PGIM, the asset management arm of Prudential Financial Inc., was the anchor investor on a recent collateralized loan obligation that included a novel safeguard capping the share of its AI-related debt at 15%, according to people familiar with the matter. The $500 million CLO, issued last week by insurer Allstate Corp., was the first to contain such an explicit restriction on collateral tied to AI, said the people, who asked not to be identified because they weren’t authorized to speak publicly. The transaction was arranged by BNP Paribas SA.

Edwin Wilches, co-head of securitized products at PGIM Credit, said that the firm is working with other managers on deals with a similar restriction, but those offerings haven’t been finalized yet. The current share of AI-related debt bundled up in the $1.4 trillion market is somewhere around 2% or 3%, too small to be a concern, according to Wilches. But as Big Tech companies spend record sums on AI development, achieving the diversification that CLO investors favor will get more difficult, he said.

“Many CLOs investors, including ourselves, are looking ahead and thinking, ‘How can we make sure we don’t inadvertently have unexpected AI risk across our investments?” he said in an interview. “Even if you don’t have explicit exposure to data centers in your CLO, you could still experience greater than expected losses in a downturn as AI financing has become ubiquitous across credit and equity markets.”

Traditional limits on industry concentration aren’t sufficient to capture those hidden correlations, PGIM says. It developed a framework to score loans for their degree of connection to the AI industry and applies it to each of the hundreds of them in a CLO. If the score is over 15%, the CLO wouldn’t be able to accept any more AI-related debt, according to Wilches. Debt investors have grown more antsy about AI exposure recently, a sentiment reflected by junk-bond risk premiums climbing to their highest level in five months.