Wall Street is increasingly favoring loan deals that exclude software components, reflecting growing unease over the disruptive potential of artificial intelligence in the financial sector.
This shift is being driven by a recalibration of risk models as market participants seek to insulate portfolios from the volatility associated with AI-driven market dynamics.
The move toward software-free collateralized loan obligations (CLOs) highlights a broader trend of risk aversion among institutional investors.
JPMorgan's portfolio managers have publicly flagged the potential for AI to amplify market swings, particularly in the retail sector, where algorithmic trading and sentiment analysis are becoming more prevalent.
This has led to a reevaluation of traditional high-grade debt strategies, with some funds opting for more conservative structures.
The recent rebound in software stocks has further underscored the sector's volatility.