Private Credit’s AI Woes Not Systemic, Brookfield’s Flatt Says

The risk of AI disruption upending private credit poses little threat to the wider financial system or the global economy, according to Brookfield Corp.’s Chief Executive Officer Bruce Flatt.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — The risk of AI disruption upending private credit poses little threat to the wider financial system or the global economy, according to Brookfield Corp.’s Chief Executive Officer Bruce Flatt.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.While markets have been roiled by concerns about private credit exposure to software businesses that could be vulnerable to new technology, fear that could spread to a wider financial crisis are overblown, Flatt said in a Bloomberg Television interview Wednesday. “Private credit is very small and software loans are even smaller,” he said. “In a global situation the credit markets are very large and this is not a systemic situation.” Flatt’s reassurances come after some executives have raised alarms in recent days and Blue Owl Capital halted redemptions in its retail-focused private credit funds. Activist investor Boaz Weinstein warned the turmoil may be exposing deeper cracks in the $1.8 trillion private credit market. JPMorgan Chase and Co.

Chief Executive Officer Jamie Dimon on Monday drew parallels to the period before the 2008 financial crisis, when aggressive lending ultimately unraveled.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.“The world always thinks it is the worst time at the moment,” Flatt said, arguing that truly systemic threats including bank balance sheets and real estate loans are both in good health. “We just need to step back and put it in perspective, this is not that big of a deal,” he said. “It is definitely not an 08, it has got nothing to do with 08.”Blue Owl has faced rising withdrawal requests, partly tied to concerns about its exposure to software companies. To pay back its investors, the money manager last week said it sold a $1.4 billion portfolio of loans to pension funds and its own insurance asset manager. Brookfield has largely avoided the broad sell off that’s gripped other alternative asset managers and Flatt underlined the firm’s lack of exposure to software loans or businesses. AI InfrastructureInstead the firm has focused on so-called AI infrastructure, joining rivals including Blackstone Inc. in building and financing data centers. The firm estimates that AI will require roughly $7 trillion in capital investment, including about $3 trillion for computing infrastructure alone.People can’t build AI infrastructure quickly enough, Flatt said, arguing demand continues to far outstrip supply for new data center capacity. The firm has invested in data-center operators and acquired stakes in power utilities that are benefiting from surging power demand. Brookfield’s AI fund is investing as much as $5 billion in Bloom Energy Corp. and plans to deploy that company’s fuel cells at data centers. Earlier this week, Brookfield bought cloud-computing firm Ori Industries. The startup, backed by Saudi Aramco’s venture arm, was merged into Radiant, a new company Brookfield created to provide on-demand access to AI chips. Brookfield is also partnering with Gulf sovereign wealth funds as it pushes deeper into AI. The firm secured Kuwait Investment Authority as a partner and investor in its $10 billion fund dedicated to investing its AI infrastructure. And Radiant plans to lease out chips in a Qatar data-center campus that Brookfield is building with a Qatar Investment Authority subsidiary.

Brookfield Asset Management named Connor Teskey chief executive officer in February, freeing up Flatt to focus on his plan to turn the parent company into an investment-led insurer. On the topic of broader succession though, Flatt maintained he is not going anywhere. Meanwhile the real estate asset management’s acquisition of Oaktree Capital Management is concluding, he confirmed. The fear being stoked by AI risks could create further investment opportunities in future, Flatt said. “With revolutions or evolutions that are going on, it is never a straight line,” he said. “There will always be ebbs and flows on the way to what’s going to be an incredibly productive era that’s coming with the new technologies that are being developed.” Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.