Worse than 2008? Outside the AI bubble, the new fund supported by "The Big Short" Michael Burry targets risks in private credit.

According to Zhihui Finance APP, while Wall Street is busy searching for signs of bubbles in AI stocks, a new hedge fund with ties to the "Big Short" Michael Burry is turning its attention to another direction that might be even more dangerous—private credit.

Minerva Investment Management, a short-biased strategy fund managed by Lax Ganapathi, has brought Burry on board as a senior advisor. The fund is looking for short-selling targets in industries such as healthcare, retail, catering, and small banks.

Ganapathi stated that the financing for many companies in these sectors is related to private credit, which may be quietly "rotting."

Short-biased strategy funds are typically set up as hedge funds and mainly profit when stock prices fall. Ganapathi declined to disclose specific short-selling targets or the size of the fund. She mentioned that the fund will launch later this month.

"AI doesn’t represent the entire market, even though it may look like it," Ganapathi said. "For us, credit is the leading indicator and signal for 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 pressures for years. The bankruptcies of U.S. auto parts supplier First Brands, car dealership Tricolor, and UK mortgage lender Market Financial Solutions highlight such risks.

"This time it won’t be like 2008. It’s going to be much worse," Ganapathi stated.

According to data from Fitch Ratings, the U.S. private credit default rate reached a record high annualized level of 6.3% in August.

Short-selling funds on the decline, Minerva enters the fray

Minerva is entering a particularly harsh segment of the hedge fund industry. According to HFR industry estimates, the number of funds focused on short-selling strategies has shrunk from 54 in 2008 to just 6 by the second quarter of 2026. This is largely due to increased regulatory scrutiny of short positions, the tough performance environment facing short exposure, and changes in U.S. hedge fund reporting rules.

The GameStop (GME.US) frenzy in 2021 highlighted the risks of crowded short trades: when stock price movements disconnect from fundamentals, a seemingly reasonable investment thesis can quickly unravel.

Nevertheless, Ganapathi said that Minerva may benefit from Burry’s experience. Burry rose to fame for shorting the U.S. subprime mortgage market ahead of the 2008 financial crisis, becoming the inspiration for the main character in the movie "The Big Short."

Burry closed his hedge fund, Scion Asset Management, late last year and launched the paid Substack newsletter "Cassandra Unchained" to publish his market views.

Ganapathi said that an acquaintance of Burry's first introduced them. Later, after Burry subscribed to her Substack newsletter, she proactively contacted him and eventually invited him to join Minerva.

Ganapathi is also the founder of short-selling research firm Unicus Research. According to the company’s website, some of its key short targets include EV manufacturer Faraday Future (FFAI.US) and used car retailer Carvana (CVNA.US).