Episode 22: Quality Over Quantity — Private Credit, Hedge Fund Risk, and the True Test of Your Capital
Private credit was a $250 billion corner of the financial system a decade ago. Today it's a $2-3 trillion market — and most of it sits on the exact same balance sheets as your 401(k), your pension, and your index fund.
In this episode, Joe sits down with Hans Toohey on the Remnant Finance podcast for a conversation that started as a discussion about private credit and turned into something bigger: a full framework for judging whether the capital you've built actually protects you, or just looks good on a statement.
They start with the mechanics most investors never see. Private credit exploded because a decade of zero interest rate policy pushed institutional investors to find yield somewhere outside traditional banking — and most of those loans carry floating rates tied directly to the Fed funds rate.
They were cheap when rates were at zero. But they're not cheap anymore. Defaults are rising, and funds like Blue Owl and BlackRock have started gating investor withdrawals entirely — meaning the money is there on paper, but you cannot get it back.
Here's the part that should actually concern you: this isn't isolated to sophisticated institutional investors who understood the risk. Your pension and your 401(k) have been investing in private credit for years. And there's an executive order moving through Washington right now to open the door to even more of it.
Joe and Hans then trace a second, related risk that almost nobody talks about: hedge funds don't just borrow money — they borrow shares. Your index fund, the one you were told to "buy and chill," lends its underlying shares out to hedge funds who use them to short stocks. If a hedge fund can't return what it borrowed — because it's tangled up in the same private credit machinery now locking up — the value of the fund you own goes down. The mountain of derivatives sitting underneath the shares you actually hold is far larger than the sliver of capital those shares represent.
From there, the conversation shifts to the real subject of the episode: what actually makes an asset high quality. Not returns alone — purchasing power protection, cash flow, tax treatment, downside protection, liquidity, and track record, all weighed together.
Joe walks through why property and casualty insurance companies — some of them over 250 years old — are a better model for financial resilience than a 60/40 portfolio. He goes into why gold's total lack of "returns" is exactly what makes it valuable, and exactly why central banks hold it instead of mutual funds. The he explains why he treats Bitcoin the same way he treats gold — as savings, not an investment — while acknowledging Bitcoin's far shorter track record and different risk profile. And then he gets into why, even with his individual stock picks up well over 100% in the last year, equities still make up only 10-12% of his total net worth — a number some people would find surprising given how well that part of the portfolio has performed.
The conversation closes on the practical version of all of this: what true diversification looks like when it's built across attributes instead of just asset classes, and how to stress-test your own financial house against the exact kind of contagion risk private credit and hedge fund share-lending create.
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This episode originally aired on the Remnant Finance podcast. Hans Toohey and the Remnant team are the Phoenician League's go-to specialists for setting up infinite banking policies, and Hans is currently expanding into a wider range of financial services.
If you're not already familiar with his work, check it out at https://remnantfinance.com/ — and subscribe to the Remnant Finance podcast. There's a lot of overlap between what we cover there and what we cover here.
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In this episode:
- What private credit actually is, and how a decade of zero-interest-rate policy turned it into a $2-3 trillion market operating almost entirely outside the banking system
- Why floating-rate private credit loans tied to the Fed funds rate created a rising wave of defaults once the Fed normalized rates
- Blue Owl, BlackRock, and the private credit "gating" crisis — what happens when investors can't get their money back
- The executive order moving through Washington to open 401(k) plans to even more private credit investment
- How hedge funds borrow shares out of your index fund and pension to short stocks — and the contagion risk that creates
- Why "buy index funds and chill" ignores the mountain of derivatives and hidden risk sitting underneath the shares you own
- A full framework for evaluating the true quality of any asset: purchasing power protection, cash flow, tax treatment, downside protection, liquidity, and track record
- Why property and casualty insurance companies — some over 250 years old — are a model for building a resilient financial foundation
- Gold and Bitcoin as savings, not investments — and why gold's lack of "returns" is precisely what makes central banks hold it
- Joe's actual equity allocation (just 10-12% of net worth) despite his individual stock picks doubling over the past year
- Why real estate, mortgage notes, and alternative income assets round out a genuinely diversified portfolio
- How to stress-test your own financial strategy against the kind of contagion risk this episode uncovers
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