September 23, 2025 • 13 mins
LISTEN and SUBSCRIBE on:
Apple Podcasts: https://podcasts.apple.com/us/podcast/watchdog-on-wall-street-with-chris-markowski/id570687608
Spotify: https://open.spotify.com/show/2PtgPvJvqc2gkpGIkNMR5i
WATCH and SUBSCRIBE on:
https://www.youtube.com/@WatchdogOnWallstreet/featured
A blistering take on how private equity uses financial engineering — SPVs, rating tricks, and “volatility laundering” — to disguise junk-like credit as investment-grade paper and shove it into pensions, insurers, and unsuspecting investors. This piece exposes inflated valuations, hidden illiquidity, and fee-heavy schemes that keep limited partners waiting for real payouts while PE firms paper over risk. Read it as a warning: do your homework, demand honest mark-to-market accounting, and don’t let glossy suits and clever legal structures hide the rot.
Apple Podcasts: https://podcasts.apple.com/us/podcast/watchdog-on-wall-street-with-chris-markowski/id570687608
Spotify: https://open.spotify.com/show/2PtgPvJvqc2gkpGIkNMR5i
WATCH and SUBSCRIBE on:
https://www.youtube.com/@WatchdogOnWallstreet/featured
A blistering take on how private equity uses financial engineering — SPVs, rating tricks, and “volatility laundering” — to disguise junk-like credit as investment-grade paper and shove it into pensions, insurers, and unsuspecting investors. This piece exposes inflated valuations, hidden illiquidity, and fee-heavy schemes that keep limited partners waiting for real payouts while PE firms paper over risk. Read it as a warning: do your homework, demand honest mark-to-market accounting, and don’t let glossy suits and clever legal structures hide the rot.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact that we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst and trader Chris Markowski.
Speaker 2 (00:16):
Financial sorcery and black magic. Yeah, people that have been
listening to me are well aware of the problems we
have with private equity. We have been throughout our career
at the forefront of financial scams, ripoffs, you name it,
(00:38):
and well, something wicked this way comes. And we've been
telling you that. I am starting to recognize that actually
some publications out there are starting to take notice. Bloomberg
is actually starting to pay a little bit of attention
to this. I saw a story and I want to
get into some of this black magic that's taken place
(01:00):
involving Apollo. They are now using Okay, try to follow
along here. It's called special purpose Vehicles an SPV, and
they're using it to sell highly rated debt backed by
stakes in their credit funds. Now, these stakes are in
(01:24):
the funds themselves, not the loan portfolio. Now, why why
does this matter? Why is this a big deal? Isn't
it the same thing?
Speaker 1 (01:37):
Ah?
Speaker 2 (01:38):
No, No, it's not private loans. Private credit loans that
more often not their junk level. Okay, we deal with
some of this. We don't deal with the junk stuff.
But more often than not, they're at junk level. They
don't get high credit. But debt issued out of SPVs
(02:04):
tied to stakes in funds can get an investment grade ratings.
This means they can get stuffed into pension funds, insurance
companies and the like. Why is this a big deal?
Why would Apollo be doing this? They need to find buyers.
(02:27):
One of the things that we've been talking about for
some time. And if you don't believe me, do your
own homework. Do your own homework on this. A lot
of private equity, as to say the least, they are choking,
choking on companies' assets that they hold that they just
(02:49):
can't get rid of. Many people have been waiting a very,
very long time to get liquid to get cash out
of these Again, the valuations that these private equity companies
continued to mark their portfolios are not realistic. They're obscenes
(03:11):
part of the problem. This is why they're not finding
any buyers. Things have changed. Things have changed when it
comes to private equity. Private equity was a hell of
a lot more profitable when money was dirt cheap. Again,
money dirt cheat makes things a hell of a lot easier.
(03:32):
Fed raises rates well, gee whiz multiples have changed. Interesting
one valuation set. At today's pace, it would take over
nine years for limited partners to be fully paid back
from the twelve thousand plus US portfolio companies sitting in
(03:53):
buyout funds. Interesting private equity quarterly returns peaked out thirteen
percent twenty one. By late twenty twenty four they had
slumped to two point eight percent. And again, the assets
that are on the books are much much higher than
what people are actually paying for these things at this
(04:16):
point in time. This is what's leading to what I'm
talking about, the financial engineering, the financial sorcery, and black magic.
We have seen this movie before, seen it before, Bloomberg Again,
(04:38):
this is starting to pomp up mainstream news. Some pe
firms doomed to fail as high flying industry loses its way.
Private equities reckoning has frustrated investors waiting longer for payouts,
forcing firms to scale back fundraisings, offer secondary exits and divis.
