Private credit firms exposed to the software sector have experienced a selloff, amid concerns about the perceived threat to software businesses posed by artificial intelligence (AI).
Several of the largest business development companies have taken a hit this week, including Blue Owl Capital Inc – the biggest faller at one point, down 13 per cent – while vehicles managed by Ares, KKR, Blackstone, TPG and Apollo Global Management declined in the range of eight per cent to 10 per cent.
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The selloff in US, Europe and Asian software stocks seems to have been triggered by US-based AI company Anthropic which launched a solution at the end of last week that will automate legal, sales, marketing and data analysis tasks.
Software stocks have come under increasing pressure this year, as investors flee a sector they perceive as either overvalued or dead in the midst of the AI boom.
In turn, business development companies, which are big lenders to software companies, have come under scrutiny for how much they are exposing investors to this sector.
UBS analysts have estimated that private credit default rates could hit 13 per cent in a worst-case scenario, if the disruption to the software sector caused by AI is “aggressive”.
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“Business critical software has been a massive thematic for private equity sponsors and, by extension, the lenders to their portfolio companies,” Solomon Nevins, partner at The Fund Review, told Alternative Credit Investor.
“It’s difficult to know how widespread the issues will prove to be, but I think it’s safe to assume that some sub-sectors will see their business models severely challenged and revenue projections from the underwriting phase blown off course.”
Nevins added: “I would imagine there’s an interim step where many businesses in this space can adopt AI to improve their offering/lower cost and there will be some winners. But, overall it’s become a far riskier sector than previously thought.”
Alternative asset managers have not been entirely knocked off course, however.
Blackstone reported bumper fourth-quarter results on 29 January that revealed inflows topped $71bn (£51.8bn) over the period, to cap a record 2025.
