Here's how private credit bosses are defending their software bets as markets scrutinize Blue Owl
· Business Insider
PATRICK T. FALLON/AFP via Getty Images/ Mike Blake/REUTERS/ Vernon Yuen for NurPhoto via Getty Images
- The software-apocalypse is hitting private credit, putting the biggest players on defense.
- Following concerns over Blue Owl's software exposure, other leaders are talking up their portfolios.
- Execs like Marc Rowan and Jon Gray defended their portfolios against software risk this week.
Months of concern over the private credit industry finally coalesced this year into its first real reputational crisis.
Visit asg-reflektory.pl for more information.
Blue Owl, a buzzy private investor specializing in loans to the software industry, has seen its stock crater following growing redemption requests across its non-traded private credit funds and market jitters over the impact of AI disruption on software companies.
In the fourth quarter of 2025, redemption requests across the industry were up nearly 3 times from the quarter before at 4.5% of fund net asset value, according to Fitch Ratings. Blue Owl's tech-focused fund had by far the most redemption requests of the non-traded funds tracked by Fitch, at 15.4%, and has become the avatar of private credit's exposure to the "software-apocalypse."
With market watchers concerned that generative AI will make many software-as-a-service companies obsolete, the general angst about private credit over the past few months has now found a target in software loans.
During its February earnings call, Blue Owl's CFO Alan Kirshenbaum looked to assuage concerns by stating that software loans make up only 8% of the firm's total assets under management.
And this week, at the Bloomberg Invest conference and on CNBC, other private credit bosses had the chance to assuage fears that they were in too deep on software bets. They didn't mention Blue Owl by name (though interviewers mentioned them to some, like Apollo's Marc Rowan and Ares's Michael Arougheti), but they were doing their best to explain why software loans weren't a risk to their funds.
Here's what top private credit players said about their software exposure.
ApolloMarc RowanPATRICK T. FALLON/AFP via Getty Images
The headline of Apollo CEO Marc Rowan's talk at Tuesday's conference was that he expects a "shakeout" in the industry that will separate the best investors from the rest. One of the main factors that may decide this shakeout is exposure to software, but Rowan chided those who seemed to suddenly realize this.
"Lo and behold, we think that AI might impact software," Rowan said. "Is that news? Did we just discover that two weeks ago?"
He pointed to the nearly 70% decline in software stock, and made it clear that it is riskier to invest in software equity than in senior lending to software companies. But he also made it clear that software is only a "fraction of assets" that Apollo has lent.
He said software accounts for 30% of the leveraged lending market — roughly in line with its share of the leveraged buyout market. This overrepresentation means software is "subject to attack."
"If 30% of your portfolio is in one industry and that one industry is being impacted by technology, you have not been a good risk manager," Rowan said.
On the firm's February earnings call, president Jim Zelter explained that the firm's overall exposure to software is less than 2% of total assets under management.
Vernon Yuen for NurPhoto via Getty Images
A filing late Monday night revealed that Blackstone's non-traded private credit vehicle BCRED received a record 7.9% redemptions, which the firm paid out over its typical 5% gate on redemptions.
The next morning, as some of his competitors spoke to Bloomberg, Blackstone's president Jon Gray sat down with CNBC at the New York Stock Exchange to walk through the firm's response to private credit concerns.
On software, Gray noted that while some software companies might struggle, many software companies also function as "systems of record" and "infrastructure," and it will be "very difficult to rip them out."
Generative AI surely makes performance "vulnerable" for software companies, but he said BCRED's software portfolio saw double-digit cash-flow growth last year. Similarly, Blue Owl's software-focused fund continued to perform well even as investors ran for the exits.
Gray expects disruption in software, but said the firm's software loans were made at "just 37% loan-to-value" — that is, they loan on average 37% of the total equity value of a business — with large amounts of equity that should provide a cushion for their portfolio in case anything goes wrong.
MarathonReuters/ Rick Wilking
Bruce Richards, the CEO of credit investor Marathon Asset Management, which was acquired by CVC Capital Partners in January, recently predicted that the software industry will see a default rate of 15% in the next few years. He compared this coming wave of software defaults in the wake of generative AI to the wave of defaults in the energy industry following the success of fracking in the mid-2010s.
Richards said that many in the industry are "rearranging the furniture right now," claiming that their software bets are actually "travel and leisure" or "hospitality" bets because they support people in those industries.
"Everyone's trying to re-rate or recategorize what their exposure is to say, 'I don't have that much software exposure,'" Richards said.
He said that 23% of the direct-lending loan marketplace is software, with some managers having even larger exposures.
"Why do you have 23% in that one industry's sector when only 1% of private companies are software companies in this country?" Richards said, noting his firm only had 1% exposure to software.
Instead, Marathon is focused on HALO assets: Hard Assets, Low Obsolence. Marathon specializes in asset-based lending, where loans are secured to real assets like aircraft, engineers, or cranes, and he said these sorts of loans provide safety through both their collateral and the unlikelihood that they'll be replaced by technology.
HPSScott Kapnick, CEO of HPS Investment PartnersCindy Ord/Getty Images for Room to Read
In 2021 and 2022, software was "pretty highly priced," said Scott Kapnick, CEO of HPS Investment Partners. Earlier in the decade, many private credit firms were deploying large amounts of investor capital.
"People were trying to grow their businesses, and they now may have some of those loans that they have to make sure are going to be come due," Kapnick said. "And if they struggle, then those firms are going to struggle."
At the time, firms wanted "to lean in," and "to grow," Kapnick said, but the key was making sure not to be overexposed to risk.
"I think most of the big managers are very good at managing risk," he said. "And the scaled players are going to continue to benefit from this period."
HPS now has plenty of scale as it was purchased by BlackRock, the largest asset manager in the world, in 2025.
KKRCo-CEO of KKR Scott NuttallThomas Koehler/Photothek via Getty Images
Other industry bosses also stressed the importance of not spending too much when the market is hot. KKR co-CEO Scott Nuttall said that his firm made that mistake in 2006 and 2007 and has since committed to linear deployment, or investing a steady amount of a fund every year, whether the market is hot or cold.
"Don't overdeploy, don't underdeploy," Nuttall said. "You've got to focus on portfolio construction, and critically, you've got to be diversified."
Nuttall compared this to firms that "put a lot of money to work in 2021" when asset prices were high, and tech was a hot asset class.
The risk of overdeployment is owning overpriced assets in tanking asset classes, and Nuttall agreed that this cycle will lead to changes in the industry. "There's some firms that will not be around," Nuttall said. "There's some firms that will do the apology tour and the apology fund. So the next fund will be 0.3 times the size of the last fund, but their investors will decide to give them another chance."
AresMike Blake/REUTERS
Ares CEO Michael Arougheti, whose firm has a wide range of software bets, touted the importance of diversification, which hedges its portfolio.
"So, if software disrupts a sector of our portfolio, then our digital infrastructure and data center development business benefits," Arougheti said. "If software disrupts the portfolio, then our renewable energy business benefits. "
"Those that are more diversified will survive, consolidate, and probably grow disproportionately," Arougheti said. Blue Owl is also a major investor in data centers through its private equity funds. But those who are too focused on one asset class may face trouble.
"Inevitably, if you are concentrated, whether it's AI or we saw it with the energy shakeout five-six years ago, there are going to be winners and losers," Arougheti said.
Read the original article on Business Insider