Dan Rasmussen has built a reputation as a persistent contrarian. The founder and managing partner of Verdad Capital, Rasmussen has spent much of the past decade challenging Wall Street consensus, particularly the enthusiasm surrounding private equity and private credit. Rasmussen has been an outspoken skeptic of the asset class, warning that the decades-long boom in private equity may be approaching a painful reckoning.

Rasmussen’s path into finance was not entirely conventional. He studied history at Harvard, authoring a bestselling history of the 1811 German Coast slave uprising based on his senior thesis. He worked at Bridgewater Associates and Bain Capital before striking out on his own, launching his hedge fund while completing his MBA at Stanford.

Rasmussen founded Verdad in 2014 with just $8 million in capital and a strategy built around buying small, leveraged, and cheap companies. The firm has since grown to roughly $1.5 billion in assets and has increasingly focused on international opportunities, including a new Japan-focused small-cap fund. Rasmussen’s contrarian approach has led him to some unconventional positions, from deeply distressed small-cap stocks during the Covid panic to betting on the long-neglected Japanese equity market long before the herd took interest. I spoke with Rasmussen about the intellectual roots of his approach, the problems he sees in today’s private markets, and making money in a crisis. What follows is a transcript of our conversation.

CB: How’d you get mixed up with Bridgewater?

DR: My dad is a lawyer, and when I was a junior in college trying to figure out what I wanted to do with my life, he said, “I got paid by the hour. Try to find a job that pays by the decision instead of by the hour.” That’s what led me to investing, where you’re really betting on the future and what’s going to happen in the future. And the right way you determine what’s going to happen in the future is by looking at history and past data, trying to use that information to understand.

I got a job at Bridgewater, and it was a really cool experience, it was global macro. You know, trying to learn a little bit about all different asset classes. They had a very historical approach of, let’s study markets over long periods of time, overlaid with a totally insane culture that Ray Dalio’s become famous for: radical truth seeking and confrontation. It was a little bit of a shock to the system. I ended up not returning to Bridgewater, but going to Bain Capital, to private equity, which at the time felt much more like a white shoe Boston firm, relative to the Bridgewater mania, which felt a lot more comfortable to me.

CB: You told me once that you took issue with DCF [discounted cash flow] as a valuation method.

DR: Bain Capital was where I realized I was a horrible employee. I quickly developed strong, independent opinions, and I’m pretty stubborn. I don’t deal well with authority figures. Probably the greatest of my conflicts with my bosses came over the use of discounted cash flow models. If you’re entry level in finance, your job is to build these models where you’re predicting revenue growth or earnings growth four or five years into the future. I’d read a lot of interesting work by Philip Tetlock and Daniel Kahneman and Amos Tversky, which was pretty clear that humans are really bad at predicting the future.

We have many gifts, but prophecy is not among them. So much of finance was built on making hyper specific projections of business line revenues five years into the future. It’s even worse than false precision because it increases confidence without increasing accuracy. I really started looking for a better way to make decisions. I like to say that I start from a point of future nihilism, which is: imagine that you’re standing here with the veil of ignorance, and not only can predict nothing about the future, but no one can predict anything about the future.

If you’re thinking about investing in equities, my default prediction is that the future follows a random walk. And a random walk is just that everything stays the same essentially. If that random walk is true, you’ll make the most money buying the highest free cash flow generation relative to your equity investment. For example, if you can buy a company for $20 million that made $20 million of cash flow last year, versus spending $100 million for the same $20 million of cash flow. You’re trying to come to a set of decisions that’s based not on how the future is going to unfold with the right degree of precision. But rather, gee, the future just unfolds so randomly. Will this be a good investment or not?

CB: When you launched your hedge fund, Verdad, in 2014, what was your foundational thesis?

DR: At the time, private equity had been perhaps the most successful investment strategy of the last 30 years. It was just by far the winner. And Bain Capital was a great example of this, with these incredible numbers that they put up in the 80s and 90s, even early 2000s. Well, what worked about private equity? Why did it work? Why was it so good? How can we explain this? I ended up building a huge data set at Bain Capital, looking into this.

And what we found is that it was really a combination of three things. Private equity bought very small companies. They used a lot of debt when they bought those companies. And then third, historically, private equity bought companies at a huge discount to public markets, about 40%. And then, basically 60% of the industry’s profits have come from the cheapest 25% deals. If you think about what was really happening, private equity investors were going and finding these really cheap companies. Maybe they were buying them from a family, or they were buying them at a time of distress, and they were buying them at these ridiculously low prices, with debt, and then they were able to sell them. They fixed them up and would sell them, often to publicly traded companies that traded at a big premium. They could pay a much bigger price than the private equity person that paid for it, and that purchase would be accretive to them. It’s this arbitrage between private and public markets and using leverage to do that arbitrage.

