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In this episode of Syndication Nation, 9fin’s podcast on all things leveraged finance, US LevFin reporter Zoe Han joins US managing editor Bill Weisbrod to discuss her recent reporting on the explosive growth of prediction markets — and whether credit investors are actually all in or just hedging their bets.

Are prediction markets a legitimate “truth machine” for LevFin dealmakers? Listen in and draw your own conclusion!

Got a hot take or just need to vent after blowing your bonus on a bad bet? Drop us a note at podcast@9fin.com.

Creators and Guests

Producer
Chase Collum
Head of Podcasts for 9fin Limited

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Bill Weisbrod:
Hi, I'm Bill Weisbrod, US managing editor at 9fin, and thanks for joining us for the latest edition of the Syndication Nation podcast where we cover all things leveraged finance.

Today, I'm joined by levfin reporter Zoe Han to talk about the story she published on March 10th about how prediction markets like Kalshi and Polymarket are informing some creditor investors' strategies. It's pretty timely considering how much geopolitical uncertainty is impacting financial markets right now and has been for much of the past few years.

Thanks for joining us, Zoe.

Zoe Han:

Yeah, happy to chat.

Bill Weisbrod:

So, let's get started. How did this topic come to your attention in covering the LevFin beat?

Zoe Han:

Yeah, so, originally I was keeping an eye on prediction markets, but that was because a buysider was talking about how the sports prediction market has really kind of like challenged the sports betting situation. But then, as we continue to report onthe  sports prediction market, I continue to hear credit investors, they are not so interested in that realm, but it is very much a hot topic for the equity market.

But then, fast forward to maybe a month ago when Greenland was a topic among us, our colleagues, and also just among market participants because if President Trump is going to acquire or take over Greenland, that has a lot of implications for the US-Europe relationship and also, of course, a lot of capital allocation situation as well.

So, I remember that day, I was just calling around to see what do you think will happen and does that impact your credit strategy for now. And then, there is one buysider, he was telling me that, I don't know, but I am keeping an eye on Polymarket odds. And I thought that was really interesting. And they were saying basically, right now, at the time when we were speaking, it was about 20% of the chance that Trump has any possibility to take over Greenland. And if the odds reaches 50%, then it could have some impacts on the credit market.

So, I thought that was interesting. Because in my former conversations with credit investors, I feel people are mostly very risk-averse and very doubtful when they were talking about prediction markets. When they were talking about either calci or Polymarket. And most of the time, people kind of use these two interchangeably. And that was the first sign, I feel like, oh, this actually kind of made it to the credit world. Where before, it was already having a lot of waves in other areas, like the regulation part, the equity market part, but that was the first time I heard about prediction market from a credit investor.

That was how this piece started. I was thinking about like, oh, maybe this is the moment when prediction markets, which has become super popular over the past year, finally reached credit market.

Bill Weisbrod:

Yeah, so I remember last year, I think it was, you wrote a story about a couple of high yield issuers in the gaming space partnering with prediction markets.

Zoe Han:

Yeah.

Bill Weisbrod:

You know, seeing those as a growth area. But now here we are. And it's worth noting that these markets, you know, they're not reflective, at least they're not supposed to be reflective of the actual odds of something happening, but rather the betting public's view on the likelihood of a certain thing happening.

Zoe Han:

Yeah.

Bill Weisbrod:

So, why do investors use prediction market odds, you know, given that, to inform their investments, if that's all they're reflective of?

Zoe Han:

Yeah, I think so. First of all, nobody really knows the actual odds of something happening. That is something that nobody, maybe only God knows. So, I think that...

Bill Weisbrod:

Yeah, or if you know, you know, you have information that the rest of the public doesn't know.

Zoe Han:

Yeah, so if you are the decision maker. So, I think how credit investors are viewing this is just because, for a lot of events that it predicted to happen, it happened.

They were saying, like, it's kind of accurate. And also, it also is in parallel with this timeline, as we feel there is an increasing uncertainty in geopolitical climate. Like, maybe we have not ever considered Greenland's situation would happen. And nobody had ever wondered about the Venezuela situation, if it would happen maybe four years ago.

