Fortress Investment Group co-CEO Jack Neumark is warning private credit lenders not to chase AI infrastructure deals out of fear of missing out (FOMO), arguing that lenders face limited upside while remaining exposed to falling asset values, technological disruption, and potentially illiquid investments.
"If we go into big data center opportunities or big GPU opportunities or other technology-focused investments, as a credit investor, you’re not getting paid for that upside, and you’re stuck in the investment if it goes sideways," Neumark said during the Milken Institutes Canada Investment Summit on Monday, Bloomberg reported.
Neumark noted that while there is optimism regarding AI’s long-term potential, it should not automatically translate into a compelling investment case for the debt financing its growth.
"Not all good trends or good long-term projections will translate into good investments for every type of assets," he said. "The relative value or the relative pickup that you’re going to get by doing a credit investment in AI infrastructure or other AI investments is not so material that you can justify taking incremental risks to get that exposure."
Private credit lenders are taking on larger roles in funding the infrastructure needed to support the AI boom. Firms including Blackstone (NYSE:BX), Brookfield Asset Management (NYSE:BAM), KKR & Co. (NYSE:KKR) and Blue Owl Capital (NYSE:OWL) have recently committed billions of dollars to data centers, power generation, connectivity and digital infrastructure.
As AI infrastructure becomes more expensive, rapid advances in hardware and computing technology are raising questions about how long these assets will retain their value. This is leaving lenders carrying risks that equity investors are better positioned to take on, Bloomberg reported.
Neumark recommended keeping maturities relvatively short, carefully evaluating the value of the underlying collateral and making sure there is a viable path to sell, refinance or restructure the position should conditions change.
"A big part of what this next five years is going to look like is people making sure that they’re investing for the right reasons with the right companies and the right structures and not exhibiting FOMO," Neumark said.
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