Opportunities in private credit/ direct lending, rising interest in AI, and more.
8 Key Takeaways:
– Best vintage for opportunistic credit since the GFC: Turbulence in DL and credit markets, impact from higher oil prices leads to dislocation, while the strong growth/CapEx environment requires capital solutions – America’s AI buildout: is enormous driving demand for financing. – Europe: My meetings with 50+ institutional investors, insurance companies and private wealth bank platforms in Europe last week were hugely encouraging as investors are strategically allocating new capital to DL, ABL and Opportunistic Credit. Credit markets are strong, vibrant with the exception of software names, noting European credit market has materially lower software exposure vs. U.S. – DL: The last 2 vintages may be troublesome for U.S. DL managers due to heavy software exposure, but next vintage will be strong as managers now have their eyes wide open and won’t be making the same mistakes in software. – ABL: The total fund AUM for ABL is just $500B vs. $1.8T for DL; investors have 1/3 to 1/4 of the capital allocation to ABL than they do to DL, most are actively looking to rebalance by adding ABL. – CBs: Hiking rates would be a policy error as current inflation pressures are largely energy-driven rather than demand-driven; rate hikes from the Fed and ECB would slow economic growth without meaningfully reducing inflation. – AI is fueling markets: huge financing needs, with $750B spend in 2026; the math to build 1 gigawatt is: land cost for 500 acres and the data center box = $3 billion plus what goes in that box costs around $40 billion including chips, racks, wiring, power systems and cooling infrastructure. – Software: Winner and Losers as this will be a tale of two cities; many highly leveraged private software companies funded by DL won’t make the AI transition to an AI-first software company. Hardware (semis and chips) leads to software costs coming down as hardware is used for coding, that has knock on impact of hurting many software companies, so “hardware eats software” is the new concept as coding becomes a commodity.
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