This interview explains why private credit markets face risks. Alan Waxman, CEO of Sixth Street, says the real problem isn't the market itself but the 'factory model' that took off after 2018: firms raise money like a factory and invest carelessly, instead of doing careful investing. He warns about funds that package illiquid assets as 'semi-liquid' (meaning you can redeem anytime, but the assets are hard to sell). He mentions Goldman Sachs (his former employer) and JPMorgan (praising its risk management), but gives no buy/sell advice.
Sixth Street co-founder and CEO Alan Waxman systematically outlined the evolution of the U.S. financial system from the Great Depression of 1929, the Glass-Steagall Act, the 2008 Global Financial Crisis (GFC), to Basel III in a program. He pointed out that the core issue in the current private credi
Alan Waxman (Co-founder and CEO of Sixth Street, managing $130 billion in assets) systematically traces the institutional evolution from the 1929 Great Depression to the current private credit market through the lens of financial history. Core thesis: All symptoms of the current private market (asset-liability mismatches, redemption pressure on wealth channels, inflated FRE multiples) stem from the "factory model" widely adopted by the industry since 2018 — the industrialization of liability collection and asset allocation, rather than being driven by genuine investment capabilities.
Waxman argues that understanding the current market requires tracing the structural evolution of the financial system, dividing U.S. financial history into three systems.
System 1 (1933–1999): The Glass-Steagall Era. The 1933 Glass-Steagall Act forcibly separated commercial banks (deposit-taking institutions) from investment banks (principal risk-taking) and established FDIC deposit insurance. This system provided 50 years of financial stability after World War II (except for the savings and loan crisis of the 1980s), but was "not optimized for economic growth"—commercial banks were too conservative, fixed-income markets were underdeveloped, and investment banks were more engaged in "carrying business" than "storage business." Waxman notes: "With good guardrails, you can get long-term stability, but you also have to consider job creation and economic growth."
System 2 (1999–2008): Deregulation and Leverage Expansion. Glass-Steagall was repealed in 1999, primarily because U.S. banks were at a competitive disadvantage globally—European banks were not bound by the Act and could operate both commercial and investment banking with higher leverage. Key milestones included Deutsche Bank's acquisition of Bankers Trust in 1998 and the merger of Citicorp and Travelers Group (still illegal at the time). The repeal triggered a wave of mergers (e.g., JPMorgan Chase), but independent investment banks (e.g., Goldman Sachs), competing with commercial banks that had cheap capital, were forced to ramp up leverage significantly. The fixed-income market grew from $7 trillion in the 1980s to $14 trillion in the 1990s, providing financing tools for leverage. Commercial banks reached leverage ratios of 20–30x, ultimately leading to the 2008 global financial crisis. Waxman's lesson: "Liquidity or asset-liability mismatches combined with leverage is the cocktail recipe for every financial crisis in history."
System 3 (2010–present): Basel III and the Rise of Private Capital. In 2010, Basel III imposed capital (leverage) and liquidity constraints on commercial banks, while the Volcker Rule under Dodd-Frank restricted proprietary trading. This created a massive gap—commercial banks were forced into low-risk activities, while demand for risk capital was filled by private capital. Private capital grew from roughly $2 trillion before the crisis to $14–15 trillion, with private credit expanding from $500 billion to $2 trillion. Waxman believes System 3 "has the potential to be the best system in U.S. financial history"—commercial banks (backed by government guarantees) handle low-risk activities, while private capital (with asset-liability matching) provides risk capital, with both complementing each other.
Waxman notes that System 3 functioned well before 2018, after which industry behavior began to deviate from the norm, with the core driver being the proliferation of the "factory model."
Definition of the factory model: Two phases, one outcome. The first phase is the industrialization of liability collection—raising as much capital as possible as quickly as possible. The second phase is the industrialization of asset allocation—with massive amounts of capital awaiting deployment, investment behavior is forced to change: lowering underwriting standards, simplifying strategies (the narrower, the better), and accepting mismatched liability structures (e.g., allowing investors to redeem on a regular basis). Waxman uses the analogy of a "saddle craftsman": handcrafting a saddle versus opening a factory after receiving 100,000 orders are entirely different models.
Key inflection point: 2018. Institutional investors began demanding separately managed accounts (SMAs), replacing the traditional pooled fund model. This enabled GPs to raise large amounts of capital quickly, but strategies were narrowed (e.g., focusing solely on direct lending). After the pandemic in 2020, the factory model accelerated across the board, with the wealth channel becoming the next source of growth.
Inflation of FRE multiples: Fee-related earnings (FRE) multiples rose from 10-15x in the early 2010s to 15-20x in 2018, and currently exceed 25-30x. Waxman argues that high multiples incentivize GPs to prioritize asset growth over investment returns—"In the factory model, GPs earn far more from GP equity than from carry on investment performance."
Signals of the factory model: Declining underwriting standards (e.g., accepting terms that should not have been granted), excessive strategy narrowing, and maturity mismatches between liabilities and assets. Waxman specifically highlights red flags in fixed-income investments: "If you have capped returns (e.g., 10%), but the collateral can be taken away overnight, or the loan-to-value ratio rises from 50% to 120% due to AI disruption—these are terms you should not accept."
Waxman argues that the "private credit crisis" discussed in the media is merely a symptom, with the root cause being behavioral distortion driven by the factory model.
Specific symptoms:
1. Redemption pressure on perpetual private BDCs — Wealth channel investors demand redemptions amid volatility, with some funds seeing redemption requests exceeding the 5% limit.
2. "Stuck assets" — Assets purchased at elevated valuations in 2021–2022 (private real estate, infrastructure, PE) cannot be exited.
