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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsBefore investing, establish exactly how the fund is exposed to AI, how borrowers or projects are expected to repay, where leverage and collateral sit, how loans are valued, and what the fund’s legal documents actually let you do if you want your money back. AI exposure can mean lending to software companies that may face AI-driven competition, or financing infrastructure such as data centers and power projects. Those are different risks, and market-wide statistics cannot tell you whether a particular fund is suitable or sound.
What does “AI exposure” mean for a private credit fund?
Start by separating two kinds of exposure. The first is borrower-business risk: a fund lends to software or SaaS companies whose products, pricing, customer retention, or growth could be affected by AI-driven competition or substitution. The second is AI-infrastructure financing: credit tied to data centers, power supply, construction, leases, guarantees, or other cash flows associated with AI deployment.
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A fund may hold either kind, both, or neither in a meaningful amount. Its marketing language is not a portfolio map. Ask for exposure by borrower, industry, geography, instrument, and financing structure, and distinguish direct holdings from indirect exposure through another fund, a co-lending arrangement, a special-purpose vehicle (SPV), or an asset-backed security.
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Market data can provide context, not a substitute for that fund-level work. The Bank for International Settlements (BIS) reported in July 2026 that business development companies (BDCs) had approximately $115 billion in loans to software firms, around one-fifth of BDC lending. Separately, BIS reported that SaaS loans grew from almost $8 billion in 2015 to over $500 billion, or 19% of total direct loans, by the end of 2025, and that a third of private credit funds had extended loans to SaaS firms. These figures describe market segments, not the holdings of an unnamed fund.
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How much of the fund is exposed to AI or software?
Request a current, dated portfolio schedule and find out how the manager classifies exposure. “AI company” can mean a business selling AI products, a company using AI, a software borrower potentially vulnerable to AI substitution, or an infrastructure borrower connected to AI demand. Ask the manager to define its categories and explain any exclusions; otherwise, percentages may not be comparable across funds.
For each material position, seek the borrower’s name, industry, location, loan instrument, seniority, security, maturity, and share of the fund’s assets. Where disclosure permits, look through pooled or structured exposures to identify the ultimate borrower, project, collateral, and payment source. Ask whether multiple positions depend on the same technology customers, cloud providers, tenants, power counterparties, or other concentrated sources of demand.
Do not treat a list of different loans as evidence of diversification if several rely on the same obligor or project. BIS has noted that several large BDCs share borrower pools, making common borrower exposure a concentration channel worth checking. Ask the manager to quantify material overlap and describe how it affects loss scenarios.
Can software borrowers keep repaying if AI changes their market?
For a software or SaaS borrower, the central question is not whether AI is popular; it is whether the borrower can keep generating enough cash to service and refinance its debt under plausible competitive conditions. Request borrower-level operating information and the manager’s analysis rather than relying on a broad claim that software is resilient or that AI will benefit the company.
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- Revenue quality: What portion of revenue is recurring, how concentrated are customers, and how often do customers renew, reduce spending, or leave?
- Substitution and switching: Could customers build or buy a workable alternative using AI tools? What would it cost them to switch, and what protects the borrower’s pricing or retention?
- Operating performance: How have revenue, margins, cash flow, and customer retention changed as AI tools have evolved? What evidence supports management’s projections?
- Debt-service capacity: What cash flow is available for interest and principal, and what assumptions drive the base case and downside case?
- Loan protections: What covenant headroom remains? What events permit intervention, and have there been amendments, waivers, or payment-in-kind arrangements?
- Refinancing: When does the debt mature, what repayment or refinancing source is assumed, and what happens if the borrower cannot refinance on the expected terms?
BIS’s July 2026 summary said uncertainty around generative-AI revenue had not yet affected the loans it examined. That is a bounded observation about the loans studied, not evidence that future disruption is absent or that every software borrower can repay.
What should you check in AI-infrastructure loans?
Infrastructure credit depends on a different chain of repayment. A project may be under construction, awaiting power or capacity, dependent on a tenant lease, or financed through a bespoke structure. Identify who is legally required to pay, what asset secures the loan, and which conditions must be met before projected cash flows arrive.
- Project status: Is the facility operating, being built, or still dependent on permits, grid access, or other milestones? What completion conditions apply?
- Power and capacity: Are the required power supply and data-center capacity available when needed? Who bears delay, cost-overrun, or shortfall risk?
- Payment obligations: Identify the tenant, customer, guarantor, or other party obligated to pay. Review the contract term, termination rights, and conditions that could reduce or end payments.
- Credit support: Determine whether a lease or guarantee backs debt holders’ claims, who provides it, and whether that party has the financial capacity to perform.
- Exit and refinancing: What must be true for the project to repay or refinance at maturity? Consider delays, weaker demand, or a change in financing conditions.
The Bank of England’s Financial Stability Report – July 2026 warns that off-balance-sheet and bespoke financing can make it harder to locate risk. It states: “The riskiness of this debt depends on the underwriting terms, in particular the quality of the leases and guarantees which back debt holders’ claims.” A lease or guarantee should therefore be examined as a legal and credit obligation, not treated as a blanket assurance.
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Trace both the borrower’s borrowing and the fund’s own borrowing. For each material exposure, establish the debt’s seniority, security, collateral, covenants, maturity, and position in the repayment waterfall. Ask what claims rank ahead of the fund’s loan and whether any structural subordination—where another entity or creditor is paid from an asset or cash flow first—could weaken recovery.
