Private Credit And AI

 

The recent bankruptcies of First Brands and Tricolor shook the circa 3 trillion USDs in assets private credit market, wherein the biggest players are the leading alternative investment management firms like Blackstone, KKR, Apollo, Carlyle, Ares, CVC etc. which invest in private equity, real estate and private credit.

Much of the investments from the last 10 years of the leading alternative investment management firms like Blackstone, KKR, Apollo, Carlyle, Ares, CVC etc. go in AI and private credit makes up for about 20 % to 30 % of their total investments. So the leading alternative investment management firms like Blackstone, KKR, Apollo, Carlyle, Ares, CVC etc. have heavily invested into lending via private credit to AI technology companies. Since much of the lending is via collateralization via Collateralized Loan Obligations, CLOs, Collateralized Debt Obligations, CDOs there is inherent leverage in those investments, which could magnify losses for the leading alternative investment management firms like Blackstone, KKR, Apollo, Carlyle, Ares, CVC etc.

Some of the loans and junior tranches of CLOs, CDOs have disbursed loans to technology companies with 10 %, 12 % or even upward of 15 % interests. Yes, many of these junior tranches have been sold to other institutional investors, but the leading alternative investment management firms like Blackstone, KKR, Apollo, Carlyle, Ares, CVC etc. still end up holding much of the CLOs, CDOs in their assets under management and some even on their balance sheets.

So, if there is bust, following the current boom in artificial intelligence, AI, the leading alternative investment management firms like Blackstone, KKR, Apollo, Carlyle, Ares, CVC etc. market capitalization could sink more than 35 % from the current stock market lagging values due to their exposure to private credit, according to Wolfteam Ltd.'s projections and estimates. 

If, however, the AI boom continues,  Blackstone, KKR, Apollo, Carlyle, Ares, CVC etc. could end up outperforming the market again, according to Wolfteam Ltd.'s projections and estimates.