Burry Warns PE, Private Credit Use Life Insurers as Taxpayer Backstop

Michael Burry is sounding the alarm again, this time on how private equity and private credit have quietly wired the life insurance system into a taxpayer-funded safety net for high-risk tech and infrastructure debt. Burry warned that private equity may be using life insurers to push losses onto the public, highlighting a new paper by two Yale/Texas researchers titled “Private Credit’s State Backstop: How Private Equity Socializes Risk Through Insurers.”

The mechanism Burry is flagging

Firms like Apollo, KKR, and Blackstone have bought up life insurers and filled their balance sheets with private credit, loans that are hard for regulators to check or price properly. Life insurers now hold $849 billion in this kind of debt, more than double what they held in 2014.

Unlike ordinary firms, life insurers do not pass through bankruptcy when they fail. Instead, when a life insurer becomes insolvent, state-based guaranty funds protect insurance policyholders by “assessing” surviving insurers to cover the shortfall. In most states, such outlays are fully creditable against state premium taxes over time, transforming an ostensibly industry-funded system into a public backstop.

Why this ends with the taxpayer

Burry quoted one of the paper’s central conclusions: a loan turns out to be worth less than was paid for it, and the majority of the loss, depending on the leverage, is borne by the guaranty system. That guaranty system ends with the taxpayer.

The authors describe the setup as a taxpayer bailout via low-salience tax credits and perverse incentives. If a life insurer goes kaput, we collectively pay for it. A high-risk insurance strategy lets PE firms keep the upside but offload the downside onto taxpayers.

Do you want to see how to make more plays? Do you want to find gains yourself?

Unusual Whales helps you find market opportunities through our market tide, historical options flow, GEX, and much, much more.

Create a free account here to start conquering the market with Unusual Whales.

The AI and infrastructure angle

This has already started happening. Two companies, First Brands and Tricolor, went bankrupt in 2025 after lenders realized they couldn’t properly value the debt they were holding.

The next risk is AI: big tech companies are funding their data centers using the same kind of complex, hard to value debt. If AI spending doesn’t pay off fast enough, that risk doesn’t stay with tech companies. It lands on the same insurers already holding piles of this debt. For more coverage, see other news.

Options market and stocks to watch

Watch the PE giants most directly tied to insurance-owned private credit and the hyperscalers financing AI buildouts with structured debt:

• APO (Apollo) — watch for flow tied to Athene and private credit exposure concerns.
• KKR — watch for reaction as scrutiny of PE-owned insurers builds.
• BX (Blackstone) — watch for positioning around private credit sentiment shifts.
• MSFT and ORCL — watch for headline risk tied to AI data center financing structures.

The bottom line

Burry is not calling a top on private credit outright, but he is pointing at the plumbing. If insurer-held private credit sours while AI capex is still ramping, the losses do not just sit with the funds that originated the loans, they filter into a guaranty system that eventually touches state tax receipts.

Want more market intelligence? Create your free Unusual Whales account for options flow, market tide, GEX, and the full toolkit.