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For exposures routed through SPVs, asset-backed structures, or other financing vehicles, follow the chain as far as the fund’s disclosures allow. Map the ultimate obligor, underlying asset, payment source, and each layer of debt. Several instruments connected to one project are not independent risks if they depend on the same tenant, guarantee, collateral pool, or refinancing event.
The Bank of England has warned that bespoke and off-balance-sheet arrangements can obscure where risk sits and may result in higher asset-level leverage. Ask the manager to show total borrowing at the fund and relevant borrower or project levels, explain how it measures leverage, and describe the effect of a fall in collateral value or cash flow on recovery.
How are the loans valued and reported?
Private loans do not necessarily have a frequently observable market price. Ask who produces the fund’s marks, how often they are updated, what methods and borrower information are used, and who independently challenges the result. Find out which events trigger an interim review—for example, deteriorating results, a missed payment, a covenant breach, a material amendment, or a transaction that provides pricing evidence.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchWhere relevant, compare reported marks with borrower performance, amendments or defaults, public-market comparables, and observable transaction evidence. Ask how quickly investors receive material portfolio updates and what is disclosed when a borrower’s condition changes between reporting dates.
BIS notes that BDC net asset values are largely determined by the book values of illiquid private loans. This describes a valuation challenge at a market level; it does not establish that an individual fund’s marks are wrong. For a particular fund, assess its documented process and the evidence supporting its valuations.
Can I get my money back when I need it?
First identify the legal vehicle. A closed-end drawdown fund, publicly traded BDC, perpetual-life BDC, and interval fund do not necessarily offer the same way to exit. Then read the governing documents rather than relying on phrases such as “quarterly liquidity.” A scheduled opportunity to request a redemption is not the same as an unrestricted right to withdraw the amount requested.
| Vehicle or feature | What to establish in the fund documents | Context from the cited source |
|---|---|---|
| Closed-end drawdown fund | Lockup and fund term; whether transfers are permitted; any manager-controlled early exit or secondary-sale process. | Specific terms depend on the fund documents; no universal withdrawal right is established here. |
| Perpetual-life BDC | Redemption frequency, notice, cap, gate, suspension rights, settlement timing, and whether the manager may limit or defer requests. | The Federal Reserve’s May 2026 report says many such BDCs disclosed an intention to cap redemptions at 5% of NAV per quarter. That is a reported intention among many vehicles, not a universal term or a promise to meet every request. |
| Interval fund | Offer schedule, request procedures, cap, settlement timing, and whether distributions can be made in kind. | The Federal Reserve’s May 2026 report describes interval funds as typically offering periodic redemptions and being required to accept at least 5% of redemption requests. This does not mean every investor can redeem all holdings when desired. |
| Any fund offering periodic redemption | Read the precise notice period, cap, gate, suspension and manager-discretion language, plus how accepted redemptions are settled. | “Quarterly” describes timing, not necessarily the amount available or certainty of payment. |
Check the actual prospectus, offering memorandum, partnership or shareholder agreement, and any supplements for the specific vehicle. Note whether a request can be prorated, delayed, suspended, or paid in kind, and whether the manager retains discretion to change or pause the process.
Which fund terms and investor rules should you review?
Read the offering memorandum and governing agreement alongside the portfolio and risk disclosures. Review the fee schedule, conflicts disclosures, valuation policy, borrowing authority, and redemption provisions. Identify who can make exceptions, amend terms, allocate opportunities among related vehicles, or decide how a conflict is handled. Confirm the offering structure and the eligibility rules that apply in your jurisdiction.
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For a U.S. Regulation D offering, the SEC’s guidance, Assessing Accredited Investors under Regulation D, explains that an issuer’s verification obligations cannot be met merely by asking an investor to check a box. The SEC states: “Self-certification by the investor alone (by checking a box) without the company having any other knowledge of the investor’s financial circumstances or sophistication is not sufficient to meet either the ‘reasonable belief’ standard or the ‘reasonable steps to verify’ requirement.” This is a U.S.-specific point and does not determine eligibility requirements in other jurisdictions.
How can you compare funds you are genuinely considering?
Use current documents for each candidate and compare like with like. If a manager cannot provide a comparable answer, record that as an information gap rather than filling it with an assumption.
| Comparison area | Questions to answer for each fund |
|---|---|
| Strategy and AI exposure | Is exposure to software disruption, AI infrastructure, or both? What share is direct versus indirect, and how does the manager define the category? |
| Concentration | What are the largest borrower, sector, counterparty, customer, and project exposures? Do different positions share the same repayment dependency? |
| Borrower resilience | What supports borrower cash flow, covenant headroom, and repayment under the manager’s downside case? |
| Credit position and leverage | What is the fund’s seniority, security, collateral, covenant package, and borrower- and fund-level borrowing? |
| Infrastructure contracts | Are projects operational or under construction, and what supports payment: a lease, guarantee, or other obligation? Who bears completion and refinancing risk? |
| Valuation and reporting | Who marks the loans, how often, what independent challenge exists, and how quickly are material changes reported? |
| Fees and conflicts | What charges apply, what conflicts are disclosed, and who controls allocation and valuation decisions? |
| Liquidity rights | What can you actually redeem, when, subject to which cap or discretion, and how is an accepted request settled? |
Public analysis from BIS, the Bank of England, and the Federal Reserve provides sector-level context; it cannot establish the holdings, valuations, leverage, fees, liquidity, or suitability of a specific private credit fund. Those questions require the fund’s current documents and disclosures.
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