Renowned hedge fund manager: Software debt crisis could erupt solely due to AI fears

The founder of Arini, a credit investment firm managing over $17 billion in assets, warns that even before AI causes a substantial impact on the software industry, market panic alone is enough to drive up corporate financing costs and ultimately trigger widespread defaults.

On Tuesday, Hamza Lemssouguer, founder of Arini, stated:

“We don’t need to wait for a real disruption to see the problems. The market always leads. The most immediate risk right now is a surge in capital costs for many companies, which will eventually lead to widespread defaults, credit market turmoil, and dislocation.”

As this warning is issued, the software industry is experiencing weeks of continuous sell-offs. Investors are concerned that rapid AI advancements will fundamentally threaten the business models of software companies, which generally carry higher debt levels relative to profits and rely heavily on private credit institutions for financing.

Direct lenders tighten exposure, potentially causing more severe shocks

The debt structure of the software industry makes it particularly vulnerable in the current environment. These companies typically operate with high leverage and depend heavily on the private credit market. As market sentiment shifts, Blue Owl Capital has shut down redemption channels for one of its funds and was forced to sell assets after investor withdrawals, marking a significant industry stress event.

Hamza Lemssouguer of Arini pointed out that as direct lenders actively reduce exposure to the software sector, the impact could intensify. He believes that the concentration of private credit in the software sector has become excessive, and he stated:

“Concentration cannot reach the levels seen in direct lending to software. For a mediocre-performing loan industry, lending at such levels is unwise.”

Private credit market reaches $1.8 trillion, regulatory attention is timely

Arini itself has a direct lending strategy but maintains very limited exposure to the software industry. Lemssouguer said he welcomes increased regulatory focus on systemic risks in private credit.

He noted that the private credit market has expanded rapidly in recent years, reaching $1.8 trillion in size, enough to attract regulatory attention. He stated:

“Given its growth scale, I believe private credit is now large enough to warrant concern and attention, and it is healthy in itself. Every industry goes through cycles; I think it’s now the private credit sector’s turn.”

He also emphasized that stricter regulation does not necessarily mean fewer investment opportunities, but the industry must confront the balance of risks and returns, adding:

“This is an asset class with risks, opportunities, expected returns, expected defaults, and expected losses.”

Risk warning and disclaimer

Market risks exist; invest cautiously. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Invest at your own risk.