- Ares, Blackstone, and Blue Owl used proprietary “AI risk scorecards” and outside consultants to assess AI disruption risk in their software loan portfolios, each concluding exposure is “minimal” to “medium.”
- Blackstone’s BCRED fund found less than 5% of investments face AI headwinds; Ares identified ~$1 billion at “medium” risk with just 1% deemed high risk; Blue Owl found “minimal” exposure.
- Software lending makes up ~20% of business development company (BDC) loan books — but actual exposure may be higher, as many funds label software loans under different categories.
- Fitch’s head of non-bank financial institutions expects to see writedowns in software investments this quarter, given movements in liquid credit markets.
What Happened?
Three of the largest names in private credit — Ares Management, Blackstone, and Blue Owl Capital — moved this week to publicly quantify and defend their exposure to AI disruption risk in their software lending portfolios. Blackstone’s flagship private credit fund BCRED used an internal AI risk scorecard and found less than 5% of its investments face AI headwinds, with 16% of its software assets potentially seeing low impact or even tailwinds. Ares hired an external consultant who found about $1 billion of its largest publicly traded fund’s software investments at “medium” disruption risk, with 85% at low risk and just 1% at high risk. Blue Owl conducted its own internal review and found “minimal” risk across its portfolio. All three managers emphasized that some software companies are actually AI beneficiaries, not casualties.
Why It Matters?
Private credit has extended enormous amounts of capital to PE-backed software businesses — the exact category most vulnerable to AI-driven disruption. As AI tools commoditize software functions that once commanded premium subscription revenues, the ability of those businesses to service their debt is increasingly in question. Software lending accounts for roughly 20% of BDC loan books by Barclays’ estimates, but the true exposure is likely higher because many funds classify software loans under different industry labels — making independent verification difficult. The reassurance campaigns from Ares, Blackstone, and Blue Owl are as much investor relations exercises as credit assessments, coming at a moment when UBS is reporting wealthy clients pulling back from the asset class and redemption requests are rising at major non-traded vehicles.
What’s Next?
Fitch’s Meghan Neenan expects actual writedowns of software investments to emerge this quarter, given how far software valuations have moved in liquid credit markets. That will test the credibility of the “minimal risk” assessments — and reveal which managers were most conservative in their underwriting and which were not. Analysts at Lucid Capital Markets expect more private credit managers to disclose AI risk assessments as investor pressure builds. Meanwhile, the deals keep flowing: Thoma Bravo-backed Sophos is sounding out private credit firms for a refinancing, a signal that even AI-exposed software companies still need debt — and that lenders still have to decide whether to provide it.
Source: Bloomberg
