Why Investors Should Consider Where Their Credit Exposure Lives
Executive Summary
Artificial intelligence is rapidly becoming one of the defining investment themes of our generation. Investors have spent considerable time discussing the companies building AI, the infrastructure required to support it, and the extraordinary productivity gains it may create.
Far less attention has been paid to a different question:
How might artificial intelligence reshape private credit portfolios?
For more than a decade, private credit has delivered attractive returns by financing businesses across a broad range of industries. Yet many of today’s institutional private credit portfolios contain significant exposure to software companies, technology-enabled services businesses, professional services firms, and private equity-backed enterprises whose cash flows are ultimately tied to the knowledge economy.
As AI continues to evolve, investors may benefit from examining not only the yield generated by their private credit investments, but also the economic foundations supporting those yields.
At Supervest, we believe this discussion deserves greater attention.
The Hidden Concentration Within Private Credit
Private credit has grown into a multi-trillion-dollar asset class over the past decade. Much of that growth has occurred alongside the expansion of private equity, enterprise software, technology-enabled services, and professional services businesses.
Many private credit portfolios today contain meaningful exposure to:
- Software companies
- Technology-enabled service providers
- Information services firms
- Consulting businesses
- Business process outsourcing providers
- Professional services companies
- Private equity-backed leveraged buyouts
Historically, these have been attractive borrowers. They often possess recurring revenue, asset-light business models, attractive margins, and predictable growth profiles.
However, investors should consider a simple question:
How much of the cash flow supporting these businesses ultimately depends upon the continued scarcity of human intelligence?
For decades, the answer was straightforward. Human expertise was scarce, valuable, and difficult to replicate.
A consulting firm’s value was built upon the specialized knowledge of its employees. A software company relied on teams of developers to create and maintain products. Professional service organizations depended upon highly skilled workers whose expertise could not easily be replaced.
Artificial intelligence may begin to alter that equation.
Tasks that once required large teams of analysts, developers, researchers, or administrators can increasingly be performed with fewer people and greater efficiency. While AI is unlikely to eliminate these industries, it may change the economics that support them. Investors should consider how businesses whose value is tied primarily to human knowledge and information processing may evolve in a world where intelligence itself becomes more abundant.
When Recurring Revenue Isn’t Necessarily Permanent
Many private credit investments are underwritten using assumptions regarding future earnings, customer retention, and recurring revenue streams.
Historically, those assumptions have generally proven reliable.
The challenge is that AI may create uncertainty around business models that previously appeared highly predictable.
If software development costs continue to decline, if enterprise customers begin replacing certain software subscriptions with internally developed AI-enabled tools, or if portions of professional services become increasingly automated, some businesses may face pressures that were not contemplated when many loans were originally underwritten.
The question is not whether these companies survive.
The question is whether future cash flows prove as durable as originally expected in order to service the outstanding debt obligations.
Investors often view private credit as a diversification away from public technology markets. Yet many private credit portfolios remain heavily dependent upon the same underlying drivers:
- Enterprise software spending
- Knowledge-worker employment
- Professional services demand
- Technology budgets
- Corporate productivity growth
As artificial intelligence reshapes these markets, investors may benefit from considering whether their credit exposure is truly diversified.
What Public Markets May Already Be Signaling
While much of the discussion surrounding artificial intelligence remains theoretical, public equity markets may already be providing clues regarding how investors are evaluating certain business models.
Over the past several months, many Software-as-a-Service (SaaS) companies have experienced significant valuation compression despite continued growth in the broader technology sector. Investors have also begun questioning the durability of software pricing, customer retention, and long-term competitive advantages in an increasingly AI-enabled environment.
The phenomenon has become so widespread that market participants have coined terms such as “SaaS Apocalypse” to describe the repricing that has occurred across portions of the software sector.
Whether that characterization ultimately proves accurate is less important than the underlying message.
Public market investors appear increasingly willing to challenge assumptions that were once considered almost universally accepted:
- That recurring revenue automatically equates to durable revenue
- That software businesses possess unlimited pricing power
- That customer retention rates will remain unchanged indefinitely
- That technology-enabled businesses are insulated from disruption themselves
For private credit investors, these developments warrant attention.
Many private credit portfolios contain borrowers whose cash flows are directly or indirectly tied to the same economic forces currently being reassessed in public markets. While private valuations often move more slowly than public valuations, history suggests that public markets frequently identify changing business fundamentals before they become evident elsewhere.
The question is not whether software companies remain attractive businesses. Many undoubtedly will.
The question is whether investors are being adequately compensated for risks that may not have existed when many private credit investments were originally underwritten.
Understanding the Underlying Cash Flow
When evaluating private credit investments, investors often focus on yield, leverage, duration, and credit quality.
Equally important, however, is understanding the source of the borrower’s cash flow.
Many private credit investments are ultimately supported by businesses whose revenues depend upon enterprise technology spending, professional services demand, and knowledge-worker productivity.
These businesses may continue to perform well for years to come. However, as artificial intelligence evolves, investors should recognize that some of the assumptions supporting those cash flows may be changing.
