Scott Goodwin labels private credit software exposure 'almost criminal'

Scott Goodwin, founder of the $30 billion firm Diameter Capital, issued a stark warning at the Sohn conference Tuesday, characterizing the heavy concentration of private credit portfolios in software companies as near-criminal behavior. He argues that managers ignored the pace of technological disruption, leaving investors vulnerable to a looming reckoning.

The core of the crisis centers on funds raised during the 2021 and 2022 market peaks, when firms aggressively pursued high-growth software deals. Goodwin contends that allocating 40% to 60% of a portfolio into a single sector is a fundamental failure of risk management. As AI shifts the competitive landscape, companies that once appeared stable are now facing significant disruption, driving a surge in redemption requests at major funds.

Diameter Capital is now positioning itself to capitalize on the fallout, projecting that $150 billion to $200 billion in private credit loans will hit the secondary market as funds scramble for liquidity. Having already completed 15 such transactions in two months, Goodwin views the current market volatility as an opportunity to acquire undervalued assets. While he maintains that the broader credit market is not facing a systemic collapse, he warns that the era of blind lending must end, urging managers to return to fundamental credit analysis and deep knowledge of the specific companies they back.