Man Group’s credit outlook for the second half of 2026
Risk imbalances against revenue
Need for detailed evaluation of technology and SW sectors
Healthcare and government projects
Opportunities exist for software companies
Man Group, an alternative investment manager, emphasized the need for strict selection of stocks to respond to artificial intelligence (AI)-related markets through its “Credit Outlook for the Second Half of 2026” report.
It pointed out that the current credit spread does not adequately reflect the risks investors are taking, warning that the longer the overheated optimism persists, the greater the correction impact that will occur in the future.
ManGroup cited the explosive pace of bond issuance by AI and hyperscalers (super-cloud companies) this year. He also predicted that the trend will accelerate further over the next few quarters.
According to Morgan Stanley, the total amount of AI and hyperscaler-related bonds issued this year is estimated to reach $400 billion based on investment grade and $65 billion based on high-yield and other loans.
This is close to 20% of the total bond issuance. In early 2015, Amazon, Microsoft, Meta, Alphabet and Oracle accounted for less than 1% of the credit market.
The report analyzed that four of these five hyperscalers are below the market average this year, and that the credit market is already responding to oversupply.
It is diagnosed that the current credit market is at risk such as oversupply, intensifying competition, and delays in facility construction due to labor shortages.
In addition, he explained that considering the spread of public backlash and the possibility of regulatory intervention, there is not enough compensation for risks to investors at the current spread level.
It also predicted that the huge volume of bonds to be issued in the future risks expanding the spread across the credit market.
Although many transactions have structural aids such as installment repayment clauses, completion guarantees, and the rent backstop (guarantees) of hyperscalers, it said excessive optimism is encouraging reckless investment.
The report pointed out that capital intensity has not yet peaked and out-of-book leverage, which is not revealed in the financial statements, is also on the rise.
Accordingly, he advised that investment should be approached carefully considering the risk of execution due to rapid expansion of AI infrastructure.
In particular, it is analyzed that the sustainability of AI investment returns has not yet been verified, especially for new cloud and data center operators with low credit ratings.
In particular, many borrowers warned that they are concerned about the high-yield and leveraged drone markets, which have negative free cash flows.
In this market environment, Man Group paid attention to software companies that are highly linked to healthcare or government projects.
These companies are defending their profitability despite margin pressure, and they are evaluated to be able to refinance within maturity. It is explained that new investment opportunities are expected as there are signs of differentiation between stocks despite the overall overvaluation of the spread.
Meanwhile, Man Group has defined a series of recent defaults in the software market as a kind of growth pain experienced by the private equity credit market.
At the same time, he mentioned that a detailed evaluation of the technology and software sectors, which account for about 20% of the direct loans to small and medium-sized companies in the private equity market, is needed.
In particular, the key is to distinguish between companies that use AI to strengthen their competitive advantage and companies whose core businesses are replaced by AI.
“We need to cool-headedly identify borrowers who lead AI trends and make diversified investments so that their portfolios do not falter in certain AI scenarios,” said Sriram Reddy, partner at Man Group and head of customer portfolio management at its discretionary management headquarters.
He added, “European and emerging market credits will be an attractive alternative for investors who take a step away from overheating AI investment and seek wide diversified investment.”
Meanwhile, Man Group, headquartered in London, the U.K., is operating assets worth $228.7 billion as of the end of March this year.