You got a multiple return on your capital as a result of the efficient use of debt. And back 20-30 years ago, there was a lot more fat in American business. So these guys often were very big on cutting costs, making rational decisions. The famous line in finance is: there are no bad ideas because everyone’s too smart, and they smell out bad ideas fast. There are only good ideas taken too far. And so private equity is a good idea taken too far.

In the mid 2000s, the asset class started to grow. Everyone saw those trailing returns, and they said, I want some of that. Everyone started piling in — again, really small companies. So this is a very small illiquid asset class that just got jammed with money.

What happened is that the private equity funds themselves took their lending units, their mezzanine debt units, and that sort of morphed into what’s called private credit. And those private credit firms would provide the funding for leveraged buyouts. If a private equity firm was doing a deal, the private credit firm would come in and offer them all the debt that they would need to do it. And the private credit firms were able to grow this new form of lending, which was generally quite high rates.

By the mid-2010s the big hot thing was software. Software was eating the world, so private equity moved increasingly into software. And the private credit lenders said they could lend on recurring revenue, your subscription revenue, essentially. So they started lending to software companies these revenue loans, and that became an explosive purpose area.

You saw this convergence of a few different things: the rise of private equity, the rise of private credit, the enthusiasm for software as an asset class, and the enthusiasm of investors for everything private, thinking that private was just better. And I think we are now in the very beginning of the big private market bust up, where everyone realizes how much capital was misallocated and how dumb this groupthink was.

CB: One of the things that comes to mind is the opacity of the private markets. You’re putting a lot of faith in the integrity and competence of the people managing your capital, because it’s not subject to market discipline.

DR: That’s right. And you know, I love markets. I think markets are wonderful because they enable rapid price discovery, and that price discovery has real signal in it. It’s really valuable. It makes a lot of people uncomfortable because markets are very volatile. They’re volatile, in my view, because people can’t predict the future, and so as new events come out, you’re always repricing things, because people make a lot of forecast errors. In public markets, people are always reevaluating things, trying to anticipate things, correcting for past mistakes. That’s really why markets are so fantastic. They convey so much information with such speed.

But it’s uncomfortable. There’s nothing else in our lives where prices move as much as they do in public markets, or where booms can turn to busts overnight. It’s not a nice feeling relative to the private markets, where things are very smooth and very long term, and you never see any volatility, and all you ever hear is a quarterly presentation or update. Something that was marked at one, it’s marked at one again because we haven’t sold it. Someone called it the phony happiness of private equity. Because it was private, and you were not subject to daily pricing, but it was also very opaque.

What happened is that these firms paid huge prices for companies, especially in 2020 and 2021, and they bought that with floating rate debt. Then interest rates went up, and all of a sudden these firms had to pay a lot more interest. The market repriced those growth stocks down in 2022, so you had valuations coming down and debt service going up. The growth that was underwritten just didn’t materialize.

What ended up happening is that private equity firms couldn’t sell what they bought at a profit. Because they couldn’t sell them, they couldn’t distribute money back to the investors. And because investors size their new investments based on the return of their old investments, the investors started pulling back and lowering their new commitments. So there were fewer buyers and fewer exits.

But then AI came along and people said, wait a second, I can create really good software really cheaply, and so do all these small software companies that form the bulk of what was in private equity portfolios, how valuable really are they?

So you basically saw people start selling out of these private credit vehicles. Because private credit has been sold through publicly traded vehicles, you can see real mark to market pricing. And you’ve seen retail investors dumping private credit. And if the credit is impaired and worth 80 cents on the dollar, then the equity is certainly worth a lot less than 100 cents on the dollar. So that equity has got to reprice pretty dramatically down. And I think the love affair with private markets was so intense that this moment of looking in the mirror and seeing what these portfolios actually were is a big moment in the history of markets.

CB: How concerned are you with continuation vehicles? They were responsible for over 20% of PE sales in 2025, which seems a little sketchy, to put it bluntly.

DR: Of course, it is. Why that type of continuation vehicle? Because they couldn’t sell at a profit. If they could sell at a profit, they would have sold at a profit. They couldn’t. And so instead, they’re selling these continuation vehicles. But you’ve got to be crazy to think that what’s in these continuation vehicles is a great investment. It’s stuff that, almost by definition, they couldn’t sell, and so they have to keep sticking with it. I think the rise of these continuation vehicles was one of the symptoms of how unhealthy the market was, and it’s only gotten worse.

CB: What are the other major symptoms in your view?

DR: I think that there are a few signs pointing to the problem. One is the huge drop in exits. They’ve been unable to exit most of these companies. So the hold periods have been drawn out. And that’s always a bad sign. If you can’t sell it and you’re supposed to sell it, that’s bad. Two is the big drop in these private credit valuations, where the lenders are saying, Hey, some of these companies aren’t paying interest anymore, and they’re using what’s called payment in kind, where rather than paying interest, they just add the interest to the equity balance, and some of these loans are just going to zero.

