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Software Loans Face 15% Default Doom by 2027
5 Mar
Summary
- Software default rates may reach 15% in 2027 and 2028.
- AI disruption is a major concern for software loans.
- Hard assets are favored over software investments currently.
Bruce Richards, chairman of Marathon Asset Management, anticipates a significant downturn in the software lending sector. He predicts that default rates for software loans could reach approximately 15% by 2027 and remain at that level through 2028.
This projection stems from the growing concerns surrounding AI's disruptive influence on the technology industry. Consequently, Richards suggests that investors should prioritize businesses with tangible assets and minimal obsolescence, such as those involved in commercial sprinkler systems or construction materials.
Richards has consistently voiced apprehension regarding direct lending to software companies, previously labeling it an "unintelligent" strategy. He highlights that the private credit market's substantial 23% exposure to software is concerning, especially given the sector's smaller representation in the broader US economy.
Marathon Asset Management, overseeing over $24 billion, has limited its exposure to software, holding only 1% in the sector. Despite current challenges, Richards views the software sector as a potential opportunity for investment in the future.
