. Taking BN private is even less realistic at a $94 billion market cap. But the option on BAM exists and must be sized.

Sources: BAM 13F filings, Bloomberg, BN Annual Filing FY2024

X. The Trade

I see 10–20% upside and 50% downside. When the premium compresses to peer average — 12.9x — BAM goes from $45 to $24. No catastrophe required, just convergence.

Primary: short BAM via put options. The thin float (27% free) creates squeeze potential, and options cap downside while preserving convexity.

Secondary: short BAM and BN equity. BN carries the balance sheet — $259 billion in debt, Altman Z-Score of 0.45 — so credit stress hits BN first and fee impairment flows to BAM second.

For long/short managers: pair it. Short BAM at 23.9x forward, long Carlyle at 10.7x. The pair isolates the structural thesis from sector beta — if alts rerate higher, Carlyle benefits more because its multiple has further to recover; if alts rerate lower, BAM falls further because the premium has further to compress.

Sources: BAM 13F filings, S&P Dow Jones, Bloomberg

Conclusion

A trillion dollars managed through a cascade where the seller, the buyer, and the valuation agent are the same entity — and the man who built the last one that collapsed still holds the controlling shares of this one.

The structure has not repriced because the structure has not been explained. The catalysts are already in motion — the office debt wall, the private credit contagion, the institutional selling, the regulatory scrutiny — and the bear case does not require a catastrophe, only convergence.

In my view this is the best alt short available. I am short complexity and I am short structure salesmen. Conglomerates deserve discounts, not premiums.

Disclaimer: This report represents the opinions of the author. The author may hold positions in the securities discussed. This is not investment advice. Do your own work. All data sourced from public filings, regulatory documents, and investigative journalism cited herein.

I look around and I see the people holding the microphones, and there is nothing behind the performance, nothing that would survive contact with a genuine question asked by someone who actually wanted to know the answer. The politicians can talk. Some of them are witty. There is no charisma. Not the kind that changes a room or shifts the temperature of a generation. In financial media you can count the real ones on a single hand — Becky Quick, Sarah Eisen, David Faber — and the rest are filling a silence that would be more honest left unfilled. These people grew up together. They came up through the same institutions and dinner parties and conferences. Over the decades they set the edges of what could be said and thought and believed, an Overton window they tend like a garden wall, and when anything slips outside of it, even slightly, even reasonably, they absolutely lose their minds. Not because the thing itself is dangerous. Because its existence implies that the wall was never where they said it was.

My generation got handed a sequence that reads like the chapter titles of a civilization in decline. September 11th. Then the Iraq War. Then the Great Financial Crisis. Then MeToo and Hillary and Trump and COVID and the lockdowns and now AI, each one arriving before the previous one had been understood, let alone resolved, so that the feeling is not of discrete crises but of one long unraveling dressed up in different costumes. In the 80s, if you had a good attitude and showed up, you became a millionaire. That is not nostalgia. That is simply what happened. The door slammed shut behind it with a finality that the people on the other side have never acknowledged, because acknowledging it would require them to admit that what they call meritocracy is really just the compound interest of having been born at the right time.

I never worked in an institution. People want to know who my mentors were, as if knowledge only counts when it has been transmitted through the proper channels, stamped and approved and filtered through the credentialing apparatus that exists primarily to protect the credentials of those who already have them. I had mentors. Plenty of them. I also had YouTube and Twitter and books and the willingness to sit alone in a room for years and figure it out, to take a clip here and a segment there and a passing comment from someone I would never meet and build from those fragments an understanding that surprises people precisely because it did not come from where they expected it to come from. The amount of that kind of self-directed learning required today just to be economized, just to have a seat at the table where the conversation is actually happening, is staggering. It is not something everyone can do. And nobody seems particularly bothered by that.

In March of 2020 I lost my startup job and the market was falling apart and Bill Ackman went on CNBC and gave his performance and the banners were red and the anchors were grave and everything was MARKETS IN TURMOIL, and I had this very orthogonal experience where on March 15th I watched the Fed pull out the bazooka and I knew, with a clarity that felt almost physical, that they were going to print money and inflate asset prices and drag us out of it. Because that is what they had always done. Because the alternative — letting the market find its own floor, letting the pain distribute itself honestly — was unthinkable to the people whose wealth depended on it never happening. And then I watched the television for months. I watched Ron Insana come on in April with tremendous confidence about how the market was going to fall apart. I watched Guy Adami and Bob Pisani and Wapner. Wrong with certainty. Wrong with authority. Wrong in a way that cost the unsophisticated ones — the people who participate in the market not recreationally but desperately, as the last remaining mechanism for building wealth in a country that has foreclosed every other path — and nobody held any of them to account. Maybe they were pushed to say those things. The combination of the moving screen and “Paycheck Protection Program” were coordinated in a way that required no conspiracy, only alignment of incentives. And that triggered something in me. A disdain I carried for four or five months before it metabolized into a depression and then a detachment that was quieter but no less fundamental, and I have not fully shaken it. I am not sure I want to.

Now I am pulling apart the spiderweb, because I am of the belief that the thing everyone insists is not systemic is in fact deeply, architecturally systemic in ways the existing frameworks are not designed to detect. Private credit and its insurance spouse. The offshore reinsurance balance sheets in Bermuda. The single points of failure on ten trillion dollars. The self-marked assets and amortized costs. The narrow feedback loops in which the people making decisions have been talking to the same twelve people for so long that they have lost the ability to hear anything that does not confirm what they already believe. Jon Gray says things publicly that are not the statements of a man who has been challenged in fifteen years. They are the statements of a man who has forgotten that challenge is possible. The requirement to know it and not want part of it seems to be the brain damage Eminem rapped about.

Everyone says the Fed can handle it, because the Fed has always handled it, because every single time someone has said the Fed cannot bail us out forever the Fed has in fact bailed us out again, and the boy has cried wolf so many times and so loudly that now there is a real wolf standing in the clearing and nobody can hear the screaming over the memory of all the false alarms. Dropping rates to zero and printing money — which is what they will do because it is the only thing they know how to do — would extend the runway while making the eventual landing worse. We are not rolling into whatever comes next with a small balance sheet. We are rolling in heavy. And AI, which is the only reason we are not already in a recession, because if you pulled NVIDIA out of the index the picture would be genuinely ugly, is also the first technology that could theoretically displace the very people buying the stocks. That is a contradiction nobody seems eager to examine.

The boomers, who I describe as 55 and up, own 74 percent of the wealth. I wonder if they would they accept 60 percent? Would they accept 50? Would 30 be tolerable? Because the way they respond to any criticism, any suggestion that perhaps the arrangement could be slightly different, suggests that they would not accept 73, that any change, however marginal, is received as an existential assault on everything they have built. And what they have built is in large part a function of having been born into the longest bull market in human history and having had a central bank willing to destroy the currency to protect their portfolios. Meanwhile the young people have been sidelined into believing a 5 percent drawdown is always a buying opportunity, trained to gamble because the old paths — the Warren Buffett path, the 1950s path, two cars and two and a half kids and a house in the suburbs — are closed. Actually closed. Not difficult. Closed. So they parlay. They try to parlay their way into something resembling the life their parents had and took for granted and defend as if they earned every cent of it through sheer force of character.

What we have is not capitalism. Capitalism is the enshrinement of property rights, not the banishment of property loss. I have said this so many times that the phrase “no more boomer communism” has become almost a joke, almost a brand, but the joke keeps not being funny because the thing it describes keeps being true. We cannot let the markets fall because we need to protect a generation that is rich and accustomed to being rich, and so we print and we backstop and the inequality grows, and when someone points it out the word they reach for is communist or fascist depending on which direction they are facing. On the right, Charlie Kirk is finished and the audience is drifting toward Nick Fuentes because he is funny, and I find myself watching him because he is funny, and I am not going to vote based on his humor but plenty of people will. On the left there is AOC and there is Mamdani, and I disagree with them economically on most things, but at least Mamdani showed some charisma. The fact that showed some charisma is notable tells you everything about how low the bar has fallen. Gen X is not going to have a president. Gavin Newsom has no shot. There is a void. A vacuum. And Vacuums get filled. That is not a theory — that is a physical law. The question is not whether it will be filled but by whom, and with what.

I think about history. The Berlin Wall and the hippies and the Russian Revolution and the National Socialists and the French Revolutions and the Protestant Reformation and the Romans, each emperor and each collapse, and the pattern is always the same: a generation ignored, a charge building in the population like static electricity in a dry room, and the people in power unable to feel it because their feedback loops had narrowed to nothing, because they had spent so long talking only to each other that they had forgotten other people existed, and then the spark, and then the thing nobody saw coming that everyone should have seen coming, because it was right there, in the faces and the voices and the anger of people who had been told to wait their turn for so long that they stopped believing in turns altogether.

