The biggest names in collateralized loan obligations are doing something that would have seemed unthinkable two years ago: treating software companies like risky bets. Blackstone and Guggenheim, both heavyweight CLO managers, are actively trimming their software sector exposure in new deals, driven by a straightforward concern that artificial intelligence is about to upend the business models of companies they’ve been lending to for years.
This isn’t a subtle portfolio tweak. Software and services make up roughly 15% of collateral in US syndicated CLOs, with software loans alone accounting for about 12%. In dollar terms, that’s approximately $235 billion in software loans sitting inside CLO portfolios, representing around 16% of the $1.5 trillion leveraged loan index.
The AI traffic light system
Blackstone’s approach to the problem has been characteristically systematic. President Jon Gray has pointed to what the firm calls an AI risk “traffic light” system, a framework that requires AI risk analysis in every investment decision and builds in readiness for faster exits on vulnerable assets.
Guggenheim’s perspective is blunter. Rob Zable, who heads the firm’s CLO operation, has said that most managers are simply not equipped to handle the speed at which AI is reshaping the software landscape.