3. Asset-liability mismatch — Illiquid assets are packaged as "semi-liquid" products (Waxman emphasizes: "There is no such thing as semi-liquidity; there is only liquidity and illiquidity").
Why is this not a systemic crisis? Waxman offers two reasons: first, "we are only five years into this phase, it's still early"; second, "the current economic fundamentals are relatively strong." However, he warns: "Historically, whenever society puts wealth/retail investors together with principal risk-taking, problems begin to emerge."
Most likely outcome: Industry recalibration, not systemic collapse. Waxman believes the current environment (without a deep recession) is "a gift to the industry" — if it occurred during a recession, redemption volumes would be 2–3 times larger. He calls for the industry to return to more prudent underwriting, a wider strategic aperture, and more honest liquidity disclosures.
Thoughts on regulation: Waxman believes market mechanisms (investors penalizing irresponsible GPs) are more effective than regulation, but acknowledges the need for better guardrails. "Good legislation can exist, but the risk is that it may not be the right guardrail, instead harming competitiveness and creating the next crisis."
Waxman shared Sixth Street’s choices amid the factory model wave, along with his personal management philosophy.
Sixth Street’s Stance: Despite having one of the longest track records in direct lending (dating back to 2001), Sixth Street’s investment in perpetual private BDCs is “exactly zero.” “It’s not that we can’t do it; we believe it’s not the right thing to do and does not align with our clarity of purpose.”
“One-Page Brain System”: Waxman’s personal organizational system maps the brain’s structure onto a single sheet of paper. The left-brain page covers: five strategic priorities, high-priority items, a contact list, and health matters (e.g., vitamin D, left hip mobility). The right-brain page contains: ideas, themes, and business-building concepts. He spends one hour every Sunday handwriting updates, a practice he has maintained for 25 years. “I have never gone through this Sunday process without connecting two or three dots or coming up with a new idea.” At year-end, he revisits all right-brain ideas, often finding that old concepts from 10–15 years ago have become relevant again today.
“Face the Tiger”: A core tenet at Sixth Street — when problems arise, do not blame each other, but “run toward the problem, not away from it.” Waxman believes that in an era of accelerating change (AI, geopolitics), this is the most important mindset tool. “Most people don’t like change. You can be anxious, or you can say, ‘The world is changing, and we must face the tiger.’”
Ages 40–50 Are the “Golden Time”: Waxman divides a career into: ages 20–30 (learning, asking stupid questions), 30–40 (extremely ambitious, proving yourself, making mistakes), 40–50 (“If you’ve spent time learning, made enough mistakes, and truly know yourself — this is the golden time”), and after 50 (mentor role).
| Position | Guest Sentiment | Key Data |
|---|---|---|
| Goldman Sachs | Background mention (Waxman's former employer) | No specific data provided |
| JPMorgan Chase | Positive mention (Jamie Dimon's risk management capabilities) | No specific data provided |
| Deutsche Bank | Background mention (Acquisition of Bankers Trust in 1998) | No specific data provided |
| Citigroup | Background mention (Merger with Travelers) | No specific data provided |
Note: This episode is an institutional discussion and does not provide buy/sell recommendations or position moves for specific investment targets.
1. "Liquidity or asset-liability mismatches combined with leverage are the cocktail recipe for every financial crisis in history." (Alan Waxman) — The GFC was the result of commercial bank leverage of 20-30x plus asset-liability mismatches; the current mismatch in private credit is much smaller in scale but structurally similar.
2. "There is no such thing as semi-liquidity. There is only liquidity and illiquidity." (Alan Waxman) — Wealth channels packaging illiquid assets as "semi-liquid" products are the root cause of current redemption pressures. Investors should assume that in a worst-case scenario (e.g., 2008), capital could be locked up.
3. "The factory model always starts on the liability side, then infects the asset side." (Alan Waxman) — First, fundraising is industrialized (SMAs, wealth channels), then asset allocation is forced to become industrialized (lower underwriting standards, narrower strategies). The expansion of the liability side determines the distortion of the asset side.
4. "FRE multiples have risen from 10-15x to over 25-30x, incentivizing GPs to prioritize scale over returns." (Alan Waxman) — High multiples allow GPs to profit far more from equity than from carry, leading to behavioral distortions. This is the financial driver of the factory model.
5. "System 3 has the potential to become the best system in U.S. financial history — commercial banks handle low-risk activities, private capital handles venture capital, and the two complement each other." (Alan Waxman) — But this is contingent on private capital maintaining asset-liability matching. The behavioral distortion since 2018 is undermining this structure.
6. "The current environment (non-deep recession) is a gift to the industry — if it occurred during a recession, redemption volumes would be 2-3 times what they are now." (Alan Waxman) — The industry has an opportunity to recalibrate in a relatively benign environment, rather than being forced to adjust during a crisis.
7. "Clarity of purpose is the key to distinguishing excellent companies from short-sighted ones." (Alan Waxman) — Sixth Street chose not to enter the perpetual private BDC market, despite having a track record, because "it doesn't align with our clarity of purpose."
8. "Ages 40-50 are the golden time — if you've spent time learning, made enough mistakes, and truly understand yourself." (Alan Waxman) — Ages 20-30 are for learning, 30-40 for making mistakes and proving yourself, and 40-50 is the real "playing time."
9. "Face the Tiger — run toward the problem, not away from it." (Alan Waxman) — A core tenet of Sixth Street, especially important in an era of accelerating change (AI, geopolitics). "You get one life — do you want to be mediocre or exceptional?"
10. "The one-page brain system: left brain (priorities + tactics) + right brain (creativity + themes), handwritten and updated every Sunday, maintained for 25 years." (Alan Waxman) — The core of the personal organization system is dynamic prioritization based on "return on time." At year-end, all right-brain ideas are re-read, and ideas from 10-15 years ago often become relevant again today.