economy
AI is boosting the stock market. But it's a threat to private credit
Software investments have been a cash cow for private credit, but AI is changing that.
TL;DR
- Private credit defaults are expected to rise from approximately 4.4% to 9-10%.
- The AI cycle and slowing growth in the software sector are key drivers of this projected increase.
- Software accounts for 19% of assets in private credit collateralized loan obligations.
- Retail investors may not be insulated from potential fallout, as banks have significant exposure to private credit.
- Major financial institutions and pension funds have substantial investments in private credit.
- Potential spillover effects from private credit markets into public credit markets are considered underappreciated.