So, a lot of things have changed. And that is definitely something that everybody felt. There is this increasing sentiment about, oh, we don't really know much about the situations right now. We are not super sure about the direction going forward. And pairing up with a lot of other uncertainties. For example, AI risk.
These are the uncertainties that all of us are navigating, credit investors as well. And then, at the same time, there is this huge popular platforms coming into the public view in the probably last year. Because of sports prediction markets, because it really opened up a lot of states where before sports betting was not legal. But now, because of those platforms, they are able to play some bets. Or just predict some of the results of certain games on those platforms.

I've heard from people telling me that they've started to look at those platforms, Kalshi or Polymarket, because they've been looking at the sports events on those sites. And I'm thinking, because they kind of trusted the public information or this group-sourced wisdom. I think that's probably a word some of the people I talked to might agree on. It is a group-sourced wisdom tool, thinking about what might happen.

And that is comparatively a lot more accurate than a single person's opinion. Because you have a lot of different people, who have a lot of different points of view. And then, maybe there's also people who's involved in the decision-making process. We do not know.

So, this is how they are viewing this process. It's just because it's pretty accurate. A lot of times it happened. And it's a pretty good parameter when you are not super sure about the general environment to give you some directions to do a sanity check.

Bill Weisbrod:

For the credit market perspective, and for people in that world, how do they, in practice, according to your reporting, how have you heard people or seen people using prediction markets?Zoe Han:

So far, for credit investors, they are mainly just referring to it as something that you look at, as I mentioned earlier, as a sanity check. I did hear from one source that their in-house economists, they were mentioning Polymarket or Kalshi odds in their meetings a lot more frequently now. Which is pretty explicit. A lot more explicit than before.

And then, for another person I talked to, I think they were just tracking the odds for related events they were curious about or they are interested in. And if it reflected higher odds, then maybe they will do some strategizing around the situation. So far, for people in the credit world, for a lot of the performing credit shops, they are using it pretty passively. And for the platform, the odds is the cumulative result of everybody placing some bets on an event. So, you are able to decide yes or no for events whether it is happening or not. And you are able to place anywhere from zero dollars to one dollar. So, we are able to see in real time the odds of yes or no for that event happening. So, that's the public opinion.

And then, one person told me basically, the market is all about opinions. So, the credit market, and Polymarket, and also Kalshi, they are just like opinions with money behind it. And because you have money behind it, most of the time we'll put more effort and research into figuring out their real opinion on this. So, they will take that a little bit more seriously than others.Bill Weisbrod: Did you talk to anyone who said they would not use prediction market odds in their credit investing strategy?

Zoe Han:

So far, I haven't heard anybody specifically saying no, we are not looking at it at all. But, I think it will make sense that there are still people who do not look at it at all. Because as I said, I feel credit investors are generally more doubtful on prediction markets than equity investors.

And then, I think right now this moment we are seeing is really just ... prediction markets are something that is so new and so disruptive finally, meeting the credit market where it is a lot more risk averse, where a lot of those headlines, don't really reach, they will reach the equity market and they will move stock prices. But those times, it will seldom impact credit market. But now you are seeing this moment to come.

Bill Weisbrod:

It's interesting. It's kind of a new element in the conversation. Anything else to mention on this topic

Zoe Han:

Yeah, I think we've heard from people saying, as credit investors, performing credit investors, they are not looking at it as something they will be actively involved in. Maybe they are just kind of glancing at it. But then, a lot of people are pointing to hedge funds saying they are trying to figure out some strategies around it. And we've started to see headlines around that, too.

But I guess we will see how it will play out in the upcoming weeks or months. Because this area really changes by day. So, we'll see.

Bill Weisbrod:

Well, thanks Zoe. It's fascinating. I'm sure there will be more to talk about as these platforms become more mainstream, or if they recede. We don't know. I wonder if there is a prediction market on the adoption of prediction markets.

Zoe Han:

Yeah.

Bill Weisbrod:

Alright, thanks Zoe.

Zoe Han:

Thank you. Happy to chat.