- Forward look: Investors in a panic about private credit valuations need to draw a distinction between funds backing AI-threatened software companies and those whose collateral includes the hard assets of frontier AI companies themselves.
- What's at stake: For too long, the industry has treated private credit like speculative venture, mispricing the increasingly valuable collateral and systemic importance of many private companies.
- Forward look: As more venues come online for accessing liquidity, the market will begin to treat it like what it actually is: secured loans against the infrastructure of the next economic cycle, and the global economy itself.
In the first quarter of this year alone, Blue Owl, a leading
Investors are fleeing Blue Owl's flagship fund because they are struggling to price the long-term outlook of software revenue multiples in the face of seismic AI-disruption. When loans are written against revenue multiples as a proxy for enterprise value, it subjects them to runs when fears emerge about multiples dropping. The problem is, Blue Owl's software book and frontier tech more broadly get lumped together under the same "private credit" label. But the collateral behind a midsize SaaS is relatively weak, while a SpaceX or
More importantly, these are not interchangeable bets on speculative software margins. The latter are the companies building the physical and computational backbone of the American economy, representing everything from space launch infrastructure, frontier AI, domestic chip capacity, and robotics. A loan against a SpaceX or Anthropic is increasingly a loan against the core infrastructure of the U.S. itself.
Another factor in mispriced private credit is that frontier technology credit markets still operate like early stage venture. The market lends against them like you'd fund a startup: by pricing in a high possibility of default, and hoping the high upside covers the substantial downside risk. That framing made sense when frontier tech meant pre-revenue bets on unproven markets. It makes less sense when the underlying assets are GPU clusters, data center infrastructure, and robotics — hard goods with observable prices and active secondary markets.
Life insurers have offloaded long-term policyholder liabilities into offshore reinsurance and captive subsidiaries, raising concerns over state oversight of opaque investment vehicles and whether insurers have adequately funded claims.
The current private credit model is, to put it lightly, outdated. It stems from a time when pre-IPO unicorns were rare, when nonpublic tech companies were deeply speculative and unproven. Today,
The industry must update its mental model. To begin with, stop treating loans like venture equity with a coupon. According
Another question is what happens to these assets if they draw down 50% or more? While more established, there is still a large degree of volatility inherent even in the most prominent private companies. But the question really is, what world would we be living in if SpaceX and Anthropic go to zero? That is an existential threat to the economy and world, and one in which the downfall of private credit will be of relatively little concern.
And in the scenario where the market does turn south, credit becomes the superior trade — not just for employees sitting on illiquid equity, but for institutional investors who need exposure without the full downside. No one wants to abandon their thesis, especially the people building these companies. But everyone needs capital. That is precisely the moment a properly underwritten credit product becomes the most attractive instrument in the stack.
For too long, the industry has treated private credit like speculative venture, mispricing the increasingly valuable collateral and systemic importance of many private companies. As more venues come online for accessing liquidity, the market will begin to treat it like what it actually is: secured loans against the infrastructure of the next economic cycle, and the global economy itself.