We just look at them, we’re like, wow, there’s no value here anymore. And you know, those are signs of much worse pain in the private equity market. And then I think you can see in the fundraising numbers that the most sophisticated institutional investors are pulling back from it. And at the same time, private equity and private credit are really trying to push into retail, to push into 401(k) plans. And I think that they’re hoping that that new fundraising channel is going to bail them out of some of the bad decisions they made over the previous few years.

CB: Is there any way to measure the assets of the large PE funds against smaller, more targeted funds backed by, let’s say, ultra-high net worth individuals? If you’re a multi-billionaire and you’ve got your own private equity investments, you’re probably more mindful of what you’re buying than if you’re relying on a bucket of institutional investors, right? If it’s your own capital.

DR: This is an interesting thread to pick up. We’ve seen the rise of these family offices, which manage money for these large families. Private Equity is probably a core strategy for them, but many of them want to do their own deals, to make their own investments, because that’s how a lot of them made their money. What’s sort of happened, interestingly enough, is that private equity created a new product called coinvest, or deal by deal, where the private equity fund would say, hey, we’re doing this deal, but we’re going to bring it to your family office, and your family office is going to underwrite it as a one-off direct investment. And we’re not going to charge fees on that, or maybe we’ll charge lower fees than normal.

You feel like you’re the decision maker because you’re making a decision about this individual investment. It feels like a direct deal, because you’re not paying the same fees, like a fund fee, and you’re bringing your fees down. But the private equity fund is sourcing the deal for you and bringing you the deal. And so it’s coming through the relationship with a private equity fund. There’s been a huge rise in those deals. And I’d say anecdotally — this is a hard thing to have data on — those coinvest deals tend to do worse than the funds, and there are a whole variety of reasons for that, but I think generally that that basket of things has been a worse investment for the families than just investing in the funds.

CB: You’re on record plenty of times going back to the mid 2010s talking about this. Was that a lonely time in your career? How many people agreed with you at that time?

DR: I published an article in 2018 in American Affairs saying that private equity is overrated and overvalued. And then in 2021 I published an article on private credit: if high yield is oxy, private credit is fentanyl. Trying to point out the problems that were in these markets. And the most common response that I got was something along the lines of, yes, those are a problem in the market, but not with our managers. Or “yes, so many of my competitors are doing that, but we’re not.” And I don’t think anybody took what I wrote, listened to it, and acted on it. Just look at the growth of the asset.

I was a lone voice crying in the wilderness, and a voice that was basically ignored because I was saying things that seemed outlandish relative to the consensus. To come out and say that the best performing asset class of the last 25 years had such severe problems that it was going to dramatically underperform public markets at a time when most people were trying to put 30, 40% of money into it — it just didn’t land.

And then, private credit, it was the same thing. I published this piece in 2021, and for years people said, gee, you predicted that there would be defaults in private credit, but they haven’t happened. Private credit has been fine. But now private equity has significantly underperformed the public market for years, and private credit defaults are being announced almost every day. Because private equity has such a long life, you’re in these investments for 10 to 12 years. To avoid the pain of 2024, ’25, ’26, you really had to get out in 2014, ’15, and ’16. If you didn’t, you’re in this stuff up to your gills, and you can’t get out. It’s like the Hotel California.

CB: Let’s say that PE continues to underperform. What’s going to be the opportunity in that for a manager like yourself?

DR: The first thing to note is that in making good investment decisions, you have to play defense and offense. In terms of playing defense, you want to avoid the hot things that everyone agrees on. Like, in society and culture, just like an investment, investments that reflect the culture, right? There are these fads, right? Think about the last few years in our public life. How many fads there have been where some massive percentage of people have all agreed on something — or pretended — and then it’s turned out that thing is crazy. I can think of a half dozen examples off the top of my head. And investing is a little bit like that.

You have to have this approach of saying no to a lot of things, saying, I don’t believe that. I’m not going to do it. And there’s a little bit of being a curmudgeon about this stuff, but I think you’ve just got to avoid it. Wall Street is such a skillful marketing machine that you’re always being sold things, and you’ve just got to say no to them. I’ve been trying to advise people to say no to things that were clearly bad, and that was this excessive enthusiasm for private equity and private credit. Again, when I say they were clearly bad, it wasn’t that they were clearly bad 10 or 15 years or 25 years ago. Back then, they were really good ideas. It’s just that once everybody agreed on them, they became bad ideas.

Consensus creates crisis. You have to be a contrarian, because the only way something gets so overvalued you can lose a lot of money on it is that everybody else agrees on it. So it’s a funny, funny part of the world, or definitional, you have to be contrarian. The second part of this is to try to apply that same logic and say, “what are the things that are actually good that everybody’s ignoring and hates for some reason and doesn’t want to invest in? And does that create opportunities?” That’s really where I focus my investing approach.

