Valiant Capital's Chris Hansen is building a new hedge against what he sees as mounting credit risks — one he believes markets are largely ignoring.
Tiger Cub Chris Hansen tells clients in his first-quarter letter that the firm is launching a new side pocket vehicle “to gain additional credit (short) exposure for the GP.” The new SPV, open to all investors, is designed to provide downside protection for investors during a market sell-off.
“We created the SPV as a means to enhance our protection against a severe and disorderly credit unwind,” Hansen says in the letter, obtained by Institutional Investor. “As such, it is meant to be an outsize hedge against market turmoil as opposed to an investment opportunity that will generate a profit in normal market environments. It is strictly, in our view, additional tail risk hedging.”
In fact, in the letter, Valiant tells clients its hedge fund significantly boosted macro exposure from 18.5 percent to 34.4 percent, adding to its credit hedges and rates positioning. “This reflects our rising concerns about the growth/inflation backdrop broadly, and our work on credit and private credit specifically,” Hansen explains. “One specific area where we have gained meaningful conviction is our short and macro positions that are directly or indirectly related to the deterioration in private credit (and mispriced credit in general).”
He tells clients the firm has directed “a very meaningful part” of its research efforts to “disentangling the potential impacts of the deterioration in credit that appears underway,” adding it will have much more to share in coming quarters. “For now, our heads are down and pencils sharpened trying to understand (uncover) the incredibly complex structuring and interconnectedness of the leveraged lending cycle and identify the best ways to express the potentially cascading risks that may surface,” Hansen says.
Why is he so worried?
Hansen asserts that although there was no shortage of hurdles facing the global economy and markets in the first quarter, “the most acute will invariably prove to be the truly unprecedented supply shock we are experiencing as a result of war with Iran (Strait of Hormuz closure) and the associated damage to the region’s oil, gas, refining, and shipping infrastructure. In short, we believe that even in the most benign scenario, where the conflict ends tomorrow, the economic echoes of what has already happened will continue to reverberate through the U.S. and global economies for quarters and even years to come, a reality that equity and credit markets seem largely blind to.”
Hansen points to several ways the Iran war will negatively impact the global economy and make it hard for inflation to come down through at least 2027.
Of course, he points to the current difficulty in the Strait of Hormuz. He says that Israel’s strikes on Mahshahr and Asaluyeh wiped out roughly 85 percent of Iran’s petrochemicals capacity and that the Qatari liquefied natural gas and helium complex experienced meaningful collateral damage from Iranian missile retaliation. He asserts that Middle East petrochemicals exports will take 12 to18 months to fully recover, and notes that helium production at Qatari processing facilities won’t immediately resume even after a cease-fire because the cryogenic infrastructure requires a lengthy rebuild and recommissioning.
Hansen also worries about what he calls the structural channel. He says procurement contracts in apparel, packaging, automotive, and consumer electronics being signed right now will lock in input costs for the 2026 holiday shopping season and early 2027, meaning U.S. and European consumers will see price increases showing up in retail in the fourth quarter even if spot petrochemicals prices have fully retraced by then.
“Compounding all these stock and structural effects, the war is forcing what we believe will be a one-time and largely permanent repricing of Middle East–concentrated supply chains,” Hansen says. “What all of this means for the U.S. economy through 2026 and into 2027 is that we believe headline inflation is going to look meaningfully stickier than the Fed’s reaction function currently assumes, even if energy prices retrace materially from here,” he elaborates. “The pass-through to core goods inflation is already underway through apparel, packaging, paint, tires, and grocery — all categories that the disinflation narrative of late 2025 had assumed were behind us.” He warns these increases are nearly certain to hit CPI numbers in the third and fourth quarters.
“From an equity and credit markets perspective, we can’t help but feel financial markets are being overly sanguine about how all of this will work out,” he concludes.
In any case, the credit SPV is Valiant’s fifth special purpose vehicle.
II previously reported that in its second-quarter 2024 client letter, Valiant announced a new SPV focused on the power industry. The vehicle has been a huge success since its launch. In 2025, it rose 54 percent, and this year through April, it is up 37 percent, says an investor.
In that letter, Valiant said its inflation hedge swaption SPV had at the time generated a 282.5 percent net internal rate of return and its GLP1 (Eli Lilly) vehicle had generated a 237.6 percent IRR — with a realized return of approximately 120 percent of invested capital after the firm trimmed the position.
Hansen later acknowledged that he held on to his Zillow SPV for too long, by which point it had posted a negative 74.7 percent IRR.
No IRR updates are currently available.
