Private Credit Should Worry About a Singularity in Software Debt
Private credit firms need to scrutinize their exposure to AI-threatened software firms.
Photograph: NurPhoto/Getty Images
Artificial intelligence fears have ripped through stock and bond markets, but investors in loans and private credit are still playing catch-up. Part of the problem is working out which areas of the debt market are exposed to disruption and which aren’t. Because fund managers apply industry categories in varying ways, some companies that are really software sellers are misclassified as anything from retailers to food producers, according to Bloomberg News.
Different business models within the software industry — whatever their labels — will prove more or less vulnerable to AI disruption. Investors in loan-focused mutual funds, collateralized loan obligations, business-development companies (BDCs) and private-credit funds all have work to do to comprehend their holdings. Only then can they start to assess which credits might be at risk of default, or refinancing problems, or other shenanigans that could lead to losses down the track.