No. of Recommendations: 34
What's behind these shorts is probably new rules the private equity regulators have enacted. They take place bgeinning in 2027. It's an area I've been following as it develops. I'm trying to learn more about the private lending world. Below are some extracts from an AI search that may explain what's going on, and why it may impact a lot of insurance companies owned by private equity.
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Beginning in 2027, private equity owned insurers will no longer be able to treat most of their bespoke lending structures as a single, uniform “collateral loan” category. Instead, they must look through to the underlying assets and classify each exposure according to its economic substance. This dramatically reshapes how PE firms must classify and capitalize
Beginning in 2027, PE firms must classify loans based on look through economic substance, not structural packaging. This:
• raises capital charges
• forces disaggregation of private credit exposures
• reduces the ability to use collateral loan buckets to manage RBC
• increases transparency and regulatory oversight
The 2027 rules are not a tweak — they are a structural shift in how PE owned insurers must classify and capitalize their loan portfolios.
Historically and through 2026, the standard Risk-Based Capital (RBC) factor for collateral loans held by life insurers was a flat 6.8%.
The NAIC historically grouped these investments together in Schedule BA (Other Long-Term Invested Assets). This broad categorization created unique dynamics for insurers up to 2026:
Uniform treatment: The flat 6.8% charge applied regardless of what actual assets were backing the loan—whether high-risk equity tranches or lower-risk asset classes.
• The structural flaw: The NAIC previously deemed this risk immaterial. However, as insurers increased structured credit investments, the flat rate created a loophole. Higher-risk underlying investments (like joint ventures or residual tranches) only received a 6.8% charge instead of the 30% to 45% capital charges they would face if held directly.
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These moves will very significantly increase the amount of capital that these firms must retain to support the loans under the new regulations. Another factor, not discussed above, is that risk evaluation focus is significantly increased. In the recent past, now ending in 2026, many private lending firms would use risk ratings from sub-par rating agencies, or even their own evaluations of their loans. Going forward the regulators will put increased focus on these ratings. Moreso, regulators will now have the right to do their own risk evaluations if they deem necessary, and the lending firms must use their evaluations.
In a nutshell, up to 2027 the private lending firms could enjoy a lot of leverage by only needing low risk based capital, and using questionable risk evaluations. This will significantly change going forward. I think this is what the new short sellers are focusing on. A lot of these firms must restructure, could go under, or sell off their insurance holdings at whatever price they can get.
When asked what percent of earning from major PE firms will be impacted by these changes, AI gives numbers all over the map. Apollo is believed to have the highest impact, followed by Blackstone and KKR.
Berkshire Hathaway is not in the private lending business, and is totally un-effected by the foregoing.
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Interested readers should do their own AI inquiries.
It's been a while since I had anything I thought was worth posting. Maybe the foregoing will be helpful to some.
