A founder of a credit-focused investment firm managing over $17 billion in assets has cautioned that even if artificial intelligence has not yet substantively impacted the software industry, market panic alone could be sufficient to drive up financing costs and trigger widespread defaults. Currently, software companies generally operate with high leverage and rely heavily on private credit for funding. With the private credit market now valued at $1.8 trillion, regulatory scrutiny is timely.
Hamza Lemssouguer, founder of Arini, stated on Tuesday that it is not necessary to wait for actual disruption to occur before problems emerge, as markets often anticipate future risks. The most immediate danger, he explained, is a sharp increase in the cost of capital for a large number of companies, which could ultimately lead to massive defaults, credit market turbulence, and dislocation.
This warning comes as the software sector experiences a sell-off that has persisted for several weeks. Investors are concerned that the rapid advancement of AI technology could fundamentally threaten the business models of software firms. Many of these companies carry relatively high debt loads compared to their earnings and depend extensively on private credit providers for financing.
The debt structure of the software industry makes it particularly vulnerable in the current environment. These businesses typically operate with high leverage and rely heavily on the private credit market. As market sentiment shifts, direct lenders are beginning to reduce their exposure. For instance, Blue Owl Capital suspended redemptions for one of its funds and was forced to sell assets following investor withdrawals—a sign of mounting pressure in the sector.
Lemssouguer pointed out that as direct lenders actively cut back their exposure to software companies, the impact could intensify. He believes that the private credit industry has become overly concentrated in software lending, describing such a high level of exposure as unwise for a sector with mediocre performance.
Arini itself maintains a direct lending strategy but has very limited exposure to the software industry. Lemssouguer expressed support for regulators' growing attention to systemic risks within private credit. He noted that the private credit market has expanded rapidly in recent years, reaching a size of $1.8 trillion—large enough to warrant regulatory focus.
He emphasized that increased oversight does not necessarily mean reduced investment opportunities, but the industry must acknowledge the balance between risk and return. Private credit, he said, is an asset class that involves risk, opportunity, expected returns, expected defaults, and expected losses.
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