Diameter Capital founder Scott Goodwin warned that private credit funds face a reckoning due to excessive exposure to software companies vulnerable to disruption from rapid artificial intelligence advancements.

Key Points

• Scott Goodwin manages $30 billion at Diameter Capital and criticized private credit portfolios for holding 40% to 60% of assets in a single sector.
• The firm expects $150 billion to $200 billion in private credit loans to reach the secondary market as funds seek liquidity.
• Diameter Capital has completed 15 secondary market deals in the last two months to capitalize on undervalued credit opportunities.
• Goodwin identified the 2021 and 2022 vintage funds as the most vulnerable due to peak software valuations during those years.
• The firm plans to leverage the current direct lending pullback to negotiate improved terms with companies requiring capital.

Why it Matters

This shift highlights growing instability in private credit markets as investors grapple with the impact of technological disruption on software-heavy loan portfolios. The resulting secondary market sell-off provides significant opportunities for well-capitalized firms to acquire distressed assets at favorable valuations.