We have had this Pax Americana for a long time. We have made many mistakes inside of it. We believe in the omnipotence of the Federal Reserve and U.S. dominance forever and we believe nothing will change because nothing has changed within the memory of the people currently holding the microphones. I see it slipping. I see the phoniness Holden was talking about. I think I finally get it. Not as an intellectual exercise but as a feeling in the chest (or perhaps a bit lower). The way you understand something not because someone explained it to you but because you lived long enough for the explanation to become unnecessary.

I am 31 years old. I am single. I am not too upset about either of those things. Soon I will be 32 and maybe I will not be single, but I am more concerned about the country. I am not asking anyone to panic or retire or shut up. I am asking for a more collaborative effort. An acknowledgment of the generational gap. An honest accounting of the range of outcomes. Someone to step up and be the new voice. Someone to take the torch and carry it somewhere that is not just a slightly different version of where we have already been.

This was a humiliation. It was also probably the best possible outcome left.

Trump spent weeks escalating toward a disaster in Iran, then threw the truck in reverse at the edge of the cliff.

I think the worst damage may have been done on social media, where Iran was putting out undeniably fantastic memes. They are the enemy, but I call balls and strikes.

That does not mean the credit problems disappear. It does not mean every macro crack suddenly seals itself shut. It does not mean energy rolls over forever. Physical oil markets are still tight.

But markets do not care about your attachment to yesterday’s framework. If something real changes today, you adjust. And something did change.

The most obvious positive is the simplest one: fewer Americans are going to get hurt. That matters more than anybody’s ego, more than any cable-news chest-thumping, more than any fake strength narrative from people who always want somebody else’s kid doing the bleeding.

The second positive is political. Israel’s grip on the United States looks weaker today than it did a week ago. Netanyahu has spent decades dragging everyone around him deeper into the abyss to preserve himself. I am very critical of private equity guys, insurance commissioners, and the assortment of financial vermin who lie for a living. I think most of them are parasites, but I do not usually call them evil. I am much closer to that word here. This episode sent Netanyahu back to the stone age and that is a very good thing.

The rhetoric around this was pathetic.

You do not threaten annihilation, flirt with a larger war, scare the hell out of markets, TACO fourteenteen (sic) times and then turn around and call a ceasefire a total victory without looking ridiculous. Trump can say whatever he wants but there is no spinning this as a win to a reasonable person.

Still, humiliation is not always bearish. Sometimes humiliation forces a pivot. Sometimes it is good to be humbled.

Trump now needs a win. A clean one. Something he can point to and say, see, I fixed it. That matters geopolitically, and it matters for markets too.

He may go hunting for a quick diplomatic headline. China is one obvious lane. Russia-Ukraine is another. If he wants a trophy badly enough, that is the one he will chase. I do not know if he can get it. I do know he has far more incentive to try now than he did before.

So yes, I think the market is right to smell risk-on.

Not because the world is fixed. Not because the structural problems disappeared overnight. But because one very bad path just got interrupted, and for now that is enough to matter.

I still think there are reasons to own energy. Structural energy exposure still makes sense to me. But the near-term price action matters. If airlines start catching real bids, I am paying attention. If travel trades stop behaving like trapped animals and start acting like the market believes this pause is real, I am paying attention. That is the kind of confirmation I want.

And one more thing before the paywall.

People keep asking why tech has held up so well through an ugly macro tape. Part of the answer may be that the macro ugliness was already in the price. The other part is simpler: the AI productivity story is not fake. It is not a parlor trick. We are already living in a world where one person with the right tools can do the work of a small team. I use this stuff every day. It feels absurd because it is. It feels superhuman because, in many contexts, it kind of is.

So if macro just got materially less bad in twenty-four hours, you do not need much imagination to understand why people are willing to buy risk again.

What I’m doing

Read more

“Financial regulators are like archaeologists — they will tell you after the company collapsed what the problem was.”— Jim Chanos

I wrote to Secretary Bessent about private credit. About $13 trillion that marks its own homework. About a fund with a higher Sharpe ratio than Bernie Madoff on a portfolio of leveraged loans to zombie companies. About how the machine does not need performance — it needs assets.

I wrote to Speaker Johnson about insurance. About Athene’s 9,612-page filing. About how a 419% Risk-Based Capital ratio translates to 69:1 leverage and a 1.45% margin of solvency. The traditional life insurance industry operates at 10 to 15:1. MetLife runs at 11:1. New York Life at 9:1. Athene runs at 69:1. About PHL Variable’s $2.2 billion hole. About 602 state examiners overseeing $9.3 trillion. About $1.1 trillion sitting offshore in Bermuda and the Caribbean, in entities whose filings no US examiner can compel.

Reinsurance is simple. An insurance company pays another company to take on some of its risk. If the first company cannot pay its claims, the reinsurer steps in. It is the backup. The entire system depends on the backup being real. The US life and annuity balance sheet is $10 trillion. The property and casualty side has its own problems — but $10 trillion in life and annuity is a big enough disaster to write about first.

This is about the phantom underneath all of it. The accounting trick so brazen that the NAIC’s own rules say it is not an asset — and a state legislature passed a special law to make it one anyway. $1.54 trillion in affiliated reinsurance against $657 billion in total industry surplus. Strip the affiliated reinsurance credit from each balance sheet and 29 of the top 30 insurers are insolvent without it. The reinsurance has to be real. If it is not, neither are they. It is crucial that this is good money, but we cannot see it. And what we can see are more liabilities than assets.

Gober has the annual statements of three Vermont captive reinsurers that nobody was ever supposed to see. He has the presentation he gave to the United States Senate Banking Committee. The BIS paper. The IMF note. And four decades of forensic work. He showed me everything.

The industry will compare these numbers to total assets. That is the trick. Total assets includes every bond, every mortgage, every dollar of policyholder money the insurer manages. It is a denominator designed to make any numerator look small. Surplus is the only capital that stands between policyholders and insolvency. Total reinsurance — affiliated and non-affiliated, onshore and offshore — is approximately $2 trillion. Of that, $1.54 trillion is affiliated paper. Not only is the private portion of the $10 trillion US life and annuity balance sheet materially overvalued — a multiple of what was drawn in TARP likely does not exist at all.

I. The Man Who Saw Inside

Thomas D. Gober is a Certified Fraud Examiner and forensic accountant who has spent 41 years inside the life insurance industry. He started as a state examiner in Mississippi in 1985. He spent over a decade working criminal cases with the FBI and the US Attorney’s Office. Executives went to prison. Assets were forfeited. He made numerous referrals to the Department of Justice.

In 2009, Newsweek ran “The Next AIG Scandal?” based on his analysis of AIG’s 71 interlocking subsidiaries. He brought it to Barney Frank. Frank listened.

In 2022, he submitted findings to the Senate Banking Committee under Sherrod Brown. In 2023, he presented in person to the chief counsel and staff. S. Hrg. 117-747, at 57 (September 8, 2022).

In May 2024, he filed an expert declaration in the Lockheed Martin v. Athene federal lawsuit. Athene’s Iowa entity held $155 billion in affiliated reinsurance on a surplus of $2.88 billion. That is 1.44% of assets. TIAA carries 13.83%. New York Life, 12.24%.

Gretchen Morgenson — Pulitzer Prize winner, now with NBC Investigative Reports — had been working the insurance story for months. She called Steve Eisman and told him he had to talk to Gober. On March 2, 2026, Eisman — the man who bet against subprime mortgages and was proved right — brought Gober on his podcast and called the situation “a slow brewing scandal which could be one day a great financial crisis.”

I was already neck-deep in Athene’s 9,612-page filing when that episode dropped. I was writing my letter to Speaker Johnson about RBC ratios and 69:1 leverage and $114 billion in privately placed bonds. I knew the insurance side was bad. Eisman and Gober turned the fire into an inferno. Everything I had found on the balance sheet — the leverage, the opacity, the offshore cessions — was the surface. What Gober was describing was the machinery underneath. The thing that makes the surface possible.

No one has ever publicly challenged his findings. Not Athene. Not Brookfield. Not the NAIC. Not a single state commissioner. He sent certified letters for years. Return receipt requested. Signature confirmed. Not once did they respond.

For fifteen years he assumed the captives were funded at roughly 70% real assets and 30% phantom. Surely at least 60. Maybe 50.

Then Brookfield screwed up.

Gober identified the pattern. The statutory filings confirm it. I reviewed them independently. The Federal Reserve, the IMF, and the BIS have each arrived at the same destination through their own research. What follows relies on all of them.

II. Three Point Seven Percent

Brookfield acquired American Equity for $4.3 billion. The deal closed in May 2024. They installed themselves as the asset manager.

