Invest Like the Best• Apr 8, 2026• 1:06:34Interview

What 100 Years of American Finance Tells Us About Today

From Invest Like the Best

Alan Waxman•Founder, Sixth Street

Executive Summary

The US financial system has evolved through three distinct phases: a stable, regulated era (1933-1999), a deregulated, high-leverage period leading to the 2008 crisis (1999-2008), and the current era dominated by the growth of private capital.
A dominant "factory model" has emerged in private capital, prioritizing asset gathering (AUM growth) and fee generation over disciplined, return-focused investing.
This has led to mispriced risk and a portfolio of "stuck assets" acquired at peak valuations in 2021-2022.
The expansion of private market products to retail investors via "semi-liquid" vehicles like perpetual BDCs has created a significant asset-liability mismatch.
This is causing liquidity issues as redemption requests exceed limits, though it is not yet considered a systemic risk.
In an environment of accelerating change driven by AI and geopolitics, investors must adopt flexible, opportunistic strategies and avoid the rigid, narrow mandates common to the factory model to succeed.

9 quotes

Concerns Raised

The "factory model" in asset management incentivizes risky behavior and poor capital allocation.
Asset-liability mismatches in perpetual private BDCs are creating liquidity risks for retail investors.
Many private assets acquired in 2021-2022 are overvalued ('stuck assets') and will likely underperform.
The industry's focus on AUM growth has divorced manager incentives from investor returns and prudent risk management.

Opportunities Identified

Disciplined, flexible investors can capitalize on the mispriced risk created by "factory model" firms.
The long-term growth of private market allocations from the wealth channel, if structured responsibly.
AI will create significant disruption, offering opportunities for firms that adapt quickly and invest in the transition.
Market dislocations caused by liquidity issues in over-levered structures will create attractive entry points for well-capitalized firms.

Key Themes

The Three Systems of Modern Finance

The speaker frames the last century of the US financial system in three distinct eras shaped by regulation and crisis. System One (1933-1999) was defined by the stability of Glass-Steagall, System Two (1999-2008) by deregulation and the subsequent Global Financial Crisis, and System Three (post-2008) by the massive shift of risk and growth into private capital markets.

This historical framework is crucial for understanding why private capital has grown so dramatically and how risk has migrated from the regulated banking sector to less-regulated private markets, setting the stage for today's challenges.

The 'Factory Model' of Asset Management

A critique of the modern private capital industry's shift towards an industrialized "factory model." This model prioritizes rapid fundraising and capital deployment to maximize assets under management (AUM) and fee-related earnings, often at the expense of sound underwriting and risk management.

This shift in incentives fundamentally alters the risk-reward proposition for investors, leading to undisciplined capital allocation, inflated asset prices, and a potential wave of underperformance from assets acquired during the recent boom.

Asset-Liability Mismatch in the Wealth Channel

The push to offer illiquid private assets to retail investors through supposedly "semi-liquid" vehicles like perpetual BDCs has created a classic asset-liability mismatch. These products offer quarterly liquidity for assets that cannot be easily sold, leading to redemption gates when market sentiment sours.

This is a primary source of emerging risk in financial markets. It exposes a new, less sophisticated class of investors to illiquidity risk and highlights potentially irresponsible product structuring by asset managers chasing growth in the wealth channel.

Adapting to an Era of Accelerating Change

The conversation emphasizes that the pace of disruption from technology like AI and geopolitical shifts is rapidly increasing. In this environment, narrow, static investment strategies are extremely vulnerable, and success requires a flexible, opportunistic mindset that can pivot as market conditions change.

This serves as a strategic warning for investors and business leaders. Survival and outperformance will depend on the ability to abandon rigid models and embrace a culture that confronts challenges head-on, a philosophy the speaker calls "face the tiger."

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Topics

Private Credit Direct Lending Glass-Steagall Act Financial Regulation Global Financial Crisis (GFC)Asset Management Factory Model Investing Business Development Companies (BDCs)Asset-Liability Mismatch Liquidity Risk Wealth Management Retail Investing Investment Banking Risk Management Artificial Intelligence (AI)

Processed Apr 10, 2026 yt-dlp + mlx-whisper + Gemini