Private credit funds may overstate loan values amid AI-driven risks to software borrowers.

Private credit funds, which lend to mid-sized companies, face valuation challenges as AI threatens software businesses that form a large part of their loan portfolios. BlackRock TCP Capital reported a 19% drop in loan book value in one quarter, driven by software firms affected by AI competition. These funds rely on internal models to value loans since private credit loans rarely trade, causing uncertainty especially during market stress. Investors are discounting fund prices below reported net asset values, signaling doubts about loan valuations. Regulators acknowledge data gaps and call for better oversight, but investors should scrutinize fund valuations and sector exposures carefully.