@Salvaba on YouTube: “I’m seeing some info popping up on CLOs and PIK. Haven’t seen this being discussed - what effects could we see? With higher transactions involving evergreen funds, CVs, higher PIK loans for loans that weren’t originally PIK - increasing underwriting risk - it gives the impression that PE and Private credit as a whole is at risk for a selloff. Am I understanding this correctly or have I misunderstood the ebbs and flows here”
While this is a directionally correct thought, one argument can be made that it’s also not a proof of an immediate broad-based sell-off across private equity and private credit. The rise in Collateralised Loan Obligation (CLO) issuance shows investor demand for packaged credit risk is still strong, not collapsing. Fidelity’s launch of two new CLO ETFs, alongside $3 billion of net inflows into all CLO ETFs so far this year and $13 billion over the last 12 months, points to continued appetite for credit exposure rather than a market-wide retreat.
On the other hand, when loans that were not originally structured as Payment-in-kind (PIK) start converting to PIK, borrowers are effectively deferring cash interest rather than paying it currently. That can preserve short-term liquidity for the borrower, but it can also delay recognition of stress and make headline default rates look cleaner than underlying economics would suggest.
Partners Group’s chair, Steffen Meister, explicitly warned that private credit defaults would look higher if measured by public-market standards, where events such as conversion to PIK or maturity extensions without adequate compensation are treated more critically. He also went on to say that private credit default rates, which averaged 2.6% over the past decade, could double in the next few years.
(Source: FT)
The practical effects of more CLO activity and more PIK usage are therefore mixed. On one hand, more CLO formation can broaden the buyer base, improve funding access, and help managers recycle capital. On the other hand, wider use of PIK features, evergreen fund liquidity promises, and continuation-style or other extension mechanisms can make the system look more resilient in the short term while increasing questions about true asset quality, valuation transparency, and how much risk is being rolled forward instead of resolved. That is why the issue is less “everything is about to be sold off” and more “the market is increasingly sensitive to anything that looks like underwriting is being stretched to preserve marks and delay loss recognition.”
Tying to This Week’s Headline
The concern about CLOs, PIKs, evergreen funds, and underwriting risk is now showing up in the most visible place possible: investors in semi-liquid private credit vehicles are asking for their money back.
This came after Blue Owl Capital said last month that it was ending regular quarterly liquidity payments in one semi-liquid private credit fund and moved instead to periodic payouts funded by asset sales, earnings, and strategic deals. Reuters also reported that private credit fund shares have slid as investors question loan quality and transparency, while J.PMorgan has marked down some loans made to private credit funds, particularly in software-related exposure, effectively reducing the leverage available to those borrowers.
Why is this happening - Strategic Themes
How do Private Credit managers work to fix this? - Strategic Themes (cont’d)
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Headline of the Week
Both Kalshi and Polymarket are now discussing fundraising rounds that could value each platform at roughly $20 billion, a remarkable step-up from where they were valued only months ago. Kalshi was last valued at $11 billion in December after raising $1 billion, while Polymarket was last valued at $9 billion in October after Intercontinental Exchange agreed to invest up to $2 billion. The catch is that both discussions are still early, neither deal is guaranteed to happen, and the path to those valuations is getting more complicated as scrutiny around both businesses intensifies.
Stepping Back
These platforms are essentially exchanges for real-world outcomes. Users buy and sell binary contracts, usually framed as yes-or-no questions, with prices moving based on how likely the market believes an event is to happen. If the market thinks an outcome has an 80% chance, a “yes” contract may trade around $0.80 and a “no” contract around $0.20, with the winning side ultimately paying out $1. That means the platform is not just hosting bets, but continuously pricing probability in real time as new information comes in.
Mechanically, that makes prediction markets look much closer to exchanges than to traditional sportsbooks. Users fund accounts, place trades, can exit positions before the event resolves, and often use limit orders to choose the price at which they want to buy or sell. They can be used across sports, politics, economics, pop culture, climate, technology, and even corporate or macro events, which is why the bull case reaches well beyond simple gambling.
The growth has been extraordinary, and the numbers in the market are why investors are even entertaining $20 billion valuations. Prediction markets are estimated to have grown roughly 130-fold, from less than $100 million per month in early 2024 to more than $13 billion by the end of last year. In 2025, Clear Street estimated global prediction-market trading volume at $47 billion, while another estimate, according to the research, puts the combined 2025 volume for Kalshi and Polymarket alone at more than $37 billion. Citizens Financial Group projects prediction-market industry revenue could rise from around $2 billion annually today to more than $10 billion by 2030.
Wherever there are new markets and price discovery mechanisms, the hedge funds are never far away. High-frequency trading firms seem to have been active in the short-term markets too.
Latency arbitrage had been particularly prevalent on 15-minute markets before Polymarket introduced a fee last month, according to Amir Hajian, a researcher at crypto market-maker Keyrock. Sophisticated traders can take advantage of the tiny amounts of time it takes price signals from one exchange to reach another, in this case between Polymarket and crypto exchange Binance.
Large trading firms have continued to target “microstructure inefficiencies” between Polymarket and other exchanges, particularly in five-minute markets, Hajian said.
Founders story
Kalshi was founded in 2018 by two MIT graduates who met while studying computer science and math. Unlike its crypto-based competitors, Kalshi was built from the ground up to be a federally regulated financial exchange in the US.