American Equity had ceded roughly $7 billion in annuity obligations to three wholly owned captives domiciled in Vermont:

AEL Re Vermont, Inc. — formed 2021.
AEL Re Vermont II, Inc. — formed October 2023.
AEL Re Vermont III, Inc. — formed October 21, 2024. Commenced business December 1, 2024.

The third captive was created six weeks before year-end and immediately loaded with $1.5 billion in liabilities. Remember that.

Vermont makes captive financial statements confidential. Even policyholders cannot see them. In 2024 the state eliminated the requirement to disclose even under subpoena. The statements are filed with the Commissioner and locked in a vault.

Brookfield told its technology team to post American Equity’s statements online. Someone did not know the captive statements were supposed to stay secret. They posted them. Gober found them and saved copies before they were pulled down. John Ellis broke the story in News Items on November 15, 2025.

AEL Re Vermont, Inc. — the first captive, formed 2021.

One hundred twenty-eight million dollars in real assets. Then nothing. Empty rows. Until the bottom: an aggregate write-in called “XOL Asset” worth $1.48 billion.

That line is the entire story. An XOL asset is an excess-of-loss reinsurance contract — a promise from a third party to pay if losses exceed a certain threshold. The captive books the value of that promise as an asset. The question is whether the third party will ever pay.

It will not. Gober showed me how to check. Every insurer files a Schedule S. Part 3 lists what it ceded. Part 1 lists what it assumed. The captive’s Schedule S shows it ceded to Hannover Life Reassurance Company of America and booked $1.48 billion. If you go straight to Hannover’s Schedule S Part 1 — the assumed side. The line for AEL Re Vermont Inc. is there. Company Code 17189. Look at columns 9, 10, and 11 — the reserve Hannover booked against this contract, the premium it collected, and the reinsurance payable.

Hannover Life Reassurance Company of America — 2023 Annual Statement, Schedule S Part 1, Section 1. AEL RE VT INC highlighted in yellow. Column 9 (Reserve): dash. Column 10 (Premiums): $11.6 million. Column 11 (Reinsurance Payable): dash.

Reserve: dash. Reinsurance payable: dash. The only number that is not zero is the premium — $11.6 million. That is what Hannover charged for a contract the captive books at $1.48 billion. Flat zeros mean Hannover has determined mathematically that it will never pay. If it believed there was any probability of paying, it would have booked a reserve — even a fraction of $1.48 billion. It booked nothing. The 2022 filing shows the same zeros. It is not a one-year anomaly. Hannover has $577 million in surplus. If this contract were real, Hannover itself would be insolvent. It charged $11.6 million because the only risk it took on was reputational. It collected a fee to pretend.

Stop here. The captive filed a balance sheet claiming $1.48 billion from Hannover. Hannover filed a balance sheet saying it will pay zero. Both documents are public. Both were filed under oath. This is not a matter of interpretation. It is arithmetic.

The NAIC requires risk transfer tests on reinsurance contracts. Each captive ran them. Every test came back negative. No risk had been transferred. The NAIC’s own accounting standards — SSAP No. 4 — define three characteristics an asset must have. The XOL fails all three. Under the NAIC’s own rules, it is nonadmitted. It should not be on the balance sheet at all.

Vermont’s captive statute has existed for decades — it was designed for legitimate risk management. The industry repurposed it. Vermont permitted XOL assets that fail every NAIC test. Then Vermont made captive statements confidential. Then, in 2024, Vermont made them immune to subpoena. The original law was neutral. What it became is not.

Now look at what those phantoms do to the other two captives.

Here is what all three balance sheets show, side by side.

AEL Re Vermont II, Inc. — formed October 2023. Total real investments: $73 million. XOL Asset: $2.48 billion. Total liabilities: $3 billion. Unassigned surplus without the XOL: negative $2.5 billion. The XOL appears twice — once as an asset, again as “special surplus funds.” Strip it from both sides and the captive is insolvent by $2.5 billion. With it on both sides, the stated surplus is a positive $65 million. That is how you dress up a $2.5 billion hole as a $65 million cushion.

AEL Re Vermont III, Inc. — formed six weeks before year-end. Commenced business December 1, 2024. Immediately loaded with $1.5 billion in liabilities. Total real investments: $60 million. XOL Asset: $1.31 billion. Unassigned surplus: negative.

Two hundred sixty-one million dollars in real assets. Seven billion in liabilities. That is 3.7%. Three point seven cents on the dollar.

The phantom doubled in a single year. From $2.56 billion to $5.28 billion. They are not winding this down. They are accelerating.

American Equity’s surplus is roughly $3 billion. The phantom is $5.28 billion. If these captives are representative of how they are funded, the surplus does not exist. Brookfield paid $4.3 billion for a company whose capital is a ledger entry backed by a contract Hannover says it will never honor.

Brookfield calls this vertical integration. It is not vertical. It is circular. American Equity owns 100% of these three captives. It pushed $7 billion in liabilities into entities it wholly owns and sent $261 million in real assets to cover them. Then it told regulators it had eliminated those liabilities. It did not eliminate anything. It moved the claims files from the filing room to the basement. The parent guarantees the captives’ obligations — guaranteeing its own payments back to itself. The FBI has a phrase for transactions that go out and come right back. They call them circular transactions. People have been convicted for this.

Brookfield knew exactly what the XOL was. They tried the same trick on American National — a real insurance company, not a captive, with statements filed publicly with the state. They put an XOL write-in on its balance sheet. It lasted months. Someone noticed. They pulled it off. A bona fide insurance company cannot carry an instrument that fails every definition of an admitted asset. Brookfield knows this. They do it in the captives because nobody can see the captives. A forensic accountant saw this one by accident.

III. Every Time Anyone Looked

The Brookfield leak was not the first time anyone saw inside a captive reinsurer. It was the third.

Scottish Re. Before its collapse, a potential acquirer conducted due diligence.

“We got in there and started digging and we freaked out. Because there was basically nothing there. There was a ton of liabilities, but almost no assets.”

PHL Variable. When it entered receivership, the rehabilitator confirmed the XOL assets were worth zero. A widow received $300,000 of a promised $2 million life insurance benefit. Fifteen cents on the dollar. Her husband paid premiums for decades.

Brookfield’s Vermont captives. The one time anyone saw inside: 5% funded.

Three glimpses. Three times: almost entirely empty. The rest are confidential.

IV. What They Will Say

The industry has three defenses. They are practiced. They sound reasonable in a conference room. None of them survive contact with the filings.

The first: XOL contracts provide genuine protection against tail risk. The probability of payout is low, but the coverage is real. The booking reflects accepted actuarial methodology. This would be convincing if the captives’ own risk transfer tests had not come back negative. Every one of them. The NAIC requires the test. The captives ran it. No risk was transferred. You cannot simultaneously tell the actuary the contract protects against catastrophic loss and tell the regulator no risk changed hands. There is also a reason the premiums are so cheap. The attachment point — the asset level where the XOL would actually trigger — is typically set below the level at which the insurer would already be in receivership. The contract kicks in after the company is dead. That is why Hannover charges $11.6 million on a $1.48 billion notional. It is not insurance. It is a receipt for a payment that will never come due. Pick one.

The second: captives are adequately supervised by their domiciliary state. Vermont examines them. Vermont has staff. Vermont has authority. This was a stronger argument before Vermont made captive financial statements confidential, eliminated the requirement to disclose them even under subpoena, and locked them in a vault. The supervisor did not open the door wider. The supervisor bricked it shut. And nobody should trust offshore courts, offshore accounting, or offshore recovery. If you press the industry for why policyholder money is sitting in Bermuda and Barbados, they will give you the least offensive reason they can find. There are no good ones. They will probably say taxes. That is the tell. When the best defense for moving a trillion dollars offshore is that you did not want to pay taxes on it, you have already lost the argument.

The third: affiliated reinsurance is disclosed on Schedule S. Regulators can see it. Investors can see it. The transparency argument. Schedule S shows that Athene has $235.7 billion in affiliated reinsurance on a consolidated basis — reserve credits plus modified coinsurance reserves across its domestic and offshore entities. It does not show what is backing it on the other side. The only time anyone saw inside a captive, it was funded at 3.7 cents — that was Brookfield. Athene’s captives are confidential. The modco structures are deliberately convoluted — liabilities wrapped in reinsurance wrapped in retrocession, split across jurisdictions so that no single examiner sees the whole chain. Schedule S shows the door exists. It does not show what is behind it. The disclosure is technically present and practically useless.

