The private credit sector faces mounting pressure as AI threatens its largest exposure: software companies. When Blue Owl blocked withdrawals from its $1.6bn tech-heavy fund, shares plunged 10pc and triggered a broader sell-off across private credit providers. The move highlighted vulnerabilities in a sector often called shadow banking, which has grown to $1.7tn in assets.

Software companies have long been attractive targets for private credit lenders due to their growth potential and limited capital expenditure needs. However, Barclays estimates that roughly a fifth of all loans held by business development companies target the software industry. This concentration has become problematic as AI threatens to disrupt traditional software business models, causing investors to question the stability of these loans.

UBS has warned that default rates could surge to 13pc in a worst-case scenario, with as much as 35pc of the private credit market exposed to AI disruption. The Bank of England is preparing the world's first stress test of the shadow banking sector to assess its resilience. Since early February, a closely watched index of 44 business development companies has shed around $5bn, with funds managed by Blue Owl among the worst affected. Analysts suggest the credit market is only in the early stages of this sell-off, indicating further pain ahead for private credit lenders heavily invested in software companies.