A Wall Street legend is warning that losses in the private credit market could impact other areas of the financial system.
In a new episode of The Real Eisman Playbook, investor Steve Eisman cites data from The Wall Street Journal to show discrepancies between reported and estimated software exposure across several major private credit funds, raising concerns about how risk is being presented.
According to Eisman, the industry appears to be massaging its software exposure to make it seem smaller.
“The Journal looked at four private credit funds, four major private credit funds, and found the following. The Blue Owl Credit Income Fund, a $34.8 billion fund, reported 11.6% of its portfolio in software, but the Journal found its software exposure at around 21% – 11.6 % versus 21%? It’s quite a discrepancy.
The Blackstone Private Credit Fund, aka BCRED, an $82.5 billion fund, reported 25.7% in software, but the journal found 33% exposure.
Ares Capital Corp., a $29.5 billion fund, reported 23.8% exposure, but the Journal found nearly 30% exposure. And finally, Apollo Debt Solution Fund, a $25.1 billion fund, reported 13.6% software exposure, but the Journal found 16% exposure.”
Analysts are keeping a close watch on private credit after certain funds limited redemptions. Investors are withdrawing their capital from funds amid concerns that AI threatens the profitability of software companies.
Data shows that Blue Owl, Blackstone, Ares and Apollo have an average software exposure of about 25%, about twice as advertised.
Eisman says that if things turn sour for software because of AI, the implications could extend beyond private credit funds.
“If and when the software industry suffers massive problems because of AI, this will have a huge and negative impact on private credit.
Losses could be ugly.
Now, do we care if a few private credit funds suffer huge losses? Yes, if it impacts the banks, who may or may not be involved in financing either the equity or the credit behind these deals, take huge write-downs, and if pension funds across the country are invested and take a large hit, and if other entities with retail exposure, like life insurance companies, are invested and take a large hit as well, the impact will be felt.
But more importantly, any sense of trust, safety and security will be seriously eroded. Once the trust is broken, it’s hard to restore.”
Photo by Sean Pollock on Unsplash
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