The objective is not to predict disruption. Rather, it is to understand where potential disruption may occur and how concentrated a portfolio may be in those areas.
In our view, the most resilient portfolios are often those that combine multiple sources of economic exposure rather than relying heavily on a single segment of the economy.
A Different Perspective From Main Street
At Supervest, we spend our time evaluating and financing small and medium-sized businesses operating across the United States.
Since inception, the Supervest ecosystem has facilitated participation in more than 50,000 funding transactions representing over $2 billion in capital provided to Main Street businesses. This experience provides a unique perspective on how small businesses are evolving in real time.
What we find notable is that many of the businesses we continue to find attractive operate in sectors that appear substantially less exposed to direct AI displacement.
These include:
- Medical practices
- Dental groups
- Specialty contractors
- Home service businesses
- Restaurants
- Automotive services
- Skilled trades
- Local service providers
These businesses may adopt AI.
In fact, many already are.
But their underlying value proposition remains rooted in physical execution and real-world commerce.
Artificial intelligence may help an HVAC company schedule jobs more efficiently.
It cannot install the system.
AI may help a dental practice automate administrative tasks.
It cannot perform the procedure.
Technology may improve productivity, but the underlying demand remains tied to activities occurring in the physical economy.
What We Are Seeing Within the Supervest Ecosystem
One advantage of operating within the small-business finance market is the ability to observe economic activity at the ground level.
Through our platform and affiliated funding relationships, we have participated in financing tens of thousands of small and medium-sized businesses across a broad range of industries.
While economic conditions and individual business performance naturally fluctuate, several observations have become increasingly apparent.
Many of the sectors we continue to find most attractive are those rooted in the physical economy.
Medical practices continue to provide healthcare services.
Specialty contractors continue to address labor shortages more often than demand shortages.
Home service providers continue to benefit from aging housing stock and ongoing maintenance needs.
Restaurants continue to serve local communities.
These businesses are not immune from economic cycles, nor are they immune from technological change. However, their revenue streams remain tied to activities that require physical execution, local relationships, and direct customer interaction.
Equally important, we are beginning to observe many of these businesses adopting artificial intelligence as a productivity tool rather than experiencing it as a competitive threat.
Contractors are utilizing AI to generate estimates and proposals.
Medical practices are automating administrative functions.
Local service providers are improving scheduling, marketing, and customer communication.
In many cases, AI appears to be enhancing operational efficiency without fundamentally disrupting the underlying business model, allowing businesses to improve profitability while continuing to serve the same core demand
This dynamic may prove important in the years ahead.
Duration Matters
Periods of technological change create challenges for long-term forecasting.
Many traditional private credit investments are underwritten against assumptions extending several years into the future.
The further investors attempt to forecast, the greater the uncertainty surrounding technological disruption.
One characteristic we continue to find attractive about revenue-based financing is its relatively short duration.
Capital is recycled more frequently.
Performance can be evaluated continuously.
Portfolio allocations can be adjusted more quickly as conditions evolve.
In a rapidly changing AI environment, flexibility may become increasingly valuable.
Following the Cash Flow
Ultimately, every credit investment comes down to a single question:
Where does the cash flow come from?
As artificial intelligence continues to reshape industries, investors may increasingly focus not only on expected returns, but also on the source and durability of those returns.
Some cash flows may become more dependent upon the future value of human knowledge work.
Others may remain tied to businesses repairing homes, serving customers, treating patients, and supporting local economies.
Neither approach is inherently right or wrong.
But understanding the distinction may become increasingly important.
Conclusion
The purpose of this discussion is not to suggest that artificial intelligence will destroy entire industries or invalidate traditional private credit.
Rather, it is to encourage investors to think more deeply about where their credit exposure resides.
Private credit has historically been viewed as a diversification away from public equity markets. Yet many private credit portfolios remain concentrated in businesses whose fortunes are tied to the same knowledge economy, enterprise technology spending, and white-collar employment trends that artificial intelligence is now beginning to reshape.
At the same time, a significant portion of the U.S. economy remains rooted in businesses providing essential services that continue to require human labor, local presence, and physical execution.
At Supervest, we believe these businesses deserve a place within a diversified private credit allocation.
As investors navigate one of the most significant technological shifts in modern history, understanding not only how much yield a portfolio generates—but where that yield comes from—may matter more than ever.
You may be diversified by asset class.
The more important question is whether you are diversified by economic exposure.
As artificial intelligence reshapes the economy, that distinction may become one of the defining questions for private credit investors in the decade ahead.
About Supervest
Supervest is an alternative investment platform providing accredited investors access to fixed-rate investment opportunities supported by diversified portfolios of revenue-based financing and receivables-backed assets serving small and medium-sized businesses throughout the United States. Since inception, the platform has facilitated more than $250 million in investor participation across its Note offerings and institutional investment programs, attracted more than $50 million in subscriptions to its fixed-rate Note offerings, and maintained a perfect record of scheduled principal and interest payments across those Note programs.