(05:00):
Five Clive Asnes Ganny wrote a very lengthy piece. He
is co founder of a q R Capital. Many of
the things that he is a destitute and his piece
are very very similar to what we have been saying.
(05:22):
He is calling it. I like the phrase he says.
Many investors and managers of these private equity firms are
playing what he calls a dangerous game of volatility laundering.
One line that was given by one of the private
equity guys, he says, intern valuations don't really Matt, I've
(05:46):
heard again. I've heard that before in so many different ways.
I remember earnings don't matter any more. That was one
of the taglines of the whole dot com run up.
Earnings don't matter anymore. It's a new paradigm. Yeah, as
(06:07):
far as private equity is concerned, I have no problem
with investing in private companies. I like everybody else. I
don't like to have my intelligence insulted. I don't like
being lied to. I don't like being manipulated. And that's
what these private equity companies, quite frankly, are very good at.
(06:30):
Call it financial sorcery, call it financial engineering, whatever it
may be, but make no bones about it. Private financing
of private investing and private investing in companies. There's a
purpose behind it. I don't argue that, but again, it
has to be sold properly. One of the things that
(06:55):
Cliff talks about as articles we've been banging the drum
on here in our program is the complete lack of
mark to market valuations and what that implication brings. Now
these private equity guys saying well it's better because of that,
then people are locked up for even longer and it's
not as volatile within people's portfolios. The markets aren't efficient. Yeah,
(07:21):
so the markets aren't efficient. You know. However, you know,
outside of a fire sale, shouldn't shouldn't investors get an
honest assessment of where they are at? I mean, not
to mention the fact you guys are banging them out
(07:41):
in fees, fees on top of fees with these things. Again,
you know, I understand the long term approach. I understand
the comments they're making when they talk about these things
being liquid and it's actually good for investors. Okay, okay,
(08:08):
I'm sorry. In any way, shape, matter of form, it
is never. Never, in my experience, it's never been a
good thing, a good thing to understate risk. Never, you know,
be honest with the people that you are bringing on
(08:28):
as investors, that they the lies that you're putting out
there in regards to how you're manipulating these numbers, with
your accountants and your calls on these things. Because you
have a bunch of guys that went to Harvard Business
School or Wharton, quite frankly is gross. The understatement this
(08:49):
cliff cliff line, the understatement of PE risk volatility laundering. Again,
it's it's something that you need to consider. Yeah, run
a thought experiment where actual private equity managers actually told
(09:11):
investors their best guess at what the portfolio could be
sold for, not in a panic sale. They did this
but still delivered market beating returns. Would their investors flee?
Would the appeal be gone? Now run a backward. If
a liquid strategy that at a healthy positive long term
expected return was able to report its returns like PE,
(09:33):
would the appeal go way up? Again? These are just
common sense type things, and that's what even makes me
more nervous because logic would dictate that you'd want to
be honest with this. It would make these portfolios more attractive. Therefore,
that scares me even more. Seeing geez are things much
(09:54):
much worse than even I'm aware of at this point
in time. I don't know, like I said, but I've
been around the block long enough, and i know these
type of people, and I've dealt with them before. There
was a actually a Bloomberg story by Mark Gilbert. This
(10:19):
is going back to September two thousand and seven, and
I did my little take on it was called Wall
Street Goes to the Cows and Mark and his piece
he used the innocuous world of bovines to describe several
areas of the financial world that have been conspicuously popular.
(10:46):
You know what I'll do, I'll do a couple of them.
Leverage buyouts. You start with two cows. You come home
one day to discover that either Henry Kravis or Aady
Lampert is chatting to your spouse at the dining room table.
Long and behold several day days later, you don't have
a spouse, no farm, and no table. Two guys the
size of honoring the Giant to put saddles on your
cows and are riding them around your old farmyard hedge
(11:10):
funds to one. I like, you have two cows. A
guy wearing a very nice suit with no tie. Assessorized
with a one hundred thousand dollars time piece pulls up
to your farm in an ass Dan Martin, Mister Master
of the Universe offers to take care of your two
cows and in return provide you with a one year's
(11:31):
supply of Filet mignon and fifty percent of their milk yield.
You wonder yourself, how is this possible? Hey, Mister Master
of the Universe says he is a financial engineer, and
he has the suit car watch a state and twenty
year old Victoria's secret model girlfriend to prove it. The
(11:53):
only caveat is your cows will not be able to
leave his Greenwich, Connecticut compound. Two years. Six months later,
you look at your bovine account statement realize that all
you have is half a cow that's producing sour milk.
