“We’ve never had more undrawn capital,” says Jonathan Dorfman, chief investment officer at Napier Park Global Capital, a $40bn alternative credit manager. Napier Park has been prepping for a repricing of financial assets that predates the Iran war and the software crisis, Dorfman said in the latest episode of Credit Exchange with Lisa Lee.

Have ready cash and take advantage to buy assets that are going to come up for sale very soon, Dorfman advises. He says credit spreads should widen further: “We are going to see more and more problems occur, and more and more bad headlines.”

While Dorfman believes people will look back and say the headlines over private credit’s software issues were overblown, it’s appropriate there’s been a dramatic repricing, because of the enormous uncertainty caused by AI. The more sophisticated software companies are not going to sit still, and they will figure out how AI benefits them, and come out stronger. But some won’t.

On risk from the Iran war, Dorfman says history shows that markets usually have a short-term, very violent downward move with some type of capitulation to major geopolitical developments – but then they recover. Sustained high oil prices need to last at least a few months to meaningfully affect the real economy, and therefore financial markets. Right now, it’s too early to tell if this is a buy-the-dip moment. But it’s probably a fine strategy, he reckons.

A pioneer of the credit default swap, Dorfman says the CDX index is saying there’s a lack of fear about a recession and/or a meaningful economic slowdown. Risk premiums are higher, but they’re not high in an absolute sense that would be consistent with a slowdown.