Oaktree Capital Management has marked down the value of its publicly listed private credit vehicle, underscoring growing investor focus on software exposure and artificial intelligence risk within direct lending portfolios, according to a report by Bloomberg.
Oaktree Specialty Lending Corp, a $2.8bn business development company (BDC), reduced the carrying value of its performing software loans by roughly 3%, contributing to an overall net asset value decline of nearly 4% for the period. The adjustment reflects broader market repricing rather than company-specific deterioration, according to management.
Executives pointed to weakening valuations in comparable public credit markets as the primary driver, while maintaining that underlying borrower fundamentals remain broadly intact.
The update comes as private credit managers reassess exposures to software businesses amid rapid advances in AI, which are increasingly viewed as a potential disruptor to traditional business models. Oaktree disclosed that approximately 26% of its portfolio is subject to some degree of AI-related risk, with a smaller subset identified as higher risk.
Performance for the quarter was softer, with total investment income declining year-on-year and the fund reducing its dividend. The BDC’s share price also moved lower following the announcement.
Portfolio activity during and after the quarter included selective disposals, with the fund exiting certain underperforming positions at discounted levels and rotating capital into new opportunities. Management also indicated it is monitoring secondary market dislocations, including discounted private loans offered by liquidity-constrained sellers.
Despite near-term valuation pressure, Oaktree highlighted more constructive lending conditions, including wider spreads and improved documentation, suggesting a potentially more favourable environment for new deal origination.
