This week's interesting finds

A few charts worth discussing

“Big beat in the U.S. payroll numbers…

…but looking under the hood, it’s almost entirely from Healthcare and Social Services”

- Greg Sinclair

“The EU is trying to get its citizens to move more household savings from cash/bank deposits to the European equity markets, encouraging the use of TFSA-style accounts by EU households. It has a long way to go.”

- Claire Thornhill

Other charts worth pointing out

U.S. dollar since 1967

Tradable debt outstanding by region

Emerging market equity and debt ownership

Emerging markets vs. U.S. equities

U.S. large-cap growth vs. U.S. small-cap value

Historical 10-year U.S. Treasury yields

Capex-to-Sales ratio across developed markets – by sector

Total return performance by asset class – 2009 to 2020

Total return performance by asset class – 2025 to today

Annual asset class performance – 2007 to 2026 (YTD)

Private Credit’s Software Bet Is Even Bigger Than It Appears

A quick scan of Pricefx’s website leaves little doubt how the company sees itself. “The #1 Leading Pricing Software” is splashed across its homepage. As is “Great Pricing Software Makes Dreams Reality.” In all, “software” appears more than a dozen times on that first screen alone.

One of Pricefx’s biggest financial backers prefers a different label, though. Sixth Street Partners, a top direct lender to the firm, classifies Pricefx not as software but as a “business services” company.

And so it goes in the world of private credit. Time and again, companies widely regarded as software firms are frequently labeled otherwise by lenders, a practice that raises fresh questions over the full extent of their exposure as the threat from artificial intelligence upends markets and rattles investors. Bloomberg News reviewed thousands of holdings across seven major business development companies — funds that pool direct loans — and found wide variation in how investments tied to the sector are categorized.

At least 250 investments, worth more than $9 billion, weren’t labeled as loans to software firms by one or more of the BDCs, even though the companies borrowing the cash are described that way by other lenders, their private equity sponsors, or the firms themselves. The discrepancies, market watchers say, underscore broader concerns about private credit, a famously opaque industry marked by inconsistent reporting standards, complex fee structures and significant discretion over valuation practices.

‘More Responsibility’

While questions over how companies are categorized aren’t unique to private credit, the issue takes on added weight in a market already known for its limited transparency.

Because these loans are privately negotiated and thinly traded, there’s little independent price discovery or commonly referenced benchmarks to fall back on. The labels managers assign can therefore carry outsized importance, shaping how investors gauge sector exposure, concentration risk and vulnerability to shifts such as the rapid advance of AI.

Drawn by predictable revenue streams, alternative asset managers piled into software for more than a decade. Industry executives have been forced to address investors’ questions about this concentration on recent earnings calls. Apollo President Jim Zelter.

Blurry Lines

Angst about the future of the software business has escalated rapidly — and hit the stock and credit markets hard — after the AI startup Anthropic PBC released a series of new tools that threaten everything from financial research to real estate services. The S&P North American software index has posted daily declines of more than 4% three times in the past few weeks, and is down more than 20% this year.

What even qualifies as “software” isn’t always clear-cut.

Apollo, for example, categorizes Kaseya, a self-described “IT management software” company, as “specialty retail” in filings. Other lenders, including Blackstone and Golub, place it in the software bucket.

Restaurant365, which calls itself a “back-office restaurant system software” provider, is labeled as “food products” by Golub. That puts it alongside companies such as Louisiana Fish Fry and the maker of Bazooka Bubble Gum. Ares groups the company with its software and services holdings instead.

Some say private credit managers may face increasing scrutiny over how they define and disclose their holdings as AI reshapes the software industry.

This week’s fun finds

Howard, from the Business Development Team, brought a little luck and a lot of flavour by hosting this year’s Lunar New Year moai. No better way to kick off the long weekend than celebrating with great partners.

From a whiff of mystique to witty love: over 200 years of Valentine’s cards

In the late 19th century, few things telegraphed yearning like a card adorned with paper lace, gold foil and a couple exchanging a coy glance.

Today, such a card would evoke an eye roll.

The evolution of cards from the treacly confections of Victorian England to the quippy missives of today reflect both shifting design aesthetics and broader cultural customs around romance. As the borders of socially accepted relationships have shifted, so have the cards. Where once there was poetry, now there are drawings of pizzas.

“Greeting cards are a reflection of society,” said Carlos Llansó, executive director of the Greeting Card Association, a trade organization that represents roughly 4,000 independent card makers.