And when the chain terminates offshore — in Bermuda, in Barbados, in the Caymans — the United States government has no jurisdiction over what those courts decide. Bermuda has a real regulator. Barbados and the Caymans are lighter. But no offshore jurisdiction has ever been forced to choose between its largest revenue source and American policyholders. We do not know what Bermuda would do. We know what the incentives are. If recovery depends on an offshore court ordering an offshore reinsurer to honor an obligation to an American widow, the outcome is uncertain at best. That is not alarmism. That is how sovereignty works.

V. $1.54 Trillion

Using NAIC statutory filing data compiled by SNL Financial for year-end 2025, Gober calculated the total affiliated reinsurance — both reserve credits and modified coinsurance reserve taken by US life and annuity carriers on contracts with their own affiliated entities — across all 714 licensed L&A carriers in the United States.

$1,543,722,502,966

The entire US life insurance industry reports $657 billion in surplus. Affiliated reinsurance equals 235% of that surplus. The industry has ceded more than twice its total capital to entities it controls — entities in Vermont, Bermuda, Barbados, and the Cayman Islands that file limited or no public financial statements.

Some affiliated reinsurance has legitimate purposes. Tax optimization. Capital efficiency. Risk segmentation. These are bad for the system but they are not fraud. The more troubling reason the number is $1.54 trillion is that once a dollar moves to an affiliate, nobody can verify whether there is anything backing it — or whether it has been reinsured again somewhere else. At the end of this chain, it is likely we would see a lot of nothing.

“$1.54 trillion against 650 billion in total surplus. If even half of this is not good, it breaks everybody. And this is just the affiliated.”— Tom Gober

The following ranks the largest US life and annuity carriers by the ratio of affiliated reinsurance to statutory surplus. This is the number that shows how dependent each company is on entities no examiner has inspected.

They will challenge the half. Nobody knows the real number. That is the point — the confidentiality exists so that nobody can know. But after hours of conversation with the one man in the country most qualified to estimate it, I would write a pink slip that the real number is worse than half. And it does not matter. Even at 10% — even if 90% of the affiliated reinsurance is perfectly sound — $154 billion in phantom capital would send dozens of billions in unrecoverable liabilities onto the states. The margin of error they need to be safe does not exist.

Hannover — the entity that writes the XOL contracts it says it will never honor — carries $56.9 billion in affiliated reinsurance on $578 million in surplus. It is leveraged 99 to 1 on affiliated paper. Hannover Re, the German parent, carries over EUR 16 billion in group equity. The industry will point to the parent. But US policyholders do not have a claim on the parent. They have a claim on the US subsidiary — Hannover Life Reassurance Company of America — which is the entity that filed the Schedule S with zero reserve. In receivership, the US entity’s surplus is what matters. The parent’s capital is in Hanover, Germany. It is not pledged to American policyholders. The insurance backing the insurance backing the teacher’s annuity is nothing backing nothing. Turtles all the way down.

Prudential — across three entities — totals $147.2 billion. Apollo/Athene totals $273.6 billion. Global Atlantic, controlled by KKR, totals $113.2 billion.

Athene has $52 billion in affiliated investments — IOUs between brother and sister entities. NAIC guidelines limit affiliated investments to 50% of surplus — $2 billion for Athene. Iowa, as Athene’s domestic regulator, can grant waivers. If Athene has one, the breach is technically permitted. That does not make it safe. A waiver does not change the concentration. It changes who is responsible when the concentration blows up.

Greg Lindberg went to federal prison for paying cash to the North Carolina insurance commissioner to get around the same limits. The legal maximum exists because the last time someone exceeded it without permission, they went to prison. Athene exceeds that maximum by 26 times and collects $688 million a year in management fees.

Apollo tells regulators and lawmakers that its interests are aligned with policyholders — that it would be on the hook for losses.

Financial Times, October 31, 2018. “Private equity: Apollo’s lucrative but controversial bet on insurance.”

Apollo tells regulators its interests are aligned — that it would be “on the hook” for policyholder losses. Apollo tells equity investors the opposite — that Athene’s liabilities are non-recourse to Apollo’s balance sheet. The defense is that these are different legal entities. That is the point. Apollo structured it so that the entity making promises to regulators has no claim on the entity with the money. Alignment is not alignment when the capital is firewalled on the other side of a corporate veil. In every case where these structures have been tested in receivership, the veil has been pierced. The auditors know this. They have not said anything and the investors are clueless.

The $1.54 trillion is only what we can see — the affiliated reinsurance reported in US statutory filings. It does not include the independent cross-pollination. It does not include the retrocession chains. It does not include Europe.

VI. The Three Layers

Gober found the first scheme and went to the regulators. He wrote letters. He filed with the NAIC. He sent certified mail to state commissioners. He screamed. The industry heard him. They did not stop. They moved to the next scheme. He figured that one out. He screamed again. They moved again. Three decades. Three layers of obfuscation. Each one invented because the man in Mississippi would not shut up about the last one. He still has not.

Layer 1: The Captive. The company forms a captive in Vermont or Bermuda. It cedes liabilities but sends far fewer assets. The gap is plugged with XOL paper or contingent letters of credit. There are approximately $600 billion in captive reinsurance in the United States. The only time anyone has ever seen inside, the captives were funded at 3.7 cents on the dollar. The sample is one. The industry could make it larger by opening the books. It has not.

Layer 2: The Cross-Pollination. When the captive layer grew too large, they started ceding to independent troubled companies.

“Massive amounts of reinsurance going to and from only the troubled companies. None of it with New York Life or Northwestern Mutual, none of the good companies, the Guardian, none of them. Only the troubled companies are ceding to and assuming from each other.”— Tom Gober

First Allmerica Financial Life Insurance. $100 million in surplus. $22 billion in affiliated reinsurance — a 14,864% ratio. It owes $17 billion to seven independent insurance companies. Metropolitan Life has approximately $10 billion recoverable from First Allmerica. That is more than MetLife’s entire statutory surplus of $8.6 billion. If First Allmerica fails, seven independent insurers take losses exceeding their surplus. All of First Allmerica’s reinsurance flows offshore to its affiliate — Global Atlantic, controlled by KKR.

Layer 3: The Seven Funnels.

“There are about seven life reinsurance companies in the US. They assume from about 550 independent carriers. No longer are they spreading risk. They’re concentrating it. All of it is going offshore to their affiliate. Suddenly you’ve got 550 carriers filtered through just seven companies and all of it going to a handful of offshore affiliated reinsurers we can’t see.”— Tom Gober

Approximately 670 life insurance companies depend on these seven — bound by 831 overlapping reinsurance contracts. Many cedents depend on two or three funnels simultaneously. When one funnel breaks, the same company gets hit from multiple directions. Their combined liabilities to cedents: $149.7 billion. Of that, roughly $400 million was retroceded to real, independent counterparties. The rest — $133.5 billion — went to their own affiliated captives and offshore entities. Bermuda. Barbados. Ireland. No US examiner has ever set foot inside them. The combined surplus of all seven: $6.9 billion. If just 5.2% of the offshore is not recoverable, all seven are insolvent.

Hannover Life Reassurance — 231 cedent companies — is one of the seven funnels. Hannover is also the counterparty on the XOL assets it says it will never pay. The same company writing the phantom contracts is supposed to be the backstop for 231 insurers.

“They have intentionally set up a system that if nothing fails is extremely brilliant. It is the most efficient possible machine. But if one thing goes even slightly wrong, the dominoes are set up so that they’ll all fall.”— Tom Gober

The counterargument is that regulators intervene before dominoes fall. The counterargument assumes the regulators can see the dominoes. Tom sent certified letters for years. They never responded.

Once liabilities land offshore, we know nothing. The primary company cedes to its offshore reinsurer. That reinsurer retrocedes to another company offshore. That company cedes back to an affiliate of the originator. The liabilities do a round robin. Offshore entities do not file Schedule S. Their GAAP statements do not itemize the chain. It is untraceable by design. The offshore total that we can see and that is counted on is approximately $2 trillion. The $1.54 trillion affiliated is a subset. But it is probably multiplied at each step by the same phony premium for pretending that Brookfield paid Hannover.

“Rather than Spreading Risk as Once Intended, It is My Professional Opinion that These 7 Life Reinsurers Have Acted as a Vacuum, Concentrating Risks of 831 Life Insurance Companies Into a Handful of Affiliated Offshore & Captive Reinsurers.”— Thomas D. Gober, presentation to the US Senate Banking Committee, March 1, 2023

VII. The Morphine

In 2006, the FBI arrested executives at General Reinsurance Corporation — a subsidiary of Berkshire Hathaway — for a sham reinsurance scheme with AIG. Tom Gober worked the criminal case.

