Episode summary
What 100 Years of American Finance Tells Us About Today
Invest Like the Best
· · 1 hr 7 min · Hosts: Patrick O'Shaughnessy · Guests: Alan Waxman
Summary
Alan Waxman frames the current boom in private credit and private capital as the product of changing guardrails, incentives, and market structure across three eras of American finance. He traces the system from the pre-1933 era of bank conflicts, through Glass-Steagall’s separation of commercial and investment banking, to the post-1999 deregulated period that helped fuel leverage and the run-up to the global financial crisis.
He argues that the post-GFC regime is a better design: commercial banks are more constrained on capital and liquidity, while private capital fills the gap by providing risk capital with matched assets and liabilities. In his view, the trouble in today’s market is not private capital itself but the spread of a “factory model” that prioritizes fundraising scale over underwriting quality and pushes firms toward illiquid assets funded by increasingly liquidity-like liabilities.
Waxman says the symptoms show up most clearly in wealth-channel vehicles such as perpetual private BDCs, narrow strategies, and redemption pressure, but the root cause is the same behavior shift that began around 2018 and accelerated after COVID. He expects the industry to recalibrate rather than trigger a systemic crisis, and he sees the current dislocation as a chance to restore discipline while keeping the healthier two-pillar system intact.
Key takeaways
- Waxman says the best U.S. finance system pairs safer, government-backed banks with private capital supplying risk capital, both under clear guardrails.
- He argues the 2018-to-post-COVID shift toward the “factory model” made fundraising more important than underwriting in parts of private markets.
- Waxman says the wealth channel is vulnerable because illiquid assets and redemption-like liabilities are a structural mismatch.
- He points to perpetual private BDCs as a current flashpoint, with redemption requests in some cases exceeding the 5% limit.
- He thinks the industry will recalibrate through market discipline and more prudent underwriting rather than a systemwide crisis.
Notable quotes
“what I'd say is what you're reading in the news today are the symptoms but not really the root cause”
“the system found its sort of steady state place but in order to keep growing and again it's the whole industry what do they do many participants adopted the factory model”
“There's no such thing as semi-liquid”
“The root cause of this is the change of behavior patterns of the factory model”
How the episode opens
This is a unique conversation. It's my second with Alan Waxman, the founder and leader of Sixth Street, one of the largest private capital investment firms in the world. Him and I have been going back and forth about the history of financial guidelines and incentives and how those systems through time shape the system that we live in today and shape outcomes in the financial markets.
We thought it would be a neat opportunity to walk through in great detail what he calls system 1 2 and three going all the way back to 1933 and the initial regulation glass desteagle which kicked off system 1. We then go through system 2 from 2000 to 2008 and the global financial crisis and then go into great detail for the system that we're living in today. The reason all this history is interesting to me is that ultimately it's about the incentives and the ways that investors and investing firms make money.
We have this great conversation in about what Allan calls the factory model of investing which has defined by the industrialization of both raising money and deploying money. Sort of the opposite of the old school artisal investment model that's entirely focused on earning outstanding investment returns. His historical perspective and lens on what's driving outcomes I think is useful information and history for all of us as we try to navigate one of the most dynamic periods of creative destruction in capital markets history.
Please enjoy my second conversation with Alan Waxman. We're facing one of the most interesting capital market setups of all time alongside one of the most interesting just world environments, geopolitics, technology, and you and I have talked a lot about the shaping forces that will determine how things play out from here.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- private credit
- factory model investing
- asset-liability mismatches
- underwriting standards
- ai adoption
Companies and tickers mentioned
- Sixth Street Partners
Watch the episode
Watch “What 100 Years of American Finance Tells Us About Today” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Invest Like the Best
Invest Like the Best, this episode and its artwork belong to Colossus | Investing & Business Podcasts. Octagon is not affiliated with the show; this page is an independent summary.
