Private Credit's Clock is Ticking w/ Glenn Schorr & Ken Worthington | The Real Eisman Playbook Ep 72

Overview

The episode (recorded July 30) covers a fast-moving market backdrop: strong tech earnings (Microsoft up strongly; Meta down after weak guidance), plus a major risk event—a large, highly leveraged hedge fund (reportedly tied to a former OpenAI employee) being liquidated. The hosts use this setup to discuss earnings-season concerns and themes across banks, brokers, private credit/private equity, and crypto-related financial firms.

Market / earnings context

• Microsoft’s strong results lifted markets sharply.
• Meta’s guidance and earnings weakness pulled its stock down.
• The liquidation of a leveraged hedge fund is framed as an example of how quickly risk can crystallize even during a rally.

What investors are focused on in covered financial stocks

1) Alternative asset managers: M&A and deal activity + private credit + wealth distribution

This earnings season, common questions include:

• Outlook for middle-market M&A
• What’s happening in private credit
• Whether alternative investment products can still be sold effectively to wealth management clients

2) Retail brokerage firms: “lazy cash” profitability vs. “agentic/AI optimization”

Ken explains the core brokerage income mechanics:

• Customer cash is swept into money-market/bank products
• Brokers earn spreads/fees, especially on cash that isn’t actively optimized (“lazy cash”)

The key debate:

• If AI/“agentic AI” can optimize cash automatically (timing needs, shifting to better yields, using predictive budgeting), it could reduce brokers’ spread/fee opportunity—even if customers benefit.

Potential regulatory/operational constraints discussed:

• Regulators may not allow system-wide rapid swapping/more “optimization” that could destabilize deposit/cash-management flows.
• A transition/evolution is expected rather than an abrupt rewrite of the business model.

Which business models are more resilient to cash optimization?

• More resilient (banks / relationship-heavy models):
  • Glenn argues large banks and multi-product relationship models can defend revenue through convenience, trust, security, and cross-selling—cash yield may be less central than in pure-play brokerage “cash spread” models.
• More exposed (retail brokers):
  • Ken points to brokers that heavily monetize customer cash (explicitly named: Charles Schwab and LPL) and argues the cash-optimization debate is active: how quickly “agents” spread and whether firms allow third-party optimization matters.

AI agents as portfolio managers: not an immediate threat

• Glenn highlights a concern: AI agents may not be reliably correct in money management.
• The implied requirement for broad adoption is extremely high accuracy (he suggests near-perfect correctness).

Private credit and private equity: flows, redemptions, and the “clock ticking”

Private credit (especially wealth-channel direct lending)

• Glenn’s view: after a worse period earlier in the year driven by redemption pressures, the situation has “eased,” but demand for new direct lending/wealth products has largely dried up.
• Redemption risk remains (still tied to 5% per-quarter limits in many funds), but fewer new redemptions are arriving than during peak stress.
• Core claim: anxiety is about underlying portfolios—especially software exposure—but cash-flowing borrowers are not broadly collapsing right now.

Private equity health: performance dispersion and “can’t sell” problem

• Even with public markets up (and private equity benefiting from rising valuations historically), Glenn argues private equity is increasingly underperforming public benchmarks.
• The issue isn’t only operating performance—it’s monetization/distribution:
  • Some firms can monetize (example cited: KKR with strong monetizations)
  • Others face limited exits despite improved markets
• Long holding periods and valuation mismatches are implied as key drivers.

The core risk in private credit: software refinancing “later” (2027–2028)

• The discussion converges on a timing risk: private credit loans tied to software/SaaS may be the real stress point when refinancing waves hit.
• Refinancing risk is described as starting meaningfully around 2027 and intensifying in 2028.
• Even if companies are still cash-flowing today, loan terms and valuations may force renegotiations.

Direct lending negotiations and potential outcomes

• Steve emphasizes that valuations of portfolio companies have fallen sharply, aligned with public software “down ~50%” dynamics—raising refinancing leverage issues.
• Potential restructuring paths include:
  • Lenders asking equity sponsors to contribute more equity
  • Extreme outcomes where sponsors refuse and lenders take over / recover through workouts
  • Opportunistic credit funds stepping in to buy/reshape capital structures (sometimes senioring, levering differently, or offering better-position terms)

Software concentration debate (name-brand exposure)

• Glenn notes about half of private credit is direct lending, and exposure varies by manager.
• Blue Owl is called out as a technology-exposed direct lending manager whose stock has suffered.
• Steve challenges “we’re fine” reassurances: even if borrowers are functioning operationally, refinancing math and mark-to-market valuation pressure will still dominate negotiations.

Why returns and valuations matter

• Returns are described as compressing from mid/high teens-plus historically to higher-single-digits / mid-single-digits, flowing through valuations and investor sentiment.

Crypto / brokerage firms: Coinbase, Circle, Bullish (and Robinhood cameo)

Who they cover

Ken’s crypto-venue roster includes:

• Coinbase (exchange/broker/prime broker/market maker functions combined)
• Circle (USDC stablecoin issuer)
• Bullish (institutional crypto brokerage)
• Robinhood (primarily equities/options, with a crypto business)

Debate: what’s the crypto thesis—hedge vs. technology vs. use cases?

• Steve’s critique: the common “crypto as a fiat-hedge” thesis doesn’t match observed behavior (crypto often moves opposite to that hedging logic during risk-on/risk-off days).
• Ken reframes crypto as an asset class tied to blockchain technology growth and token proliferation, arguing tokens will be traded like equities/fixed income as blockchains gain use cases.

Bitcoin vs. other chains

• Ken’s stance: Bitcoin is a relatively single-use “store of value,” which he views as less compelling than ecosystems with more evolving functionality.
• He argues ecosystem risk is concentration in a small number of tokens, claiming Bitcoin is about half the market, reducing conviction versus “working chains” with more use cases.
• Bitcoin’s role may persist as a store-of-value/gold substitute, but Ken suggests capital could gradually pivot toward other chains if their use cases expand.

Circle and stablecoins: payments are hard to break

• Steve argues Circle should be acquired or backed by a larger player because incumbents (Visa/Mastercard) are too entrenched to let stablecoins displace them easily.
• Ken responds that stablecoin integration into the payment system is the long-term requirement, but Circle can still grow via:
  • Cross-border/digital dollar use cases (including remittances)
  • 24/7 settlement layers for trading and weekend activity
  • Building network effects (USDC market cap growth) while payment integration is still evolving
• Both acknowledge “grand experimentation” and intense competition risk, including bank moves toward interoperability and tokenized deposits/funds.

Takeaway: investment banks are strong, but seasonality and “one AI trade” matter

In the wrap-up, Glenn characterizes big bank earnings as exceptionally strong across:

• Investment banking
• Trading
• Asset/wealth management
• Operating leverage and ROEs

Remaining watch-items:

• Deposit / “cost of funds” competition is more mixed
• Seasonality: trading tends to slow in the second half
• The market’s “AI trade” backdrop is framed as a key driver of both trading activity and expectations

Steve’s closing note adds skepticism: private credit/private equity contains delayed risks (especially software refinancing), even if sentiment looks better now.

Presenters / contributors

• Steve Eisman (host)
• Glenn Schorr (Evercore; recurring guest)
• Ken Worthington (JP Morgan; sell-side analyst covering brokers, asset managers, exchanges, and crypto)