Elizabeth A. Monrad was Gen Re’s Chief Financial Officer. A CPA. On November 15, 2000, on a recorded phone call with John Houldsworth — CEO of Cologne Re Dublin, the offshore subsidiary used specifically because it “did not report to anyone” and addressed what the conspirators called “the North American problem” regarding regulators — Monrad described the structures that are the subject of this article:

“These deals are a little bit like morphine. It’s very hard to come off of them.”— Elizabeth A. Monrad, CFO of General Reinsurance Corporation, recorded November 15, 2000. United States v. Ferguson et al., Case 3:06-CR-137 (D. Conn.), Superseding Indictment, Document 229, Page 21.

In the same indictment, Gen Re’s lawyer Robert Graham emailed that the deal should use offshore entities so that “any reviewer of the AIG US entity’s statements wouldn’t be able to connect the dots to CRD and beyond.” Houldsworth asked if the deal would “show up in any kind of public document” in Ireland. He replied: “absolutely not.”

When Houldsworth asked another executive “how much cooking goes on” at AIG, the reply was: “they’ll do whatever they need to make their numbers look right... they’re very meticulous about managing their numbers.”

They kept the recordings. That is why they went to prison.

After her conviction, Monrad left Gen Re. She resurfaced at TIAA-CREF — the nonprofit pension insurer that manages retirement savings for teachers and public employees.

Every large insurance group has at least one reinsurer in Dublin, Ireland. Ireland strictly regulates insurance. It does not regulate reinsurance at all. This was established in the court proceedings of the case Monrad was convicted in.

VIII. The Numbers

Total US life and annuity industry surplus: $657 billion.

Three scenarios. Gober’s estimates as brackets.

“If even half is not good, it breaks everybody and it breaks a $10 trillion balance sheet system.” (Gober)

Half. Just half bad. And it breaks everybody.

The captives at 5% (what we actually saw)

Captives alone consume 87% of industry surplus. One bad year finishes it.

“I only trust 30% is money good.” (Gober)

The hole is 1.64x the industry’s total surplus.

Strip the affiliated reinsurance credit from each entity’s balance sheet: 29 of the top 30 are insolvent without it. This is not a hypothetical. It is arithmetic. The only question is whether the reinsurance is funded. The one time we saw inside, it was not. The only survivor: MassMutual. A mutual. No PE overlay.

When pressed, the industry will throw Brookfield under the bus. Brookfield is well respected. They are not a leader in this. From what we can see, every one of these firms — from Apollo to Golden Gate — are doing the same things. The only difference is that someone on Brookfield’s tech team did not know what was supposed to stay hidden.

Not included:

• Non-affiliated cross-pollination (Layer 2)

• Retrocession multiplier (round-robin)

• European exposure (Ireland, UK, continent)

• $2 trillion total offshore is what we can see. The rest is dark.

We are talking in such huge numbers that it is impossible to conceptualize the size of this hole. The industry will compare these numbers to total assets because total assets makes any numerator look small. Nobody compares them to surplus, which is the only thing that matters. Surplus is what stands between solvency and insolvency, between a functioning insurance company and receivership.

IX. How It Starts

The opening of this piece says private credit is the fuse and life insurance is the bomb. Here is how they meet.

Private credit portfolios are not marked by markets. They are marked by the managers who collect fees on them. The marks do not move until they have to. When a borrower misses a covenant, the manager can waive it. When a borrower cannot cover interest, the manager can capitalize it as PIK. When the portfolio looks soft ahead of fundraising, the manager can hold marks steady and let the vintage speak for itself. None of this is illegal. All of it delays the reckoning. I have made this point ad nauseam and I will make it again. One of the primary reasons Enron collapsed was mark-to-market accounting on illiquid markets — booking future profits on contracts that had no observable price. These firms do something worse. They mark to model on illiquid markets. They price assets that do not trade using assumptions they choose. Enron at least pretended there was a market. Private credit does not bother.

The reckoning is a downgrade. When enough borrowers miss enough payments that even a conflicted manager cannot hold the marks, rating agencies act. A downgrade from investment-grade to below-investment-grade is not a matter of opinion on the insurer’s balance sheet. It is a mechanical trigger. The NAIC designation changes. The capital charge increases. The bond that required almost no surplus yesterday requires multiples of it today.

For a company like Athene — 69:1 leverage, 1.45% margin of solvency — a modest wave of downgrades eats through the capital cushion in weeks. Not years. Weeks. The math is not complicated. If 5% of the portfolio gets redesignated and the capital charge triples on those positions, the surplus is gone. The company needs its reinsurance to be real. It needs to call on the captive.

The captive is funded at 3.7 cents on the dollar. The backstop — Hannover — booked a reserve of zero. The asset that was supposed to absorb the loss does not exist. The insurer was structurally insolvent before the downgrade. Now it is visibly insolvent. The only difference is that someone turned on the lights.

There is a timing problem that makes it worse. Private credit funds report quarterly, with lags. Statutory insurance filings are annual. The deterioration in the underlying loans can be six months old before it shows up on the insurance balance sheet. By the time the NAIC designation changes, the loss has already happened. The system does not provide early warning. It provides late confirmation.

X. The Fed Knows

The Federal Reserve’s own researchers have been documenting this. Carlino, Foley-Fisher, Heinrich, and Verani (March 2025) found that affiliated asset managers now control 72% of the industry — the same $187 billion CLO exposure and the same hidden leverage structures described in the previous section. Their conclusion: life insurer risky debt exposure now exceeds subprime mortgage-backed securities holdings from late 2007. The leverage in joint venture loan fund structures reaches up to 12:1 — despite regulatory limits that appear to show under 2:1.

The Fed’s own FEDS Notes (February 2024): recovery rates on direct loans — 33 cents on the dollar. Interest coverage: 2.0x — and the Fed, like the industry, is using EBITDA, not EBIT. When you add maintenance capex and account for company size, these borrowers are firmly in junk territory. The leverage they are running would be inadvisable for public companies with better asset selection and access to capital. And that is before unadjusting the bogus addbacks that PE sponsors bake into “adjusted EBITDA.” The industry “has yet to endure prolonged recession.” Interconnections with banks pose “hidden risks to the financial system.”

The Boston Fed (2025) asked: “Could the Growth of Private Credit Pose a Risk to Financial System Stability?” The title is the answer.

These are Federal Reserve economists. Publishing under the Fed’s name. And still nothing happens.

XI. The Machine

The sham reinsurance and the dividend extraction are the same event.

“As you approach year end, the CEO calls the CFO and the actuary: Where do we stand? Can we pay our dividend? We’re a billion short. The CEO turns to the actuary: I want you to come back with a much lower number.”

The actuary uses the 10% variance permitted by the Society of Actuaries. Goes lower. Still not enough. The CEO insists.

“In every criminal case I worked, the actuary literally cried. They told him if he didn’t come back with a lower number, he’d have to take his kids out of private school.”

Still not enough. That is when they do the first captive deal. Cede a billion in liabilities. Send half a billion in real assets. Plug the hole with XOL. Surplus rises by $500 million. The dividend is paid. The stock goes up. Management compensation is tied to the stock price. Next year the gap is larger. The captive deal must be larger. The morphine dose increases.

The metric designed to catch all of this is Risk-Based Capital. It measures how much surplus a company needs relative to the risk on its books. But the companies control which assets run through the formula. The private credit, the affiliated paper, the illiquid alternatives — none of it touches the RBC calculation. The number comes out clean. The regulator sees a ratio that says the company needs almost no surplus. The ratio is correct. The inputs are a lie.

The inputs include $187 billion in collateralized loan obligations. Life insurers own 17% of the entire US CLO market and 22% of the private credit CLO market. They hold 35 to 50% of the mezzanine tranches — the first paper wiped in a default cycle after equity. Under current NAIC rules, a AAA-rated CLO receives the same capital charge as a US Treasury. It is not a Treasury. It is a leveraged pool of loans to companies that cannot access public debt markets. The private credit CLOs — the ones that PE sponsors originate, package, and place into their own carriers — have not been re-rated at all. Athene holds $6 billion of them. The largest exposure of any insurer tracked. Apollo originates the paper. Apollo manages the portfolio. Athene is the buyer. There is no independent bid. This is the part that is real. And when the underlying loans default, it just disappears.

“The moment private equity buys a carrier, they force it to use them as the asset manager. They look at the portfolio — ‘they’ve got two billion in Treasuries, they only need a billion and a half. Let’s swap 500 million of our worst paper for their Treasuries.’ Then it gets more sophisticated. They start issuing affiliated notes. A secretary has done these notes for years. All they do is call her, change the dollar amount and the maturity date. Poof, policyholders have junk rammed down their throats.”— Tom Gober

Athene’s affiliated investments went from $40 billion to $52 billion in one year. The NAIC limit is 50% of surplus — $2 billion. Athene is at 2,600% of the guideline. Whether Iowa granted a waiver does not change the concentration. It changes the paperwork. Twelve billion dollars moved into affiliated paper in twelve months.

