Apollo Global Management, one of the world’s largest alternative asset managers, has made strategic investments against the debt of several enterprise software companies, reflecting rising concerns about the impact of artificial intelligence on the tech sector. The firm took short positions on loans from software providers such as Internet Brands, SonicWall, and Perforce, fearing that these companies’ traditional business models may face declining earnings as AI platforms increasingly automate functions that have historically generated high-margin software services.
These short bets, while representing a small fraction of Apollo’s $700 billion credit portfolio, have since been closed after being maintained for much of the year. Despite initial declines in the value of the software loans Apollo targeted, they are currently trading above 80 cents on the dollar, alleviating immediate concerns about financial instability. Nonetheless, since the early 2010s, private equity firms have borrowed heavily to acquire software companies, often prioritizing recurring revenue and strong margins in their assessments.
Apollo has indicated that AI poses significant risks to the enterprise software market, which has been a primary focus for private capital over the last decade. Other private lenders share similar views, emphasizing that the software sector is particularly vulnerable to AI disruption, as the technology can automate many tasks currently managed by coding tools, customer support software, and standard financial systems. Although Apollo acknowledges the potential for AI to benefit software companies, its leadership has opted to reduce their exposure, preferring not to take directional positions in the industry.
During a recent conference, Apollo’s CEO Marc Rowan expressed uncertainty regarding the future of enterprise software, stating, “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.” Rowan has directed efforts to reduce software exposure across Apollo’s credit portfolios to below 10% of net assets. At the start of 2025, approximately one-fifth of Apollo’s private credit funds were associated with software companies, but this exposure has now been nearly halved, according to reports from closed-door investor meetings at a Goldman Sachs conference.
Rowan’s comments underscore a broader trend within the investment community. Blackstone’s president, Jonathan Gray, recently cautioned that investors may be underestimating the potential disruption posed by technology, urging investment teams to explicitly address AI risks in their memos. He remarked, “We’ve told our credit and equity teams: address AI on the first pages of your investment memos. If you think about rules-based businesses — legal, accounting, transaction and claims processing — this is going to be profound.”
As Apollo navigates these complexities in the tech landscape, it reflects a cautious approach towards sectors perceived to be at risk. The interplay between AI and enterprise software is evolving, and investors are increasingly mindful of the ramifications. The strategic shift at Apollo and similar firms suggests a growing recognition of the importance of assessing technological disruptions in investment strategies, particularly in an era where AI innovation continues to accelerate.
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