PGIM has introduced a 15% cap on AI-related debt exposure within a recent collateralized loan obligation (CLO). This structural mechanism aims to mitigate risks associated with the potential impact of artificial intelligence on traditional business models.
According to PGIM analysts, approximately 11% of US CLO portfolios and 7% of European CLO portfolios currently face exposure to sectors vulnerable to AI disruption. JPMorgan estimates that up to $150 billion in leveraged loans within the $1 trillion US CLO market are at risk.
Software and technology-related loans typically account for 12% to 15% of collateral pools in US CLOs. Recent market data indicates that software assets within these portfolios have underperformed, with analysts attributing this trend to volatility linked to AI developments.
Edwin Wilches, co-head of PGIM’s securitized products group, emphasizes the necessity of active management and structural protections for senior tranches. CLO managers are increasingly adjusting their portfolios to reduce exposure to companies susceptible to automation or substitution.
