#Why are Major CLO Managers Reevaluating Software Investments?
Major names in the collateralized loan obligations market are now considering software companies as riskier investments. Blackstone and Guggenheim, two of the largest CLO managers, have begun to reduce their exposure to the software sector. This shift responds to concerns that artificial intelligence could dramatically alter the business models of these software firms, which have long been considered stable borrowers.
The implications of this shift in strategy are significant. Software and services currently account for around 15% of collateral in U.S. syndicated CLOs, with software loans composing approximately 12%. This amounts to about $235 billion in software loans included in CLO portfolios, representing roughly 16% of the $1.5 trillion leveraged loan index.
#What Framework Are These Firms Employing to Manage AI Risks?
To adapt to these changes, Blackstone has instituted an AI risk assessment framework known as the traffic light system. This structured approach mandates thorough AI risk analysis for each investment decision, allowing the firm to be ready for faster exits if assets are deemed at risk.
In contrast, Guggenheim's leader expresses a more straightforward view, suggesting that many managers are not equipped to keep pace with the rapid transformations in the software landscape brought on by AI.
#How are CLO Managers Adjusting Their Strategies?
Even before broader market reactions, various CLO managers proactively decreased their software exposure. Ahead of a significant report due on March 17, 2026, they began executing secondary sales and carefully selecting which software loans to accept in primary markets.
The pricing data signals a clear shift in market sentiment; software-related loans and bonds were trading between 89 to 98 cents on the dollar during early months of 2026, down from previous periods when they were sold at premiums.
#What Does the Reduction in Loan Supply Mean for Investors?
An additional factor to consider is the supply of CLO loans, which is projected to decline by about 25% in 2026, leading to an estimated $150 billion in new CLOs, according to JPMorgan.
For investors, the analysts at Blackstone and Guggenheim are now more focused on individual company assessments when determining business resilience. The sentiment suggests that the industry may lag in developing analytical tools to address the evolving AI landscape. Firms that establish effective AI risk assessment methods, such as Blackstone's traffic light system, might find it easier to market new CLO offerings to institutional investors.
Consequently, companies in need of refinancing for their software-related debts may encounter less favorable terms compared to just six months prior, especially if their vulnerabilities to AI remain uncertain.