XII. What Happens Next

When a life insurer enters receivership, the state guaranty association steps in. Coverage caps vary. For life insurance death benefits, most states cap at $300,000. For annuity present values, $250,000. These are the numbers that are supposed to make people feel safe.

A widow in Connecticut held a $2 million life insurance policy with PHL Variable. Her husband paid premiums for decades. When PHL entered receivership, the rehabilitator confirmed the XOL assets were worth zero. She received $300,000. Fifteen cents on the dollar. She is not unusual. She is the template.

In the last decade, hundreds of corporations transferred their defined-benefit pension obligations to life insurers through pension risk transfers. The employer is off the hook. The insurer now owes the retiree directly. If that insurer is Athene, the retiree’s pension is backed by a company leveraged 69 to 1 whose affiliated reinsurance is 57 times its surplus. If the captive behind that reinsurance is funded the way Brookfield’s captives are funded, the pension is a claim on 3.7 cents.

The guaranty funds are financed by assessments on surviving insurers. If the surviving insurers are also insolvent — and 29 of the top 30 are, without their affiliated reinsurance — there is no fund. There is no backstop to the backstop.

A teacher in Ohio retires on an annuity. The annuity is held by an insurer. The insurer ceded the risk to a captive. The captive booked a phantom asset from Hannover. Hannover is leveraged 99 to 1 on affiliated paper and backstops 231 other companies with the same structure. The teacher’s retirement is a claim on a chain that terminates in nothing.

Closing

I am not a journalist. I am a citizen and a market participant. I am also a recovering alcoholic who knows what addiction looks like. Someone needs more and cannot stop. This industry needs more fees the way I needed more drinks. It does not end differently because you financially engineered better.

It is fugazi. The backing is either invisible or it does not exist. The counterparty says it will never honor the contract. The NAIC’s own tests say no risk was transferred. The NAIC’s own accounting standards say it is not an asset. Vermont passed a law saying it is. Then Vermont made it confidential. Then Vermont made it immune to subpoena. When a company cedes a billion dollars in policyholder obligations to a captive, sends half a billion in real assets, plugs the remainder with a contract the counterparty says it will never honor, and then pays itself a management fee and a dividend out of the surplus it just manufactured — that is extraction of value from policyholders to shareholders. There is no other word for why this is permitted.

Tom Gober has worked insurance fraud cases for the FBI for over a decade. In every case where forensic accountants went in on day one of a receivership, they recovered the money. Not from the insurer — the insurer was broke. From PricewaterhouseCoopers. From Milliman. From the outside actuarial and accounting firms that signed off on balance sheets they knew were hollow. They paid in a hurry. They did not fight. Because the discovery process would have shown they knew.

The power at stake here is so massive — so concentrated, so politically connected, so deeply embedded in every node of the regulatory and financial architecture — that all I can say is I am good with my God. I do not need to be good with Marc Rowan or Jon Gray or anyone whose net worth depends on nobody reading the footnotes.

I would go broke and live in the woods in Mississippi to stop this madness. All I need is one friend, and his name is Tom.

Once the government fills a trillion-dollar hole with taxpayer money, the incentive to claw back from the architects disappears. That is what they are counting on. The extraction is complete. What remains is the obligation and it falls on policyholders and taxpayers in that order. State guaranty funds cover $250,000 per policyholder. The hole is a trillion dollars. The funds are financed by assessments on surviving insurers. If the surviving insurers are also insolvent, there is no fund. My generation inherits the wreckage. My children inherit the debt written to clean it up. The downgrades to private credit have already started. Everyone can see them coming. The trigger is not hidden. It is on a schedule. One commission with subpoena power would rip the cover off of this before the downgrades do it for us. For once in the history of American finance we could be proactive. This will blow up. The only variables are when and how much the public pays for it.

Nick Nemeth
Wyandanch Consulting LLC

Nemo ausus est.

Nobody dared. I did.

Sources:

1. AEL Re Vermont, Inc. — 2024 Annual Statement. NAIC Company Code 17189.

2. AEL Re Vermont II, Inc. — 2024 Annual Statement. NAIC Company Code 17553.

3. AEL Re Vermont III, Inc. — 2024 Annual Statement. NAIC Company Code 17722.

4. Thomas D. Gober, CFE — Presentation to US Senate Committee on Banking, Housing, and Urban Affairs. March 1, 2023.

5. S. Hrg. 117-747, at 57. Senate Committee on Banking, Housing, and Urban Affairs, “Current Issues in Insurance” (September 8, 2022).

6. Thomas D. Gober — Expert Declaration, US District Court, District of Maryland (May 28, 2024). Lockheed Martin pension risk transfer litigation.

7. NAIC/SNL Financial YE 2025 — Affiliated reserve credits and modified coinsurance, all 714 US L&A carriers.

8. NAIC/SNL Financial YE 2025 — Surplus, liabilities, and total assets, all US L&A carriers.

9. United States v. Ferguson et al., Case 3:06-CR-137 (D. Conn.), Superseding Indictment, Document 229, filed September 20, 2006.

10. FSOC 2025 Annual Report. Financial Stability Oversight Council.

11. IMF Global Financial Stability Note 2023/001.

12. BIS Papers No. 161 (October 2025).

13. NAIC SSAP No. 4 — “Assets and Nonadmitted Assets.”

14. Vermont Statutes Annotated, Title 8, Chapter 141.

15. John Ellis, “Warnings of Mounting Risk,” News Items Substack. November 15, 2025.

16. United States v. Greg E. Lindberg, Case No. 3:19-cr-00095 (W.D.N.C.).

17. Koijen & Yogo, “Shadow Insurance,” Econometrica Vol. 84, No. 3 (2016).

18. The Real Eisman Playbook, Episode 48. Steve Eisman and Thomas D. Gober. March 2, 2026.

19. Hannover Life Reassurance Company of America — Annual Statement (public filing).

20. Carlino, Foley-Fisher, Heinrich, Verani — Federal Reserve FEDS Notes. March 21, 2025.

21. Newsweek — “The Next AIG Scandal?” Michael Hirsh. March 18, 2009.

22. Barclays Research — “US Insurance and CLOs: NAIC CLO Proposal Skews More Negative to RBC Ratios than Positive.” March 30, 2026.

23. Financial Times — “Private equity: Apollo’s lucrative but controversial bet on insurance.” October 31, 2018.

There is a concept in engineering called a margin of safety. A bridge designed to hold ten tons is built to hold thirty. The extra twenty tons is the acknowledgment that the engineers do not know everything. Finance has no margin of safety. It has a margin of extraction. Every dollar of surplus capital is a dollar that could be earning fees. And so the systems we build are bridges designed to hold exactly their load, with the surplus steel sold for scrap, and a sign at the entrance that says: Capacity: 419%.

The sign is not lying. It is measuring the right thing in the wrong unit.

“It is difficult to get a man to understand something when his salary depends upon his not understanding it.” — Upton Sinclair

Speaker Johnson, you do not need to understand every number in what follows. You need to recognize the imperative of acting on it. There will be significant pushback — from industry lawyers, from lobbyists, from actuaries with spreadsheets designed to obscure rather than illuminate.

The pushback will come on the technicals. It will not come on the ideas. Because the ideas strongly favor alarm. John Maynard Keynes said it best:

“It is better to be roughly right than precisely wrong.”

I am an ardent capitalist. This letter does not come from hostility to markets. It comes from the same place a ship’s engineer sounds the alarm — not because he wants to sink the vessel, but because he can hear the hull groaning below the waterline while the crew dances on the deck.

The rot I am describing does not threaten capitalism from the outside. It threatens it from within. And when the hull finally gives, the architects of the structure will not be treading water. They will be in the lifeboats — with the silverware. The fees are already collected. What remains on the ship are the retirees. And they will be fearful, but they will not pay for this.

My generation inherits the wreckage. My children will inherit the debt written to clean it up. I am asking you to decide whether that is acceptable before the ship goes under, not after.

419%

Athene Annuity and Life Company — controlled by Apollo Global Management — reports a Risk-Based Capital ratio of 419%. The human brain sees that and thinks: four times the required capital. A fortress.

Let me walk through what it actually means.

The RBC ratio divides capital by the Company Action Level — the full risk-based capital requirement. A 419% ratio means the company holds 4.19 times the required capital. That sounds like a fortress. It is not. Because the requirement itself is built on risk charges so small they barely exist. Every bond carries a charge based on its rating:

For a AAA bond, the insurer holds sixteen cents per hundred. For BBB — the bottom rung of investment grade, where hundreds of billions sit — a dollar fifty-two. Per hundred.

