Key facts
- Minerva Investment Management, a new short-biased fund, is set to launch later this month.
- Michael Burry has been hired as a senior adviser to Minerva.
- The fund will target risks in private credit loan books across sectors including healthcare, retail, and restaurants.
- Laks Ganapathi, founder of Minerva, believes credit is a leading market indicator.
- The US private credit default rate reached a record 6.3% in August on an annualized basis, according to Fitch Ratings.
Minerva Investment Management, a new hedge fund with a short-biased strategy, is preparing to launch later this month with Michael Burry serving as a senior adviser. The fund, founded by Laks Ganapathi, aims to capitalize on perceived risks within the private credit market, which she believes is a more significant indicator of market health than the current focus on AI stocks.
Ganapathi stated that many companies in sectors such as healthcare, retail, and restaurants rely on private credit financing, and potential financial strains could be masked for years due to the opacity of this market. She cited bankruptcies of US auto parts supplier First Brands, car dealer Tricolor, and UK mortgage provider Market Financial Solutions as examples of such hidden risks. Ganapathi anticipates the current situation to be "a lot worse" than in 2008.
According to Fitch Ratings, the US private credit default rate reached an all-time high of 6.3% in August on an annualized basis. Minerva is entering a challenging environment for short-biased funds, which have significantly dwindled in number since 2008 due to regulatory scrutiny, performance difficulties, and changes in reporting requirements. The Gamestop saga in 2021 also highlighted the risks associated with crowded short bets.
Ganapathi expressed confidence that Burry's experience, particularly his successful short bet against the subprime mortgage market, will benefit Minerva. Burry, who wound down his hedge fund Scion Asset Management last year, joined Minerva after subscribing to Ganapathi's Substack newsletter. Ganapathi also founded Unicus Research, a short-selling research firm known for bearish recommendations on companies like Faraday Futures and Carvana.