Private credit managers shift lending from software to manufacturing and defence

Private credit managers are moving origination away from software toward manufacturing, healthcare and defence, according to a report published Oct. 12 by Alternative Credit Investor. Greg Betz, head of direct lending at Investec, said recent investment activity has centred on "old economy sectors," and Davide Amico, partner and co-head of private credit at Canyon Partners, said interest in those areas has "never waned" but has recently increased.

Amico said the shift reflects an over-concentration in software and growth trends in other sectors. "We see continued interest in a variety of sectors away from software such as healthcare, manufacturing and consumer-related segments," he said, according to the report.

Alternative Credit Investor ties the software retreat to what it calls the "SaaSpocalypse" at the beginning of the year, and describes the mood among managers avoiding AI-exposed sectors as "anything but software," abbreviated ABS.

In manufacturing, Amico pointed to re-shoring, energy security, supply-chain security and national security as tailwinds drawing investment into new capacity from both equity and debt investors. On energy, the report says interest in renewables had dipped before the war in Iran under political pressure, and that recent events in the Middle East and the war in Ukraine have refocused attention on energy security, especially in Europe. Amico said Canyon is evaluating greenfield developments in solar and other technologies.

Federated Hermes's head of private credit, Patrick Marshall, called defence "a very fast-growing sector at the moment," citing structural tailwinds as governments in the US and Europe boost spending.