“We’re starting to see some impact on cost. Very manageable, but it’s hard to ignore,” says Alex Chi, deputy CIO of global credit at Carlyle, one of the world’s largest investment managers with nearly $500bn in assets under management.

Speaking on the latest episode of Credit Exchange with Lisa Lee, Chi says that they are being very careful about how they underwrite new credits going forward. But new originations and investments stand to benefit from higher interest rates, he adds, as most of Carlyle’s credit holdings are floating-rate.

While Chi says consumer spending is holding up, particularly from higher-end consumers, Carlyle is staying away from credits that have significant exposure to discretionary consumer, “because we just don’t know what the impact’s going to be.”

Expect to see more defaults within the software landscape, says Chi, who is also head of direct lending at Carlyle. The vintages of late 2020 through early 2022 are especially problematic. If you look at the rates of default within those vintages, they have the highest percentage of non-accruals and defaults, he says.

“I think that we’re going to have to face the music at some point, because the maturity wall is coming,” Chi says. “And as a deputy CIO, I also think that could be very interesting for the opportunistic credit asset class.”

On AI, the software firms experiencing problems aren’t a result of AI disruption, Chi contends. “I actually think that you’re going to see more of an impact of AI from white-collar business services companies,” he says.