Apollo Global Management's Chief Economist, Torsten Slok, warns that AI is creating hidden concentration risk in seemingly diversified portfolios. He suggests investors seek out uncorrelated assets like European private credit, sports-related financing, and hybrid credit to truly diversify away from the AI buildout.
This filing highlights a growing concern among macroeconomists regarding the pervasive influence of AI on investment portfolios, even those appearing diversified. Torsten Slok of Apollo Global Management argues that AI is becoming a single underlying factor tying together various sectors and asset classes, leading to hidden concentration risk. This matters because traditional diversification strategies may no longer be effective, potentially exposing investors to greater systemic risk if the AI sector experiences a downturn. The short-term implication is a call for investors to re-evaluate their portfolios for AI exposure, while the long-term implication points to a shift in investment strategies towards truly uncorrelated assets. This presents an opportunity for alternative asset managers like Apollo, Blackstone, Ares, and KKR, who are positioned to offer these 'non-AI' related products, but also raises the risk of these 'hideouts' becoming the next crowded trade.