CB: Just as a case study, could you walk me through your covid year, what positions you held, what your returns were — your logic going through the last major crisis.

DR: Covid was an amazing time. In 2019, I had begun work on this idea of crisis investing. What I wanted to look at is, how do you invest when a crisis comes? We’ve always heard ‘sell the sound of trumpets, buy the sound of sirens.’ But what are we supposed to be buying? I looked at every crisis since 1970 and asked what you should have bought. You always know you’re in a crisis. You never know you’re in a bubble. We concluded that what you wanted to buy was the smallest, cheapest, most illiquid stocks that were down the most but were not going to go bankrupt. That was the core thesis.

We wrote this big white paper called crisis investing and published it in January of 2020. We had no idea when a crisis was going to come. And then all of a sudden Covid hit in March. We went out to our investors and raised about $170 million, and we deployed that in the summer of 2020. Fourteen months later we were up 85% out of fees. We fully liquidated the fund and returned it to investors. I went out and said this was the best buying opportunity since 2008 and you had to go out and do it.

Everyone else was saying the world is ending and there won’t be a stock market left. My view was that people were wildly overreacting to Covid. It was also true in the public equity market, where people were selling everything and panicking. Those times represent the best buying opportunities for disciplined long-term investors.

The only problem is you have to go against the herd. Look for what Mordecai Kurz at Stanford calls correlated beliefs. Start from what the correlated beliefs are, and then ask which of them are wrong. I’m a nonconformist, and in investing, that is tremendously profitable, because the only way to make a lot of money is to take nonconsensus views.

CB: Can you walk me through your different funds? And I’m especially interested in your Japan small-cap fund that you announced a couple months back.

DR: Again, I like contrarian bets. Japan had its lost decades where the stock market returned zero for 20 or 30 years, really, after the 1980s bubble burst. So a lot of people left Japan for dead. They thought, Look, there’s no growth there. There’s a declining population, there’s deflation, there’s massive debt to GDP. Japanese thinking, from a cultural and political perspective, and about Japanese companies relative to US companies, there’s some really good things and some bad things.

On the really good side, Japanese companies really pursue excellence in what they’re building or doing to the detriment of things like profitability. They get obsessed with building the absolute best rubber hose or something, and they’ll pour into R&D. And they also have a very strong commitment to their employees. They never fire people. It’s basically a lifetime employment guarantee. And the CEOs tend to be very humble. They don’t get big executive comp plans, and their salaries are relatively low. There’s an admirable nobility to it.

On the other hand, there’s this extreme conservatism that arose for a variety of reasons. Japanese managers for the past 20 years or so have been acting as though a tsunami was going to hit them or an earthquake was going to destroy their village, and therefore they had to hoard cash. They’d have fortress balance sheets. There was this massive buildup of assets in the balance sheet where they weren’t doing dividends, they weren’t giving buybacks. They were buying real estate or putting cash in the bank. It got to this extreme point where Japanese companies were just massively over capitalized and massively underpaying shareholders in terms of distributions.

Whenever a problem gets big enough, there are enough smart enough people that we’re going to come up with a solution. Obesity got big enough, and then we created GLP-1s. This problem got big enough, the stock market going nowhere got big enough, and the massive over capitalization got big enough that the government and the stock exchange got together and decided to fix it. In 2023 they promoted these corporate governance reforms. And the goal of the corporate governance reforms was to promote capital efficiency. And what they said is that if you’re a company that trades below 1X book value, basically below the value of your assets, you’ve got to put out a plan for how you’re going to change that. And the way you change that is very simple, which is, you sell the assets, and you buy back shares or do dividends. You take the money from your own balance sheet, you put it in the balance sheet of the investor, and quickly you right size the price to book problem.

This reform has just been a tremendous success, because thousands of companies trade below book in Japan, and this pressure has really pushed them to start taking steps that are moving in the right direction. I think we’re probably a third of the way through that reform, but a third of the way is a huge amount of positive change in Japan.

So the Japanese market, which was a laggard for so long, has all of a sudden been on fire. Buffett identified this at around the same time. I’ve been really building a Japan business for the last 10 years or so to try to capitalize on this sort of extreme undervaluation that was driven by this consensus view that Japan was a dead market. And that old conception has just been blown up by these corporate governance reforms. I think that as these corporate governance reforms play out, the profit opportunity for investors to go and buy these massively over capitalized, really undervalued shares in Japan is extremely attractive, and so I just launched a new fund focused on Japan in January. And now Japan has about a third of our assets. We manage about $1.5 billion, and about $500 million of that is in Japan. So it’s been a big part of our strategy.