Try to get a hold of mister Master Universe, who
(12:13):
inquire about what has happened. Then he returns the call
several weeks later from the Cayman Islands. While drinking a
forty year old Chateau Lafitte and chewing on Filet me
and jum. He offers his reassurance that everything will eventually
be just fine, and offers up this insightful phrase, you
can get a good look at a t bowl by
sticking your head up a cow's ass. But wouldn't you
(12:34):
rather take my word for it? Mister Master the Universe
hangs up and you realize he is quoting the film
Tommy Boy. At that point, you realize all is lost.
Mister Master of the Universe currently resides in a palatial
state on Paradise Island in the Bahamas. You get my
(12:56):
drift again. This is what we're here for. You have
questions in regards to private equity, something you're being pitched,
something you own already. I strongly suggest you get to
our website at Watchdog on Wallstreet dot com and get
(13:20):
a hold of us. But quick again, Watchdog on Wall
Street dot com
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact that we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst and trader Chris Markowski.
Speaker 2 (00:16):
Financial sorcery and black magic. Yeah, people that have been
listening to me are well aware of the problems we
have with private equity. We have been throughout our career
at the forefront of financial scams, ripoffs, you name it,
(00:38):
and well, something wicked this way comes. And we've been
telling you that. I am starting to recognize that actually
some publications out there are starting to take notice. Bloomberg
is actually starting to pay a little bit of attention
to this. I saw a story and I want to
get into some of this black magic that's taken place
(01:00):
involving Apollo. They are now using Okay, try to follow
along here. It's called special purpose Vehicles an SPV, and
they're using it to sell highly rated debt backed by
stakes in their credit funds. Now, these stakes are in
(01:24):
the funds themselves, not the loan portfolio. Now, why why
does this matter? Why is this a big deal? Isn't
it the same thing?
Speaker 1 (01:37):
Ah?
Speaker 2 (01:38):
No, No, it's not private loans. Private credit loans that
more often not their junk level. Okay, we deal with
some of this. We don't deal with the junk stuff.
But more often than not, they're at junk level. They
don't get high credit. But debt issued out of SPVs
(02:04):
tied to stakes in funds can get an investment grade ratings.
This means they can get stuffed into pension funds, insurance
companies and the like. Why is this a big deal?
Why would Apollo be doing this? They need to find buyers.
(02:27):
One of the things that we've been talking about for
some time. And if you don't believe me, do your
own homework. Do your own homework on this. A lot
of private equity, as to say the least, they are choking,
choking on companies' assets that they hold that they just
(02:49):
can't get rid of. Many people have been waiting a very,
very long time to get liquid to get cash out
of these Again, the valuations that these private equity companies
continued to mark their portfolios are not realistic. They're obscenes
(03:11):
part of the problem. This is why they're not finding
any buyers. Things have changed. Things have changed when it
comes to private equity. Private equity was a hell of
a lot more profitable when money was dirt cheap. Again,
money dirt cheat makes things a hell of a lot easier.
(03:32):
Fed raises rates well, gee whiz multiples have changed. Interesting
one valuation set. At today's pace, it would take over
nine years for limited partners to be fully paid back
from the twelve thousand plus US portfolio companies sitting in
(03:53):
buyout funds. Interesting private equity quarterly returns peaked out thirteen
percent twenty one. By late twenty twenty four they had
slumped to two point eight percent. And again, the assets
that are on the books are much much higher than
what people are actually paying for these things at this
(04:16):
point in time. This is what's leading to what I'm
talking about, the financial engineering, the financial sorcery, and black magic.
We have seen this movie before, seen it before, Bloomberg Again,
(04:38):
this is starting to pomp up mainstream news. Some pe
firms doomed to fail as high flying industry loses its way.
Private equities reckoning has frustrated investors waiting longer for payouts,
forcing firms to scale back fundraisings, offer secondary exits and divis.
(05:00):
Five Clive Asnes Ganny wrote a very lengthy piece. He
is co founder of a q R Capital. Many of
the things that he is a destitute and his piece
are very very similar to what we have been saying.
(05:22):
He is calling it. I like the phrase he says.
Many investors and managers of these private equity firms are
playing what he calls a dangerous game of volatility laundering.
One line that was given by one of the private
equity guys, he says, intern valuations don't really Matt, I've
(05:46):
heard again. I've heard that before in so many different ways.
I remember earnings don't matter any more. That was one
of the taglines of the whole dot com run up.
Earnings don't matter anymore. It's a new paradigm. Yeah, as
(06:07):
far as private equity is concerned, I have no problem
with investing in private companies. I like everybody else. I
don't like to have my intelligence insulted. I don't like
being lied to. I don't like being manipulated. And that's
what these private equity companies, quite frankly, are very good at.