Valentine’s Day cards today are less formal, precious and prescribed, Mr. Llansó said, because our understanding of love has become more expansive.

This week's interesting finds

A few charts worth discussing

“While Toronto home prices have corrected, they remain elevated relative to median after-tax household income.”

 - Jeff Hyrich

“For the first time since 2021, the momentum factor is being increasingly driven by value stocks.” 

- Frank Mullen

“On average, DBRS credit ratings are one notch higher than S&Ps, Moody’s and Fitch. When Canadian firms go with a single bond rating, 80% go with DBRS”

- Steven Lo

Other charts worth pointing out

Software vs. semiconductor stocks

Crypto fund inflows

Tech fund inflows

U.S. vs. global equities – performance

MSCI U.S. vs. MSCI World ex. U.S. – equity valuations and price levels

U.S. tech capex

Emerging markets vs. developed markets

High yield software/tech credit spreads:

Chinese exports to U.S.

Banks seek out new buyers for Oracle data centre loans

At least $56bn worth of data centre construction loans — supported by the software company’s future leases as part of its $300bn deal with OpenAI — have been given investment-grade ratings, according to people familiar with the deals. These ratings, which are relatively rare for infrastructure construction loans, have allowed banks to attract a much broader base of investors than usual for project finance debt.

While banks have mostly tended to fund project finance loans for the construction of toll roads and airports themselves, the massive deal sizes of recent data centre projects have overwhelmed this source of demand, leaving tech giants keen to find new sources of capital.

The attempts to find buyers for the debt come amid a rapid increase in debt issuance by Big Tech companies, with half of the 10 largest borrowers in the US investment-grade bond market set to be so-called hyperscalers by 2030.

Investor concerns have been growing about Oracle’s aggressive commitment to AI spending, as it bids to compete with rival tech groups, and its debt pile. The software company on Monday separately raised another $25bn in the bond market after pledging to preserve its investment-grade rating by keeping its debt load in check, while it also reassured debt investors with plans to issue new equity.

The ratings on the data centre loans cover Oracle’s leases on $38bn of data centre facilities being built in Texas and Wisconsin, as well as an $18bn data centre campus in New Mexico, which is backed by Blue Owl Capital, according to people familiar with the efforts. Both loans are being marketed to investors.

More than a dozen banks have lent against Oracle’s long-term lease commitment in both transactions, which were priced at 2.5 percentage points above the Secured Overnight Financing Rate (SOFR), the people said.

Borrowing costs for newer Oracle-linked data centre projects have widened to 3 to 4.5 percentage points above SOFR — levels that are closer to junk-rated debt — according to a research note by TD Cowen published on January 26, based on pricing of debt that has not yet been sold on to investors.

Some investors are hesitating about whether to purchase the two Oracle-backed syndicated loans currently in the market in anticipation of higher returns in future.

A second investor who has purchased other bonds backed by data centre projects said banks were nervous about their increasing exposure to the AI financing boom and were seeking ways to offload the debt they had agreed to provide.

To do so, they had had to offer investors higher interest rates on these deals than expected, the person added.

STACK Infrastructure, which is responsible for the data centre development in New Mexico, confirmed that the transactions were currently in the syndication phase and had received investment-grade credit ratings.

“STACK views the syndication as progressing as expected and with expected market terms,” it said. 

Oracle said the financing for the two data centre projects was “secured at market standard rates, progressing through final syndication on schedule, and consistent with investment grade deals”.

This week’s fun finds

Shoutout to interns, Calista and Rhea for putting together an awesome Superbowl-themed Moai. It was a perfect halftime get together for a Friday. Thanks for making us all game-day ready.

The 26 Best Super Bowl Ads of the Past 26 Years

Every year, advertisers spend millions for 30 seconds of Super Bowl glory. The best ones become cultural moments that outlive the game itself.

Ahead of Super Bowl 2026, ADWEEK revisits the 26 commercials of the past 26 years that proved worthy of the hype.

This week's interesting finds

Managing uncertainty - 4th quarter, 2025

Investment Team members Frank Mullen and Claire Thornhill discuss their Q4 2025 commentaries with relationship manager Ryan Hatch. They talk about the lessons they've learned, the benefits of our Investment Team's structure and more.

A few charts worth discussing

“If the market feels expensive to you, you're not imagining things. Across sectors, styles and markets - valuations remain elevated. While there continues to be dispersion within the different categories, buyers today need to be particularly discerning.”

-Sydney Van Vierzen

“Banks offering variable-rate, fixed-payment mortgages have been reducing the percentage of their mortgages with amortizations over 30 years. Those were mostly from the post-Covid interest rate increases.”

