Matthew Bloomfield 5.0 4 ideas

The selloff in software loans within the broadly syndicated loan market due to AI disruption fears is overblown. The true risk of disintermediation is considerably lower because software systems are deeply embedded with high switching costs. Large borrowers in this space have better management and capital market access, making the risk-reward attractive at current discounted prices.

Palmer Square BDC (PSBD) trades at a deep discount to net asset value despite high transparency from monthly NAV reporting, tradable underlying assets, and strong credit quality in large borrowers. Historically, such discounts have been excellent entry points for public BDCs. The firm is actively buying back shares, which is accretive at current levels, and the discount should converge over time.

The high yield bond market is currently unattractive because spreads are very tight relative to overall credit risk and have not widened meaningfully despite macro volatility. The market's credit quality has improved to mostly double-B, but yields are not compelling enough to warrant investment.

Aries Management (ARCC) is a well-run BDC with a long track record and strong management team. It is a respected player in the space and would be a top pick among public BDCs if not for his own firm.