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Apollo Global Bets Against Software Sector Amid AI disruption Fears
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Apollo Global, one of the world’s largest asset managers, has considerably reduced its exposure to software companies, anticipating widespread disruption from the rapid advancement of artificial intelligence (AI). The firm, managing over $900 billion in assets, previously held short positions against loans tied to several software makers, signaling a growing concern over the sector’s future.
Shifting Sentiment in Private Equity
Apollo’s move reflects a broader anxiety within the private capital industry regarding the impact of AI on established business models. The firm reportedly bet against loans from companies including Internet Brands, SonicWall, and perforce – all owned by prominent investment groups like KKR, Francisco Partners, and Clearlake. These short bets, active through much of 2025, have since been closed, according to sources familiar with the matter.
While acknowledging AI’s potential benefits, Apollo’s leadership believes the risks outweigh the rewards, particularly for enterprise software companies, which represent a substantial portion of the $13 trillion private capital market. “Technology change is going to cause massive dislocation in the credit market,” a senior official stated at a recent industry conference.”I don’t know whether that’s going to be enterprise software, which could benefit or be destroyed by this. As a lender,I’m not sure I want to be there to find out.”
Vulnerability of the Software Sector
Private lenders are particularly wary of the software sector’s susceptibility to AI-driven automation. The technology has the potential to replace roles traditionally held by coders, customer service representatives, and financial analysts, impacting the revenue streams of many software businesses. Despite the concerns, the loans Apollo shorted have largely maintained value, currently trading above 80 cents on the dollar, suggesting limited immediate distress.
Apollo’s short positions represented less than 1% of its $700 billion credit portfolio and were partially used as hedges for other investments.The exact size of the positions and resulting returns remain undisclosed.
A Strategic Retreat
Apollo has been actively curtailing its lending commitments to the software sector throughout the year. Entering 2025 with approximately 20% of its private credit funds allocated to software,the firm has already reduced that concentration by nearly half.The goal, according to an investor briefing by Apollo’s Marc Rowan at a Goldman Sachs conference, is to lower software exposure to below 10% of net assets.This reduction is being achieved through internal reviews assessing each software company’s vulnerability to AI.
Industry-Wide Concerns
apollo is not alone in its apprehension. Jonathan Gray, president of Blackstone, echoed these concerns at an FT conference in October, stating that investors are “underestimating the potential disruption” from AI. Gray has mandated that his dealmakers quantify AI risks in all investment memos, specifically highlighting rules-based businesses – such as legal, accounting, and claims processing – as particularly vulnerable. “We’ve told our credit and equity teams: address AI on the first pages of your investment memos,” Gray said.
The current anxieties are fueled by the surge in leveraged buyouts of software companies in 2020 and 2021,which occurred at valuations