- Tracey Chen

Other charts worth pointing out

High-yield bond performance by sector

AI funding impact on credit markets

Global oil production by country

Globalisation’s impact on European stocks

S&P 500 Index – post-reporting performance

Emerging market equity ETF inflows on the rise

S&P 500 Index market cap reallocation

Cumulative retail flows into the Mag 7

Central bank gold weights

Short interest in SPY vs. QQQ

Generative AI traffic share

Private credit firms sell debt to themselves at record rate

Private credit firms sold a record amount of debt to themselves last year as the buyout sector’s slowdown pushed them to find new ways to generate cash from loans to companies owned by private equity.

Private lenders struck so-called continuation deals worth $15bn globally in 2025, up from almost $4bn the previous year, according to investment bank Jefferies. Such deals involve fund managers establishing new vehicles to buy loans from their old funds.

Many of the rolled-over loans were originally extended to finance leveraged buyouts by private equity managers, Jefferies said, but were taking longer than expected to be repaid due to a lack of deals.

The boom in private credit continuation deals is the latest hangover from a years-long drought in private equity exits, with buyout firms instead holding on to businesses for longer and delaying repayment of those companies’ loans.

Advisers also say the surge in funds raised by direct lending vehicles in recent years has resulted in more activity in the so-called secondary market. It includes both managers selling to themselves as well as fund backers selling on stakes in those vehicles.

Last week Crescent Capital Group closed a $3.2bn continuation vehicle, the largest in the private lending market, which bought a portfolio of loans to private equity-backed companies and other assets from an older Crescent fund.

Backers of credit funds, such as pension plans, also sold more stakes in ageing funds than ever last year, with the value of transactions up from $6bn in 2024 to $10bn.

The spike in continuation vehicles comes as investors, concerned over credit quality following the bankruptcies of First Brands and Tricolor, have pulled back from some of private credit’s biggest funds in a blow to one of the fastest-growing areas of finance.

This week’s fun finds

Why Is Ice Slippery? A New Hypothesis Slides Into the Chat.

The reason we can gracefully glide on an ice-skating rink or clumsily slip on an icy sidewalk is that the surface of ice is coated by a thin watery layer. Scientists generally agree that this lubricating, liquidlike layer is what makes ice slippery. They disagree, though, about why the layer forms.

Three main theories about the phenomenon have been debated over the past two centuries. Earlier this year, researchers in Germany put forward a fourth hypothesis (opens a new tab) that they say solves the puzzle.

But does it? A consensus feels nearer but has yet to be reached. For now, the slippery problem remains open.

This week's interesting finds

Fourth quarter commentaries are now live!

This quarter, Claire Thornhill talks about the importance of investing with a margin of safety while Frank Mullen discusses some of the lessons we've learned from our long history of investing in Calfrac.

A few charts worth discussing

“Consolidation continues in the Canadian oil patch. Midcaps are getting most of the attention from investors.”

– Frank Mullen

“January inflows into equity ETFs are running at 5x the average for the month, with the funds attracting a record US$400B over the past three months. It’s a sign of just how aggressive risk appetite has become.”

– Jason Liu 

“Japanese bond yields are impersonating momentum stocks.”

– Derek Skomorowski

Other charts worth pointing out

Fund Manager Survey – Liquidity conditions

Fund Manager Survey – Investor sentiment

Mutual fund and ETF flows

Value stocks have been outperforming in recent months

Global view of Value vs. Growth

Global view of Cyclicals vs. Defensives

Emerging Market vs. Developed Market valuation comparison

Investment grade index – Financials vs. Technology

Investment grade credit spread comparison

Private-Credit Investors Are Cashing Out in Droves

For the first time since the start of the private-credit boom, large numbers of individual investors are trying to get their money out.

Several of the biggest funds eligible to wealthy individuals received requests from about 5% of shareholders to cash out at the end of last year, well above the normal volume, according to Securities and Exchange Commission filings. One, managed by Blue Owl, got redemptions for about 15% of its shares, primarily from Asian clients, a person familiar with the matter said.

The rising redemptions come at an awkward time for private-credit fund managers—and for the Trump administration—as they push for new rules that would “democratize” private markets by encouraging their inclusion in 401(k) retirement plans for all Americans.

Private-fund managers, including Apollo Global Management, Blackstone and Blue Owl, blame fearmongering about a recent spate of corporate bankruptcies, like automotive supplier First Brands, for the surge of withdrawals. Analysts say there could be a simpler explanation: Individual investors are falling into a familiar pattern of selling out when an asset class underperforms expectations.