Athene’s portfolio is 97% investment grade. The weighted average charge is roughly 0.35% of invested assets. On $282 billion in invested assets, the full capital requirement is approximately $979 million. Less than a billion dollars. To backstop $282 billion.

Athene holds $4.1 billion in capital. $4.1 billion divided by $979 million equals 419%.

That is where the number comes from. Four times a number that is one-third of one percent of the asset base. The ratio is high because the requirement is small. Not because the capital is large.

The distance from insolvency is different: $4.1 billion on $282 billion. That is 1.45%.

If banks reported capital the way insurers do, Lehman Brothers would have had an RBC ratio north of 10,000% the week before it collapsed. Lehman was levered 30 to 1. Athene’s U.S. entity is levered 69 to 1. The RBC ratio was designed to measure the distance from seizure, not the distance from insolvency. You can be miles from seizure and inches from insolvency if the charges are small enough and the balance sheet is large enough.

What I Found

I opened the filing. It is 9,612 pages. 6 million tokens. Two hundred and eleven megabytes of words. That is a single PDF for a single entity for a single year. For comparison, War and Peace is 1,225 pages and nobody has ever read it.

Page 3 — the balance sheet:

The filing is organized into schedules. Here is what 9,612 pages looks like:

Schedule B — 5,316 pages of individual mortgage loans. The portfolio nearly doubled in one year.

Schedule DB — 3,212 pages of derivative positions.

Schedule BA — 23 pages. The black box. $17.5 billion in “Other Long-Term Invested Assets” — private equity funds, hedge funds, debt securities that “do not qualify as bonds.” On page 5,815: Apollo Hybrid Value Fund. Apollo Infra Equity US Fund. Apollo Infrastructure Company. Apollo Natural Resources Partners. Assets with no CUSIPs. Descriptions like “AP Pistachio LP.” This category grew 50% in one year.

Schedule D — 200 pages of bond positions. Page 462 is the most important page in the entire filing.

Page 462, Line 52 — the bond portfolio by quality and placement:

Seventy-two percent of the bond portfolio — $114.4 billion — is privately placed. These bonds do not trade. They do not have market prices. They are valued by models, rated by agencies paid by the issuer, and automatically accepted by regulators without review through the NAIC’s “filing exempt” rule. Under Statutory Accounting Principles, they are carried at amortized cost — unrealized losses never flow through the balance sheet. Silicon Valley Bank used the same accounting on a portfolio 74% smaller.

I should tell you how I obtained this filing. Athene publishes voluntarily on its investor relations website. It does this because it is part of Apollo, a publicly traded company with fixed-income investors who demand transparency.

Most insurers do not publish. For the vast majority of the roughly 700 life insurance companies in America, the statutory filing is available only through the NAIC’s InsData system — behind a paywall. You must create an account and pay to access the financial statements of companies holding $9.3 trillion in American savings.

EDGAR is free. The NAIC charges for the privilege of oversight.

Athene is, by most accounts, in the top decile of operators in this space. The people I have spoken to — industry professionals, actuaries, former regulators — generally believe Apollo runs a sophisticated, well-managed operation. Allow me to not dispute that for a second. I found 69 to 1 leverage, $114 billion in privately placed model-valued bonds, and a 1.45% margin of solvency. At the company confident enough to show its work.

Athene will point to $35 billion in consolidated regulatory capital across its US and Bermuda entities, including third-party sidecar capital from Apollo’s ADIP fund. At that level, leverage is roughly 11 to 1. But the $35 billion is not sitting in one place. The US entity — the one that issues the annuities, the one that holds the promises — has $4.1 billion.

The rest is in Bermuda, in affiliated reinsurers that file 8 pages per year, and in third-party sidecars whose investors have their own exit rights. In a crisis, the question is not how much capital exists across the corporate structure. It is how much is available at the entity that owes the money, when it owes it, under the jurisdiction that regulates it. That entity is AAIA. And AAIA has $4.1 billion. The capital that isn’t legally obligated to pay you is not capital.

Athene’s own disclosure states that policies and contracts are the sole obligation of the issuing insurance company. The capital maintenance agreement runs from a holding company, not from the Bermuda reinsurers. And ACRA’s third-party investors have no statutory obligation to AAIA whatsoever. In a receivership, you are not consolidating across jurisdictions — you are liquidating one Iowa-domiciled insurer with $4.1 billion of surplus against hundreds of billions in annuity liabilities.

And what is on the balance sheets of the companies that do not publish? The ones ranked 50th, 100th, 200th. The ones with three people in the investment office. The ones in states with zero financial examiners. I do not know. Nobody knows.

Permanent Capital and the Cliff

I need to explain why private equity found insurance.

When a PE firm raises a fund, the capital has a defined life. Ten years, maybe twelve. Insurance liabilities are different. When a 62-year-old retired teacher buys a fixed annuity, that money sits on the balance sheet for decades. It cannot be recalled. Pension buyout contracts last until the last beneficiary dies. McKinsey called it “an enticing form of permanent capital.” By 2024, PE-backed insurers controlled 25% of all U.S. individual annuity liabilities.

I want to be precise about what this means for the teacher. Her $200,000 — saved over thirty years — lands on a balance sheet levered 69 to 1. Invested in a portfolio that is 72% privately placed. Managed by Apollo, which earns fees on both sides. She was sold safety. She got leverage. She will never know unless somebody tells her.

That is what “permanent capital” means. Her money is permanent. The safety is not. Because the permanence is not conditional on a crisis. It is conditional on ignorance.

The teacher does not need a credit downturn to surrender her annuity. She needs a headline. She needs her advisor to call and say: I am moving you to a mutual. Surrender charges are typically 7% in year one, declining to zero over seven to ten years. For policies past the surrender period, the policyholder walks free. For policies still in it, 7% is a small price to pay if you believe your insurer is levered 69 to 1 on private credit. People paid more than that to break CDs during the savings and loan crisis. Fear is a stronger force than a fee schedule.

And fear arrives the way Hemingway described going bankrupt: gradually, then suddenly. One article. One downgrade. One advisor sending one email. The annuity market runs on the assumption that policyholders do not think about what backs their contract. The moment someone translates 419% into 69 to 1 and puts it on television, the permanent capital thesis unravels.

And at the same time, the same credit deterioration that generates the headlines hits the asset side. Bond values fall. Capital erodes at 69x the rate of decline. Rating agencies downgrade. The downgrade generates more headlines. More surrenders. The insurer sells assets into a falling market, realizing the losses that amortized cost had been hiding. Capital erodes further. The cycle accelerates.

The exits and the losses are the same event. They will call it six sigma. They will say they could not have anticipated it. It is not a black swan. It is the mechanical description of every insurance company failure in history — Executive Life in 1991, PHL Variable in 2024. The structure guarantees it.

On November 24, 1997, Shohei Nozawa — president of Yamaichi Securities, one of Japan’s four largest brokerages, a hundred-year-old institution — wept on live television as he announced its collapse. The firm had hidden billions in losses for years. The filings said everything was fine. Nozawa said one thing through his tears:

“It is management’s fault, and not the rank and file’s fault.”

There is a second mechanism hiding in the capital charge table. Look at what happens at the border between investment grade and below:

A single-notch downgrade increases the capital charge 45%. Two notches doubles it. To CCC, it multiplies by eleven. Athene holds $60.1 billion in the BBB tier. In the first weeks of COVID, fallen angel downgrades were five times larger than the entire Global Financial Crisis. The industry was rescued only because the Fed backstopped every BBB bond in America before the cascade could play out.

In a downgrade wave, the scissors close from both sides. On the asset side, values fall — eroding capital at 69x the rate of decline. On the requirement side, downgrades spike the charges — increasing the capital the company must hold. A company at 419% on Monday can be at 250% by Friday. Not because it lost money. Because the denominator moved.

Now consider who is assigning the ratings that determine these charges.

Seventy-two percent of Athene’s bonds are privately placed. Private bonds do not receive public ratings from S&P or Moody’s. They receive private letter ratings from smaller agencies. The largest is Egan-Jones Ratings Company — 20 analysts, 3,000 private credit ratings last year. One rating per analyst per business day. For a determination that draws the line between $2.17 and $23.80 in required capital per hundred — between solvency and seizure on a balance sheet levered 69 to 1.

The SEC is actively investigating Egan-Jones for improper commercial influence on its ratings. In 2022, the SEC barred founder Sean Egan from rating decisions and imposed $2 million in penalties over conflicts. The BIS warned that private credit grades from smaller firms risk “inflated assessments of creditworthiness.”