Tarek Mansour (CEO): Originally from Lebanon, Mansour worked at Goldman Sachs and Citadel Securities before founding Kalshi. He is often the public face of the company in regulatory hearings.
Luana Lopes Lara: A Brazilian native, she worked at Bridgewater Associates and Citadel. She and Mansour founded the company to create a "cleaner" way to hedge against real-world risks (like inflation or event outcomes) without using complex financial derivatives.
Polymarket was founded in 2020 as a decentralised, blockchain-based platform.
Shayne Coplan (CEO): A New York native and NYU dropout, Coplan founded Polymarket at just 22 years old. He famously built the platform’s initial version while quarantined during the COVID-19 pandemic. In October 2025, Coplan became the world’s youngest self-made billionaire following a $2 billion investment by Intercontinental Exchange, which valued the prediction market at $9 billion.
Hurdles
However, there are strong hurdles to future success, with the first being skepticism around whether these platforms are genuinely information markets or just a lightly regulated version of gambling. Critics argue that while supporters see collective forecasting and price discovery, the products can still resemble gambling and may be susceptible to manipulation. That concern has become more visible as the platforms have pushed into provocative markets and mass-market user acquisition tactics. The credibility of the category depends on proving that these are not just high-velocity betting venues wrapped in exchange language.
A Case Study Example of Manipulation Risk: An anonymous Polymarket user nicknamed AlphaRaccoon reportedly won more than $1 million by correctly predicting 22 of 23 outcomes for Google’s Year in Search 2025 rankings. The improbability of that performance led to accusations that the trader may have been using material nonpublic information, perhaps as an employee at Google. Whether or not that specific allegation is ever proven, the episode shows why critics worry that prediction markets can be vulnerable to participants with privileged access to information.
There is also rising discomfort around the specific kinds of markets being listed. Both platforms have come under scrutiny for allowing bets on the U.S. striking Iran and on the ouster of Iran’s supreme leader. The broader concern is that once markets begin to price geopolitical conflict, social unrest, or other highly sensitive real-world outcomes, the category starts to move from novelty and forecasting into ethically and politically fraught territory. That significantly raises the regulatory and reputational stakes.
Another problem is that rapid growth has been paired with aggressive customer acquisition tactics that have started to attract unwanted attention. Both companies have reportedly flooded social media with ads and actively courted college fraternities and groups. Questionable trades tied to Jeff Bezos’ whereabouts during the Super Bowl by members of his stepson’s fraternity, and in one case, Polymarket reportedly gave a fraternity thousands of dollars in cash in exchange for signing up new users. That is the kind of behavior that can accelerate top-line momentum in the short term while making regulators and investors more nervous about the quality of that growth.
The regulatory challenge is even more fundamental because prediction markets sit in an awkward jurisdictional gap. Traditional sports betting is usually regulated state by state, while prediction markets are currently overseen by the CFTC as federally regulated derivatives markets, with Kalshi in particular benefiting from a 2024 court ruling that supported that interpretation. Kalshi and Polymarket argue that this allows them to operate nationally without being subject to the full patchwork of state gambling laws. Opponents argue that this structure effectively lets them bypass safeguards that apply to conventional betting operators.
Even traditional exchange executives, who may ultimately want exposure to the category, are saying the market needs clearer rules. Nasdaq CEO Adena Friedman said prediction markets require consistent regulation to protect investors, while CME CEO Terry Duffy argued the category needs regulation that can endure across administrations rather than changing with each new government. That is a telling signal because it shows that even potential strategic beneficiaries of the category want a firmer legal framework before this market scales much further.
Competition is the next hurdle, and it is coming from both incumbent sportsbooks and new platform entrants. Crypto companies such as Coinbase and Crypto.com are already moving in, with Coinbase confirming its purchase of prediction-market startup The Clearing Company, while more traditional sports-betting firms are also circling the space.
What does the Future look like? Optimistic vs. Pessimistic Case
In the optimistic case, the long-term goal is to financialize everything and create a tradable asset out of any difference in opinion. In that world, a truly liquid predictions market is not just a place to speculate, but potentially a tool for hedging real-world uncertainty across politics, commodities, macroeconomics, companies, and other outcomes. In the most optimistic framing, these platforms could eventually produce probability data with real value to traders, analysts, and institutions trying to anticipate the future.
However, in the pessimistic case, these platforms could remain heavily concentrated in sports, get trapped in lawsuits and legislative fights, and struggle to develop the deep liquidity needed for niche or economically meaningful contracts. Without enough market makers, enough counterparties, and enough regulatory certainty, contract pricing becomes inefficient, and the broader predictive utility breaks down. In that scenario, the category may end up looking less like a new financial infrastructure layer and more like a controversial betting niche with periodic bursts of hype.
That liquidity issue is especially important because it sits at the center of whether the long-term vision can actually work. The platforms are nowhere near the point where they can function as a fully efficient market for every possible outcome. They still need brokers like Robinhood to drive participation and market makers to provide depth, especially in niche contracts. Without that, the idea of these platforms as a reliable hive-mind forecasting engine remains more aspiration than reality.
So when you bring it back to the $20 billion valuation headline, the market is effectively being asked to price not just current traction, but a future version of prediction markets that is broader, deeper, and more institutionally embedded than what exists today. The recent revenue, volume, fundraising, and user growth explain why those valuation conversations are happening. The regulatory fights, manipulation concerns, and looming competition explain why the future remains far from guaranteed.
Key Themes:
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