MichaelX รีทวีตแล้ว
TLDR: I am a recovering alcoholic with no fund, no credentials, and no lobbyist. I rebuilt myself from nothing. Then I broke into finance with no degree, no pedigree, and no permission.
I parsed SEC filings for a $31.5 billion private credit fund called Cliffwater. Not because anyone asked me to. Because nobody else would. The filings are public, but they are buried in footnotes that are not indexed, not searchable, and not structured for analysis. I have been told by fund managers that nobody even attempts this.
Billions of dollars in pension capital, and the people who manage money for a living do not bother to read the filings.
So I read them. Every loan. Every amendment. Every semi-annual PIK disclosure. 2,330 positions. I hand-researched fifty.
I found 189 loans where borrowers are paying interest with more debt instead of cash. I found over 50 loans that are not generating enough cash to service their debt at all — carried at par on the books of a fund that has never reported a losing month in 41 months.
The fund's Sharpe ratio is 3.75. Bernie Madoff — who was fabricating returns and could pick any number he wanted — ran a 3.5. He got caught because the numbers were too smooth by Markopolos. The greatest quant fund in history, Renaissance Technologies, runs a five or six.
Cliffwater is claiming risk-adjusted returns that would be impossible even if you insider-traded with perfect information every single time, because the volatility of the underlying markets would still prevent it.
Nobody asked questions.
Bloomberg confirmed 14% redemptions 48 hours after I published. S&P cut the fund's outlook to negative this week. Cash on hand fell 76% in six months.
This is not an isolated fund. This is the structure. $9.4 trillion in private equity. $3.5 trillion in private credit. They all pay their own valuation agents. The valuation agents decide what the funds are worth. No valuation agent has ever been fired for saying the number was too high.
The marks produce the NAV. The NAV produces the fees. The fees come from pensions. The pensions come from firefighters and teachers and nurses in Oregon and California and Illinois who will never read a private placement memorandum in their lives.
Wall Street ran out of rich people. The endowments were full. The sovereign wealth funds were tapped. So they went downstream — to 401(k)s, to retirement accounts, to interval funds sold to people who have no idea what they own.
1. Direct the SEC and FSOC to examine Level 3 fair value practices across interval funds and BDCs.
2. Require that valuation agents be independent of the funds they mark.
3. State publicly that the current self-marking regime creates systemic risk.
4. Mandate position-level mark disclosure for every fund that accepts pension capital.
There are two ways this ends. It breaks all at once like 2008 and we fix it. Or it rots slowly like Japan: one fund blows up, six weeks of quiet, another one, and nobody connects it for a decade while a generation of retirees gets destroyed.
I am not asking anyone to take my word for it. I am asking them to read the filings.
If you know someone in the administration, a regulator, or anyone on a legislative committee, please send this to them. One person learned this from a one-bedroom apartment. Your government can too.
The will is what is missing.
Nick Nemeth (Mispriced Assets)@NickNemo17
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