In April 2023, Egan-Jones reaffirmed BBB on Chicken Soup for the Soul Entertainment. Fourteen months later — Chapter 11. Twelve days after that — Chapter 7 liquidation. $970 million in debt against $414 million in assets. The BBB-rated notes were unsecured. Recovery: pennies. Under the filing-exempt rule, that BBB translated to NAIC 2 on any insurer’s balance sheet — a capital charge of $1.52 per hundred. The actual loss was close to $100 per hundred. The capital charge system caps at 30%. The losses do not.

The charges that underpin the 419% ratio assume 97% of the portfolio stays investment grade forever. They assume the ratings are right. They assume one analyst per day is enough. It will not. They are not. It is not.

“Risk is what’s left over when you think you’ve thought of everything.”

— Carl Richards

The League Table

The ACLI publishes annual rankings based on NAIC data. Here are the top ten life insurance groups by general account assets — the money that is actually invested, the money backing the promises:

The first place to look is the PE-backed insurers. They changed the game. Athene — Apollo — did not exist fifteen years ago. Now it manages more invested capital than Prudential. Global Atlantic — KKR — is number nine. Brookfield Wealth Solutions entered at $98 billion. Talcott Resolution — Sixth Street — at $113 billion. $75 billion in insurance M&A by PE firms followed the Apollo playbook: buy the insurer, replace the conservative portfolio with higher-yielding private credit, collect the spread, collect the fees.

But the PE-backed insurers are where the story begins, not where it ends. Look at the public companies. MetLife. Lincoln Financial. Corebridge. Equitable. When Athene offered crediting rates 50 to 75 basis points above everyone else, these companies watched their market share evaporate. They had a choice: lose share and get punished by Wall Street, or adopt the practices. They adopted. Lincoln now targets RBC above 420% while loading private placements. Corebridge distributes $2.2 billion to its holding company while maintaining a fleet RBC over 400%. These are not PE-backed companies. They are publicly traded companies that adopted PE-backed practices because their shareholders would fire the CEO who did not.

Then there are the mutuals. New York Life. Northwestern Mutual. MassMutual. The Green Bay Packers of insurance — policyholder-owned, no PE overlay, no stock price to manage. The policyholders are the owners. This is the best incentive structure in the industry, and it produces the most conservative balance sheets. New York Life reported $33.3 billion in surplus at year-end 2024. A record. These are the institutions your grandparents trusted.

But the Packers play in the same league as the Raiders. When Athene offers rates funded by private credit and the public companies match to survive, the mutuals bleed policyholders. A Northwestern Mutual advisor has to explain to a retiree why the crediting rate is lower than the advisor down the hall. The retiree does not care about incentive alignment. The retiree cares about the number.

So the mutuals crept. Not at Athene’s level. Not 72% private bonds. But the direction is the same. More private credit. More alternatives. More opaque, marked-to-fantasy credit on balance sheets that were, for a century, the most conservative in American finance. Across the entire industry, private bond allocations went from 29% to 46% in a decade. Ninety-one percent of insurers surveyed by BlackRock planned to increase private market allocations within two years. The risk has reached the last line of defense.

A 400% RBC ratio at Northwestern Mutual means something fundamentally different than a 419% at Athene. But the metric treats them as equivalent. One is a savings account. The other is a leveraged bet. And the percentage that describes them both is a number that nobody translates.

PHL Variable

Golden Gate Capital acquired PHL Variable Insurance Company. By May 2024, capital was negative $900 million. Within six months: negative $2.1 billion.

S&P had downgraded PHL five notches in 2019. Regulators did not seize it for five more years. During those years, Nassau Financial Group — Golden Gate’s vehicle — charged $76.3 million in management fees while the company was under state oversight. Bloomberg reported that hundreds of millions of dollars was moved around in a circle to give the illusion that PHL Variable was OK when it wasn’t.

One widow received $300,000 of a promised $2 million life insurance benefit. Her husband paid premiums for decades. He died believing his family was protected. She received fifteen cents on the dollar.

PHL Variable had a fraction of the assets, a fraction of the complexity, and a fraction of the opacity that Athene has. If it took regulators five years to act where S&P had already sounded the alarm, how long would it take to unwind a company with $341 billion in assets and an RBC ratio that says everything is fine?

602

Across all fifty states, 602 financial examiners oversee an industry with $9.3 trillion in assets. Ten states have zero. The standard is to examine each insurer once every three to five years. The most recent exam of Athene covered through December 31, 2021 — when it had $76 billion in assets. The exam report was 22 pages. No issues found. The company is now four and a half times larger.

$1.1 trillion in insurance assets sits offshore — Bermuda, Cayman Islands — in affiliated reinsurers with softer rules and less disclosure. Athene’s Bermuda entity files 8 pages per year. Its U.S. entity files 9,612. The difference in disclosure is a factor of 1,200.

The Bank for International Settlements estimated a potential $150 billion capital shortfall across publicly traded North American life insurers in a severe downturn. More than triple the figure from two decades ago.

Two Ways This Ends

There are two ways this ends.

In the first scenario, a broad credit downturn triggers the fallen angel cliff across multiple insurers simultaneously. The Fed intervenes but the hole is too deep or the politics too toxic. Everyone is in the room. The problem is obvious. The reform is painful but fixable.

In the second — the nightmare — it happens one company at a time. PHL goes down. Six months later, a mid-tier insurer gates redemptions. A quarter after that, a PE-backed reinsurer in Bermuda cannot meet obligations. Each time the industry says: that was them, not us. Each time, the companies not yet in trouble are not in the room. So they are not part of the problem. And three months later, they are the ones asking for help.

This goes on for five to ten years. The annuity market contracts. Policyholders who understand move to Treasuries. Policyholders who do not lose money slowly — reduced benefits, extended surrenders, guaranty fund haircuts that never quite make them whole. A generation of retirees learns not to trust insurance the way a generation of Japanese savers learned not to trust banks.

There is no reform in this scenario. No single event large enough to force it. Just a slow bleed, one company at a time, each failure explained as idiosyncratic. And the structural problem persists through all of it.

The people most damaged would not be hedge fund managers or private equity partners. They would be the people in annuity contracts. The ones who bought safety and got leverage. It would do to a generation of retirees what the 1970s did to equity investors — except the asset class they lose faith in is the one that was supposed to be safe.

“You do not know just how much of your analysis is being infiltrated and infected by the system around you.”

— A close friend

Why Congress

Insurance is regulated state by state, coordinated by the NAIC — which is not a government agency. The last time Congress addressed insurance regulation was the McCarran-Ferguson Act of 1945. That law was written for whole life policies and investment-grade portfolios. Not for a world of 69 to 1 leverage, $1.1 trillion offshore, and 9,612-page filings behind paywalls.

I am asking for five things:

1. Require the GAO to study leverage — not RBC ratios — across the life insurance industry. Translate every RBC ratio into its implied leverage multiple. Show Congress what 419% actually means.

2. Make insurance statutory filings freely available on a public, searchable, machine-readable database equivalent to EDGAR. The $9.3 trillion paywall is an abdication of transparency.

3. Direct the Federal Insurance Office to produce an annual report on leverage, asset quality, and affiliated transactions of every insurer that accepts pension capital or issues annuities.

4. Require the NAIC’s Securities Valuation Office to review all privately rated securities above $50 million — eliminating the filing-exempt backdoor that lets $114 billion in bonds receive designations without independent review.

5. Commission a study of McCarran-Ferguson’s adequacy for the modern insurance landscape.

1.45%

Athene Annuity and Life Company holds $282 billion in invested assets against $4.1 billion in capital. A 1.45% decline erases that capital entirely.

The RBC ratio says 419%. Rating agencies say A+. The investor presentation says “fortress balance sheet.” The Iowa Insurance Division examined it four years ago when it was a quarter of its current size and found no issues. The filing is 9,612 pages long and costs money to access.

And at the bottom — beneath the leverage and the offshore entities and the amortized cost and the filing-exempt designations and the 9,612-page PDF — are the policyholders. The retired teacher who saved for thirty years and was sold safety. The widow who received fifteen cents on the dollar. The pensioners whose boards bought annuity contracts from companies levered 69 to 1 because the metric said 419% and nobody translated.

The extraction has already happened. The fees have been paid. The question is who absorbs the loss when 1.45% happens. We know that answer, don’t we.

I am not asking you to take my word for it. I am asking you to read the filing. Page 3. Page 4. Page 462. Page 5,815.

If I can find it, your committees can too. The math is not hard. The will is what is missing.

The distance from seizure is 419%. The distance from insolvency is 1.45%. The people who will bear the cost of that gap did not build it, did not profit from it, and do not know it exists.

I am telling them now.

Quis custodiet ipsos custodes? — Who watches the watchmen?

Nick “Nemo” Nemeth