Marathon Asset Management LP Chairman Bruce Richards has issued a stark warning about private credit exposure to the software sector, predicting 15% default rates on direct loans to software companies. Speaking to Bloomberg Markets, Richards highlighted the growing vulnerability in what has been a booming segment of private lending.

The concern centers on the rapid expansion of direct lending to software companies during the pandemic-fueled tech boom. Many lenders rushed to provide financing to fast-growing software firms, often with less stringent underwriting standards. Now, with rising interest rates and economic uncertainty, Richards believes a significant portion of these loans could default.

While the potential defaults are substantial, Richards emphasized that the broader financial system should remain insulated from any fallout. The concentrated nature of these exposures means the impact would be limited to specific lenders and investors rather than triggering wider market contagion. This assessment provides some reassurance to investors worried about systemic risks, though it does little to comfort those directly exposed to software sector lending.