A detailed investigation by The Wall Street Journal has revealed that four of the largest private-credit funds—managed by Apollo Global Management, Ares Management, Blackstone, and Blue Owl Capital—have more exposure to software than their official filings indicate. While fund managers publicly reported an average of 19% of their portfolios in software, the Journal’s analysis found actual exposure closer to 25%, a discrepancy that has fueled record withdrawals from private-credit funds in the first quarter.
The largest gap was seen in Blue Owl Credit Income Corp., which reported just 11.6% in software but, according to the Journal, had nearly double that at 21%. Similarly, Blackstone’s Private Credit Fund understated its software holdings by roughly 7 percentage points, and Ares and Apollo had smaller but significant misclassifications. Many loans to software companies were recorded under unrelated sectors such as healthcare, education, or business services, reflecting inconsistent methodologies across funds. Barclays analysts warned that such “sector massaging” makes it difficult for investors to gauge true diversification and assess risk.
Investors’ concerns have been amplified by the AI-driven decline in public software stocks, coupled with software companies’ relatively high debt levels compared with earnings. Several large loans to firms like Inovalon and Symplr Software were categorized outside software, despite being clearly software-as-a-service providers. The inconsistencies highlight both the growth-driven strategies of these funds and the opaque nature of private-credit reporting.
Fund managers, however, have downplayed the risk, arguing that AI impacts software companies differently and that many firms are well-positioned to adapt or even benefit. Blue Owl executives emphasized that, within its peer group, its software exposure remains among the lowest, while other managers cited long-standing classification approaches that predate AI concerns. Despite these reassurances, analysts and investors remain cautious, noting that software-heavy private-credit portfolios may face outsized losses if market stress continues.