(06:30):
Call it financial sorcery, call it financial engineering, whatever it
may be, but make no bones about it. Private financing
of private investing and private investing in companies. There's a
purpose behind it. I don't argue that, but again, it
has to be sold properly. One of the things that
(06:55):
Cliff talks about as articles we've been banging the drum
on here in our program is the complete lack of
mark to market valuations and what that implication brings. Now
these private equity guys saying well it's better because of that,
then people are locked up for even longer and it's
not as volatile within people's portfolios. The markets aren't efficient. Yeah,
(07:21):
so the markets aren't efficient. You know. However, you know,
outside of a fire sale, shouldn't shouldn't investors get an
honest assessment of where they are at? I mean, not
to mention the fact you guys are banging them out
(07:41):
in fees, fees on top of fees with these things. Again,
you know, I understand the long term approach. I understand
the comments they're making when they talk about these things
being liquid and it's actually good for investors. Okay, okay,
(08:08):
I'm sorry. In any way, shape, matter of form, it
is never. Never, in my experience, it's never been a
good thing, a good thing to understate risk. Never, you know,
be honest with the people that you are bringing on
(08:28):
as investors, that they the lies that you're putting out
there in regards to how you're manipulating these numbers, with
your accountants and your calls on these things. Because you
have a bunch of guys that went to Harvard Business
School or Wharton, quite frankly is gross. The understatement this
(08:49):
cliff cliff line, the understatement of PE risk volatility laundering. Again,
it's it's something that you need to consider. Yeah, run
a thought experiment where actual private equity managers actually told
(09:11):
investors their best guess at what the portfolio could be
sold for, not in a panic sale. They did this
but still delivered market beating returns. Would their investors flee?
Would the appeal be gone? Now run a backward. If
a liquid strategy that at a healthy positive long term
expected return was able to report its returns like PE,
(09:33):
would the appeal go way up? Again? These are just
common sense type things, and that's what even makes me
more nervous because logic would dictate that you'd want to
be honest with this. It would make these portfolios more attractive. Therefore,
that scares me even more. Seeing geez are things much
(09:54):
much worse than even I'm aware of at this point
in time. I don't know, like I said, but I've
been around the block long enough, and i know these
type of people, and I've dealt with them before. There
was a actually a Bloomberg story by Mark Gilbert. This
(10:19):
is going back to September two thousand and seven, and
I did my little take on it was called Wall
Street Goes to the Cows and Mark and his piece
he used the innocuous world of bovines to describe several
areas of the financial world that have been conspicuously popular.
(10:46):
You know what I'll do, I'll do a couple of them.
Leverage buyouts. You start with two cows. You come home
one day to discover that either Henry Kravis or Aady
Lampert is chatting to your spouse at the dining room table.
Long and behold several day days later, you don't have
a spouse, no farm, and no table. Two guys the
size of honoring the Giant to put saddles on your
cows and are riding them around your old farmyard hedge
(11:10):
funds to one. I like, you have two cows. A
guy wearing a very nice suit with no tie. Assessorized
with a one hundred thousand dollars time piece pulls up
to your farm in an ass Dan Martin, Mister Master
of the Universe offers to take care of your two
cows and in return provide you with a one year's
(11:31):
supply of Filet mignon and fifty percent of their milk yield.
You wonder yourself, how is this possible? Hey, Mister Master
of the Universe says he is a financial engineer, and
he has the suit car watch a state and twenty
year old Victoria's secret model girlfriend to prove it. The
(11:53):
only caveat is your cows will not be able to
leave his Greenwich, Connecticut compound. Two years. Six months later,
you look at your bovine account statement realize that all
you have is half a cow that's producing sour milk.
Try to get a hold of mister Master Universe, who
(12:13):
inquire about what has happened. Then he returns the call
several weeks later from the Cayman Islands. While drinking a
forty year old Chateau Lafitte and chewing on Filet me
and jum. He offers his reassurance that everything will eventually
be just fine, and offers up this insightful phrase, you
can get a good look at a t bowl by
sticking your head up a cow's ass. But wouldn't you
(12:34):
rather take my word for it? Mister Master the Universe
hangs up and you realize he is quoting the film
Tommy Boy. At that point, you realize all is lost.
Mister Master of the Universe currently resides in a palatial
state on Paradise Island in the Bahamas. You get my
(12:56):
drift again. This is what we're here for. You have
questions in regards to private equity, something you're being pitched,
something you own already. I strongly suggest you get to
our website at Watchdog on Wallstreet dot com and get
(13:20):
a hold of us. But quick again, Watchdog on Wall
Street dot com
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