AI disruption threatens private credit software portfolios
The guest argued that private credit funds are heavily over-allocated to software companies whose moats and cash flows are being disrupted by generative AI.
The argument
Private credit grew rapidly via regulatory arbitrage post-Dodd-Frank, eventually over-indexing on software (SaaS) for its stable cash flows. However, generative AI has collapsed software creation costs, threatening these business models and prompting investors to seek exits before fund valuations are marked down over the next 12 to 18 months.
The thesis, stress-tested
✓ What validates it
- ✓Private credit fund write-downs or gating increases over the next 12-18 months
- ✓SaaS company defaults or restructurings rise within private credit portfolios
▸ Risks discussed
- ▸The disruption may not become systemic if commercial banks lack leveraged exposure to these funds
- ▸Software companies might successfully adapt to AI tools to lower their own operating costs
Hear it yourself
"I think so. As a matter of fact, when you talk about jawboning, we're talking on Monday the eighteenth. They did it again this morning. You know, an hour and a half before the stock market was gonna open, it looked like it was gonna be a week open. Oh, we might be very close to having another deal is what the the the leak was. So they've been doing it constantly all all the time. But, yes, I think they're under enormous pressure to get the Strait Of Hormuz open. And then that's kind of what's interesting about this."
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