Worse Than 2008? Beyond the AI Bubble, a New Fund Backed by "The Big Short" Burry Targets Private Credit Risk

Title context: Worse Than 2008? Beyond the AI Bubble, a New Fund Backed by "The Big Short" Burry Targets Private Credit Risk Text: While Wall Street is busy searching for signs of a bubble in AI stocks, a new hedge fund linked to "The Big Short" Michael Burry has set its sights on another, potentially more dangerous directionprivate credit. Minerva Investment Management, a short-biased fund managed by Laks Ganapathi, has hired Burry as a senior advisor. The fund is looking for short targets in industries such as healthcare, retail, restaurants, and small banks. Ganapathi said that many companies in these industries have financing tied to private credit, and they may be quietly "rotting." Short-biased funds are typically set up as hedge funds, primarily profiting when stock prices fall. Ganapathi declined to disclose specific short targets or the fund's size. She said the fund will launch later this month. "AI does not represent the entire market, even though it looks like it does," Ganapathi said. "For us, credit is the leading indicator and signal for judging market direction." Worse Than 2008? Private Credit Risks Emerge The fund is targeting a potential blind spot: the opacity of private credit may conceal borrowers' financial stress for years. The bankruptcies of U.S. auto parts supplier First Brands, auto dealer Tricolor, and UK mortgage provider Market Financial Solutions have highlighted this risk. "This time it won't be like 2008. It will be much worse," Ganapathi said. According to Fitch Ratings data, the U.S. private credit default rate reached a record high of 6.3% on an annualized basis in August. Short Funds in Decline, Minerva Enters Against the Tide Minerva is entering a particularly harsh segment of the hedge fund industry. According to HFR industry estimates, the number of funds focused on short strategies has shrunk from 54 in 2008 to just 6 in the second quarter of 2026. This is largely due to increased regulatory scrutiny of short positions, the severe performance environment facing short exposure, and changes in U.S. hedge fund reporting rules. The 2021 GameStop Corp. Class A (GME.US) frenzy highlighted the risk of crowded shorts: when stock price movements become disconnected from fundamentals, they can quickly crush an otherwise sound investment thesis. Still, Ganapathi said Minerva may benefit from Burry's experience. Burry rose to fame by shorting the U.S. subprime mortgage market before the 2008 financial crisis, and he became the real-life inspiration for the protagonist of the film "The Big Short." Burry shut down his hedge fund Scion Asset Management late last year and launched a paid Substack newsletter, "Cassandra Unchained," to publish his market views. Ganapathi said an acquaintance close to Burry first introduced them. Later, after Burry subscribed to her Substack newsletter, she reached out to him and eventually invited him to join Minerva. Ganapathi is also the founder of short research firm Unicus Research. According to the company's website, some of its key bearish targets include electric vehicle manufacturer Faraday Future Intelligent Electric, Inc. (FFAI.US) and used-car retailer Carvana (CVNA.US).