| We've been talking a lot about how the biggest nonbanks have banded together for bigger and bigger deals. Now one of the world's top credit rating companies is worried about the ever-larger risk. There's an aggressive form of competition building between the banks and nonbanks, particularly on leveraged lending terms. "This will likely cause pricing, terms and credit quality to erode, fueling systemic risks," Moody's Investors Service wrote in a note this week. A lack of transparency makes it hard to know exactly where trouble is brewing, Moody's said. "Risks are rising as major lenders jockey for capital clout and returns. Alternative asset managers are turning to individual investors, introducing liquidity risk into the private fund market where it did not exist before," according to the report, which also pointed to the vulnerabilities in "increased concentrations, conflicts of interest and lack of regulation."  Greg Lippmann on Bloomberg TV There are two ways to look at the surge in private credit markets and how that lending is moving out of the banks and into the shadows. Greg Lippmann—who was portrayed by Ryan Gosling in The Big Short, the movie based on Michael Lewis's book about 2008—thinks there's a bull case to be made. Lippmann now runs the hedge fund firm LibreMax Capital, which he founded in 2010 after famously betting against subprime mortgages as a trader at Deutsche Bank leading into the financial crisis. He explained to my colleagues in a Bloomberg Television interview this week that private credit is placing risk in vehicles that are supporting long-term investors. It isn't necessarily as vulnerable to margin calls or investor redemptions; there is stability there. But another risk is borne by markets more generally. "What the government did in some of the changes they made, in not wanting to have another Lehman ever again, is that they made the system resilient to sort of a bankruptcy, but they made the system more fragile for selling," Lippmann said. He goes on to explain the difference: "When banks could have a lot more leverage than they can have now, when there was selling, banks could step in and say, you know some senior person at one of these banks could say, 'I'm going to buy $2 billion, I'm the one who's going to stop the selling now.' They're not really able to do that." He continues: "Markets are much more volatile than they used to be for sort of short moves, even if they're more protected from a gigantic move, like the Lehman bankruptcy if you will. "Private credit has played an important role in playing that sort of stabilizer. The question will be, what about when they have to roll over their debt? Or, are some of those firms actually using leverage?" And as interest rates rise, the picture only gets cloudier: "Those cracks haven't really come out yet, but that would be one place that I would be looking for cracks." 'Exuberant Marketing'Stefan Hoops, the head of Deutsche Bank's almost $1 trillion asset management firm DWS, has been known as a "fixer," trusted by the CEO to solve complicated problems. This week. DWS settled for $25 million with the US Securities and Exchange Commission over claims that it was misleading investors about environmental, social, and governance factors in its sale of sustainability funds. The firm didn't admit or deny wrongdoing. "There was a lot of exuberant marketing, especially for new things, and by the way there will be AI-washing lawsuits in a couple of years," Hoops told me Wednesday in a Bloomberg Television interview. That doesn't mean he doesn't see value in the buzzy technology. "Can the essence of what we do in asset management be AI-ed? I think it can," he said. "But I think the challenge would be to get people, humans, to essentially explain their way of thinking in order to get algorithms from." —Sonali Basak, Bloomberg Television's global finance correspondent Watch the whole interview here: DWS Group CEO Happy to Put SEC Probe 'Behind Us' | 
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