* M&G says very limited private credit exposure to

software companies

* CEO highlights differences between US and European

markets

* Company reports flat operating profit, improved fund

inflows

(Recasts on CEO comments, adds analyst comment, shares)

By Iain Withers

LONDON, March 12 (Reuters) - British insurer and money

manager M&G said on Thursday it had less than 2%

exposure to software companies in its private assets arm and

contrasted Europe's private credit funds with an "overcrowded"

U.S. market, after posting full-year results.

Private credit has expanded rapidly into a $2 trillion industry,

but growing concerns about transparency and credit quality have

led more investors to pull out of some U.S. funds.

Concerns about software companies backed heavily by credit

lenders and seen as vulnerable to artificial intelligence

startups have added to the trend.

"We need to distinguish the U.S. from Europe. We're talking

about two very different markets," M&G CEO Andrea Rossi told

Reuters. "The problems you have seen in the U.S., it's mainly

been driven by software exposure disrupted by AI."

The U.S. private credit market is also more mature, competitive

and overcrowded, Rossi said, adding that Europe's market was

still developing and remains dominated by bank lending.

M&G's Europe-focused 27 billion pounds ($36 billion) of

credit assets had strong underwriting, he added.

Some of the company's other private assets have nonetheless

faced issues, including a potential hit on funds exposed to

residential ground rents that face a proposed UK government cap.

CLIENT INFLOWS PICK UP

M&G reported flat operating profit of 838 million

pounds for 2025 and reiterated its 2027 financial targets.

The company said it was starting to benefit from a tie-up with

Japanese insurer Dai-ichi Life ( DCNSF ) struck last year,

helping drive up net inflows from open business to 7.8 billion

pounds, compared with 1.9 billion pounds of outflows previously.

RBC analysts said the flows showed strong momentum, with

earnings partly offset by lower performance fees and higher

costs in asset management.

Shares were last down 2.9%, versus a 0.5% fall in the FTSE

100 index.

Deutsche Bank separately said on Thursday its

private credit portfolio had grown to 26 billion euros ($30

billion) and highlighted risks to the sector.

($1 = 0.7468 pounds)

($1 = 0.8668 euros)