AI needs massive capital to stand up the guts of the ecosystem, from compute to facilities. That has private credit swarming into the financing of the pipes and plumbing that make AI run. But Fortress Investment Group is telling lenders to pause and price the risk like lenders, not equity holders.
Jack Neumark, co chief executive officer at Fortress, told the crowd at the Milken Institute's Canada Investment Summit in Toronto that lending into things like data centers and other AI related buildouts is not the same economic equation as buying stock. As he put it, "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."
Here is the rub for credit investors: even if the technology booms, loan coupons are mostly fixed, but the collateral can still slide in value. If that happens, lenders can find themselves locked into hard to exit positions. The risk is sharper with niche gear, like GPUs, where the tech is evolving so fast that it is tough to know what the kit financed today will be worth when a longer maturity comes due.
In short, assets that change quickly are being paired with capital that has capped upside and can be sticky to unwind. Equity backers can live with that uncertainty for a shot at bigger gains. Lenders do not participate in the upside beyond the loan terms, yet they remain on the hook if collateral weakens and recoveries shrink.
Neumark's message: believing AI will transform the economy is not the same as believing every tranche of debt tied to it is attractive. "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."
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Neumark put three items at the center of the playbook for illiquid credit: keep maturities short, know what the underlying assets will be worth if you need to take them back, and make sure there is a clean path to exit or restructure. He said investors in illiquid credit should "stay short duration," understand the residual value of what backs the loan, and ensure there is a way out if conditions change.
Others are already rewiring their process. Jenny Johnson, CEO of Franklin Templeton, said the speed of technological change is already reshaping credit risk analysis. The firm, which manages about $1.8 trillion, has its technology specialists working with the private credit group to map sectors and when AI might upend them.
AGF Investments Chief Investment Officer John Porter pointed to data centers to show how traditional silos are blurring. Evaluating that space means weighing the politics around where facilities get built, the fixed income math of funding them and the potential equity lift from AI adoption, he said. Toronto based AGF Management oversees about C$74.2 billion, or $53 billion.
A big part of what comes next will be structure and discipline, Neumark said: "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."
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