Key Takeaways
- • Bruce Richards, CEO of Marathon Asset Management ($24 billion in assets), forecasts a 15% default rate on highly leveraged software loans by 2028 as billions in debt mature, characterizing the situation as an "unprecedented fallout" in private credit.
- • Private credit managers hold approximately 23% of direct lending portfolios in software exposure, compared to only 1% of private U.S. companies operating in the sector, revealing a severe concentration risk and fundamental market mispricing.
- • Marathon maintains only 1% software exposure in its private credit business, positioning the firm to avoid the anticipated defaults that will likely impact competitors with significantly larger allocations to the sector.
- • The default wave is expected to materialize over the next two to three years as loan agreements reach maturity, triggering a reckoning across the private credit industry that Richards characterizes as early in the current credit cycle.
- • Richards advocates for hard assets and low-obsolescence lending as an alternative strategy to mitigate software sector contagion risks in private credit portfolios.
Summary
Bruce Richards, Chairman, CEO, and Co-Founder of Marathon Asset Management, has issued a stark warning about concentrated exposure to the software industry within private credit portfolios. According to Richards' analysis, private credit managers face an "unprecedented fallout" as highly leveraged software loans approach maturity over the next two to three years. Richards specifically forecasts a 15% default rate on leveraged software loans by 2028, when substantial debt obligations come due across the sector.
The severity of the exposure problem is underscored by a fundamental market imbalance. Private credit direct lending portfolios hold approximately 23% of their capital deployed in software companies, despite software representing only 1% of private U.S. companies by headcount. This dramatic overconcentration suggests that private credit managers have systematically mispriced risk and overextended capital into a single industry vertical. Richards' concern centers on how other asset managers "missed signals" and allowed their software allocations to grow to unsustainable levels.
Marathon Asset Management has positioned itself defensively against this anticipated credit deterioration. The firm maintains only 1% exposure to software in its private credit business, substantially below industry norms. Rather than competing aggressively in the leveraged software lending market, Marathon has favored hard assets and low-obsolescence lending strategies that offer downside protection and reduced concentration risk. This positioning reflects Richards' conviction that the private credit market is entering a critical juncture despite still being early in the broader credit cycle.
The forecasted $15 billion default wave represents a pivotal test for the private credit industry. As software companies face refinancing challenges and debt service pressures intensify between now and 2028, the structural vulnerabilities embedded in these portfolios will likely surface. Richards' analysis suggests that portfolio managers who failed to adequately hedge sector concentration risk—or who actively built outsized software positions—will face significant mark-downs and realized losses during the reckoning period ahead.
The severity of the exposure problem is underscored by a fundamental market imbalance. Private credit direct lending portfolios hold approximately 23% of their capital deployed in software companies, despite software representing only 1% of private U.S. companies by headcount. This dramatic overconcentration suggests that private credit managers have systematically mispriced risk and overextended capital into a single industry vertical. Richards' concern centers on how other asset managers "missed signals" and allowed their software allocations to grow to unsustainable levels.
Marathon Asset Management has positioned itself defensively against this anticipated credit deterioration. The firm maintains only 1% exposure to software in its private credit business, substantially below industry norms. Rather than competing aggressively in the leveraged software lending market, Marathon has favored hard assets and low-obsolescence lending strategies that offer downside protection and reduced concentration risk. This positioning reflects Richards' conviction that the private credit market is entering a critical juncture despite still being early in the broader credit cycle.
The forecasted $15 billion default wave represents a pivotal test for the private credit industry. As software companies face refinancing challenges and debt service pressures intensify between now and 2028, the structural vulnerabilities embedded in these portfolios will likely surface. Richards' analysis suggests that portfolio managers who failed to adequately hedge sector concentration risk—or who actively built outsized software positions—will face significant mark-downs and realized losses during the reckoning period ahead.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.