It was a pleasure to welcome Ian Harnett, co-founder and Chief Investment Strategist at Absolute Strategy Research, to the Alpha Exchange. Our discussion explores how long periods of low volatility and abundant liquidity can quietly allow systemic risks to accumulate outside the traditional banking system.

Drawing on lessons from the Global Financial Crisis, Ian explains why today’s financial system—now dominated by non-banks rather than banks—requires a different risk framework.  While post-GFC regulation focused on large banks and insurers, much of the system’s leverage and liquidity transformation has migrated toward pension funds, private equity, insurance companies, and private credit vehicles. In the U.S. alone, roughly three-quarters of private-sector financial assets are now controlled by non-banks, reshaping how shocks can propagate through markets. A key theme of the discussion is that systemic risk is multiplicative rather than additive.

Ian argues that past crises were often triggered not by the largest institutions, but by smaller nodes in the system that proved critical once stress emerged. Today, he highlights the growing role of private-equity-backed insurers, which tend to hold riskier assets, maintain lower capital buffers, and allocate more heavily to private credit—an area that remains largely illiquid and difficult to mark to market. Ian’s work emphasizes cash flow as a central lens for assessing vulnerability.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Ian Harnett.