When private equity and credit funds try to sell investors on their merits, often what you’ll hear is about how adding private equity and credit to your portfolio will add diversity. But is that true? A Wall Street Journal analysis found that private credit funds were highly exposed to the software industry. Jack Pitcher and Matt Wirz write:
Many private-credit fund managers are playing down their exposure to software as fears spread about threats from artificial intelligence. A detailed analysis revealed four large funds marketed to individual investors by Apollo Global Management APO 1.41%increase; green up pointing triangle, Ares Management ARES 1.30%increase; green up pointing triangle, Blackstone BX 3.27%increase; green up pointing triangle and Blue Owl Capital OWL 2.60%increase; green up pointing triangle have more exposure to the software industry than their filings suggest.
Investors’ concerns about the industry’s software exposure helped prompt record withdrawals from private-credit funds in the first quarter. Fund managers contend that AI will affect each software company differently and that some will adapt or even benefit.
The Blue Owl Credit Income Corp. fund had nearly twice as much exposure to software as it reported, an analysis by The Wall Street Journal found, while the discrepancies for the other funds were smaller. On average, the four funds classified about 19% of their investments as software, while the Journal found their average software exposure to be about 25%.
Action Line: Info Tech makes up over 30% of the S&P 500 today. Adding in a bunch of private credit funds to your 401(k) that are heavily invested in the same industry may not be the diversifier that it’s been advertised to be. Retail investors need to do their due diligence in the face of new asset classes arriving in their 401(k)s. For greater flexibility, email me at ejsmith@yoursurvivalguy.com for help with an IRA rollover.
Read the entire series here.
