Blackstone's Michael Zawadzki on How Private Credit Got so Big

Michael Zawadzki (0:02)

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Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

Joe, I keep thinking about that Sam Altman hype cycle kind of phrase, the whole, it's over, and then we're so back thing. And obviously, he was talking about AI and how people feel about AI. But I think you could apply it to a bunch of different markets at the moment. So AI, obviously, but also private credit.

Joe Weisenthal (0:42)

Totally.

Tracy Alloway (0:42)

Think back to the end of last year, right? We had all the JP Morgan, Jamie Dimon's proverbial cockroaches emerging from private credit, and people started to get really worried. Fast forward to January 2026, and a lot of those concerns seem to have faded into the background.

Joe Weisenthal (0:58)

Right. You wrote that thing, right? Like spreads everywhere are super tight, and already we know that the stock market is up for the year, but credit markets off to a very strong start of all flavors from what I understand.

Tracy Alloway (1:08)

Right. Stock markets stealing all the spotlight. But if you look at the corporate bond market, now this is the public bond market, not private, but spreads are, you know, at basically historic tights. I think the high yield index is starting at its like tightest level ever in the history of the index for the year. This is crazy. But it also highlights an important point, which is that spreads and returns are all relative.

Joe Weisenthal (1:30)

Yeah.

Tracy Alloway (1:31)

Right. And so if the public market is absolutely booming, that could be a good thing for private credit, but also private credit competes with the public market. Right? So if you're getting pretty good returns in public credit, or leverage loans, something like that, maybe you're not going into private credit as much as you used to.

Joe Weisenthal (1:48)

What if you found a house that just had one cockroach? That would be, could you imagine?

Tracy Alloway (1:52)

There's never one cockroach. That's the point.

Joe Weisenthal (1:53)

There had to have been a first cockroach that enters the house. You get it really quickly and then you don't have a cockroach problem.

Tracy Alloway (2:00)

Did I ever tell you, I hate cockroaches so much, that first of all, the first Japanese word I ever relearned when I moved back to Japan as a 14-year-old was gokibori hoi hoi because I had to go down to the local convenience store and buy cockroach hotels because the entire apartment was infested. Secondly, I hate cockroaches so much, I once read an entire book about cockroaches just to know my enemy.

Joe Weisenthal (2:27)

Wow.

Tracy Alloway (2:27)

It was 300 pages on cockroach.

Joe Weisenthal (2:29)

Should we get the author on the podcast?

Tracy Alloway (2:31)

It was actually a really good book. It was a cultural and scientific study of the history of cockroaches, but anyway, we are getting massively off topic. Shall I introduce our guest? We do in fact have the perfect guest. All right. So we're going to be talking all things private credit, including how private credit is relating to the AI space at the moment. We're speaking with Michael Zawadzki, also known as Zee. He is the global chief investment officer for Blackstone Credit and Insurance. So Zee, thank you so much for coming on the podcast.

Michael Zawadzki (3:02)

Wonderful to be here. Thanks for having me.

Tracy Alloway (3:04)

So I am told by your lovely Blackstone representatives that over the last 20 years, you have grown Blackstone's credit franchise into the largest business by assets at Blackstone. How hard was that? Were you just sort of like riding a wave of corporate issuance?

Michael Zawadzki (3:21)

Well, let's talk about a few things that have happened here. You know, I often get asked about this growth of private credit, and I think there's a misconception that that growth was driven by excess risk-taking. But when you actually step back and think about what's happened in the market, you basically had an innovative breakthrough that changed the way business was done that was better for all market participants. The way I like to analogize it to is what happened with Amazon in the retail space, right? Before Amazon, if you wanted to go buy something, you had to go to the store. But Amazon kind of took out that middleman and brought you, the consumer, directly to the manufacturer, and in the process created something that was simpler, more efficient, better for the economy, more transparent. What's private credit done? It's done the same thing. It's brought the borrower right up directly to our investor's capital. We sometimes call it this farm-to-table model, right? What have you done in that process? You've cut out all the middlemen, all the syndication, all the trading desks, all the stuff that led to leakage along the way. And in the process, you built something that was better for all market participants. If you're a borrower, you get to speak directly to your lender. You get a customized solution. You get speed, certainty of execution. If you're an investor, you capture all of that excess leakage in the form of higher returns. And that's been the case for the last 20 years. And by the way, if you're the financial markets, you have an ecosystem that is less levered, more asset liability management brings more financial stability to the overall ecosystem. When you have something that's really good for all market participants, it tends to grow a lot. And that's what's happened in private credit.