Goldman Sachs has launched an investment product for hedge funds that bets on falling prices of software companies' loan securities. Amid growing concerns on Wall Street about private credit quality, analysts say increasing capital is seeking to capitalize on the software industry crisis triggered by the spread of artificial intelligence.
According to the Financial Times on the 9th (local time), Goldman Sachs has been offering clients a trading structure that allows them to take short positions on software companies' loan securities. The structure is designed around derivatives called total return swaps (TRS), where investors profit when loan prices decline.
The private equity industry aggressively acquired promising software companies from 2020 to 2024 using massive leveraged loans. However, the recent spread of generative AI technology has begun to shake existing software companies' business models, putting downward pressure on their loan prices. This has drawn Wall Street's attention to financial trading structures that bet on falling loan prices.
While attempts to bet against loan assets have existed before, they rarely materialized into actual transactions. Unlike stock short-selling, corporate loans have varying contract structures and limited trading liquidity.
However, market wariness about AI-triggered industrial restructuring has increased interest in new trading structures. "As new AI models emerge rapidly, more investors are looking to bet on difficulties in the software industry," the FT noted.
Concerns about conflicts of interest have also been raised. Within the same bank, one division arranges and sells acquisition financing loans for clients including private equity firms, while another division offers trading structures that bet on declining values of those same loans. The FT pointed out that "helping hedge funds bet against corporate loans could be sensitive business for banks."
