Scion's closure and the rise of passive investing
The shutdown of Scion, the firm that made Burry a legend during the housing crash, is also rooted in his diagnosis of how markets have changed. He has pointed to the rise of passive investing, especially index funds, as one of the keys to Scion's closure, arguing that this shift has altered the market's risk profile in ways that make it harder for fundamental analysis to matter. When more than half of equity flows are price-insensitive and tied to benchmarks, mispricings can persist longer, and crowded trades can inflate bubbles that look rational only because they are constantly being fed by automatic buying, a dynamic he highlighted when explaining why Burry decided to close Scion.
From my perspective, his critique of passive investing is less about demonizing index funds and more about warning that their dominance can mask underlying fragility. If over 50 percent of assets are effectively on autopilot, then price discovery is being done at the margin by a shrinking pool of active managers, many of whom are themselves benchmark-constrained. In that world, when the tide turns, the same flows that pushed valuations up can accelerate the downside as investors rotate out of broad funds or as forced sellers hit illiquid corners of the market. Scion's closure, in that sense, is Burry's way of saying the game board has been redrawn, and the old tools that helped him profit from the 2008 short may not work the same way in a market dominated by passive vehicles.
Michael Burry warns of "bad years" for stocks and a hard fall |