A handful of these funds have cut dividends because the yields on their loans are falling in lockstep with benchmark interest rates. More dividend reductions will follow, Dodd said, likely prompting more redemptions.

Total returns from five of the largest private-credit funds aimed at individual investors declined to an average of about 6.22% in the first nine months of 2025, compared with 8.76% in the same period of 2024 and 11.39% in 2023, according to an analysis by The Wall Street Journal.

Money managed by BDCs has tripled since 2020 to about $450 billion. And the funds still took in more money from new investors than they paid out in their most-recent quarter, a sign they are still popular among investors and advisers. Nevertheless, the recent withdrawals are drawing comparisons to a Blackstone private real-estate fund that faced an exodus of client cash three years ago.

Managers of private funds say all investors should own some because they can deliver higher returns than stocks and bonds, and diversify their portfolios. Some experts say the funds are inappropriate for individuals because they charge high fees and limit how quickly clients can get their money back.

Few U.S. companies have been willing to make such funds available in their employees’ 401(k) plans for fear of class-action lawsuits over the high fees they charge and their potential unsuitability for individual investors.

Unlike insurers and pensions, which match investments to long-term liabilities that won’t come due for years, individuals often sell holdings to pay for major life expenses. Investing in funds built for deep-pocketed institutions may complicate these short-term needs, like paying for a medical procedure or college tuition.

Investment firms have sought to address the mismatch by launching “semi-liquid” funds that limit quarterly redemptions to 5% of shares outstanding and are eligible for sale to wealthy individuals. 

Blackstone pioneered the strategy with a real-estate fund called Breit. The fund was a big hit. But when the office market crashed during the pandemic, Breit became a black eye for Blackstone and a sore spot with its investors. Many complained of being trapped by the 5% limit on redemptions. While the firm eventually slowed the flow of money exiting from Breit, the fund hasn’t returned to its peak size.

As real estate’s star faded, fund managers pivoted to marketing semi-liquid BDCs. The credit funds were yielding more than 11% after the Federal Reserve raised interest rates to fight inflation, boosting the income from their loans. Large brokerages like UBS and Wells Fargo started offering the funds on their platforms used by thousands of financial advisers.

Blackstone’s head of private wealth Joan Solotar said the firm had changed its education practices to better inform clients about withdrawal limits, and its BDC, called BCRED, quickly grew to about $79 billion. Blue Owl, which was co-founded by a former Blackstone partner, launched the second-most-popular fund, which manages about $34 billion.

More recently, private-fund managers began partnering with mutual-fund managers like State Street and Vanguard to develop products for the mass audience. The Labor Department under President Trump is working on rules to reduce legal risks for 401(k)s that include private funds.

The first signs of trouble came last summer when loans to companies such as First Brands and auto lender Tricolor defaulted amid allegations of fraud. Most of the loans weren’t owned by private-credit funds, but they still triggered a scare among individual investors and their advisers. Declining dividends didn’t help.

In the last quarter, investors pulled 4.5% out of BCRED, about 5% from Blue Owl’s largest fund and 5.6% from a big BDC managed by Ares Management.

Fund managers are trying different strategies to avoid a chain reaction.

Redemptions have been particularly heavy from a technology-focused BDC that Blue Owl has grown to about $6 billion by relying heavily on UBS’s wealth-management platform to sell it to individuals in Asia. By December, Blue Owl had received redemptions well in excess of 5% but rather than capping payouts there, the firm announced it would raise the threshold to 17%, borrowing money to retire the shares.

The idea was to flush all shareholders who wanted out in one fell swoop, avoiding the cycle of redemptions that weighed down Blackstone’s real-estate fund for years when it fell from favor. About 15% of the technology BDC’s investors took Blue Owl up on its offer and redeemed, the person familiar with the matter said.

The technique is feasible only as long as a fund has cash—or can borrow more—to fund payouts rather than liquidating its investment.

This week’s fun finds

Drone photo winners will amaze your eyeballs: From a high-up horseman to a holy river

A solitary horseman, illuminated by a beam of light, stands on the snow, surrounded by eerie and jagged mountain peaks. It's an otherworldly image and it raises the question: How did a photographer manage to make such a captivating picture? 

The answer: Drones! 

That's not to say drones work miracles. "The shooting angle must be carefully calibrated," says Susanna Scafuri, a journalist and photo editor based in Italy and a member of the jury. 

But the result can be spectacular, she says.