Key Takeaways
- A WSJ investigation found four of the largest private-credit funds — from Apollo, Ares, Blackstone, and Blue Owl — are significantly understating their exposure to software companies in filings, with actual software concentrations running 3 to 9 percentage points higher than reported.
- Blue Owl’s Credit Income Corp. fund reported 11.6% software exposure but the Journal found it closer to 21% — nearly double — after identifying 47 software-focused companies that Blue Owl had classified in other industry buckets ranging from “education” to “transportation.”
- Blackstone’s private-credit fund reported 25.7% software exposure; the Journal found roughly 33%. Ares reported 23.8% and the Journal found nearly 30%. Apollo reported 13.6% and the Journal found roughly 16%.
- Software companies in private-credit portfolios carry higher debt-to-earnings ratios than any other sector, according to Morgan Stanley — making the hidden concentration a direct credit quality risk at a time when AI disruption fears are already driving record redemptions from private-credit funds.
What Happened?
A Wall Street Journal investigation into four of the largest private-credit business development companies — Apollo, Ares, Blackstone, and Blue Owl — found that all four are reporting materially lower software concentrations than their actual portfolios contain. Using data from PitchBook and independent analysis, the Journal identified software-focused companies classified by the funds under industry labels such as “business services,” “healthcare,” “IT services,” and “technology hardware.” Blue Owl’s fund, for example, classified BMC Software — a company with “software” in its name — under “business services.” Blackstone classified a billion-dollar loan to Inovalon, a self-described software company serving healthcare organizations, as “IT Services.” The average reported software exposure across the four funds was 19%; the Journal’s analysis found the true average closer to 25%. The methodological inconsistency is not uniform: Ares uses the independent Global Industry Classification Standard, while others use proprietary or shifting categorization approaches — with at least one fund reclassifying loans to software only after investor anxiety about the sector began building.
Why It Matters?
Software is the largest single industry category in most private-credit portfolios — a legacy of the private-equity buyout boom of the past five years, which was heavily concentrated in software companies. Now, as AI threatens to commoditize or replace traditional software products, that concentration has become the primary investor concern in the asset class. Record redemptions from private-credit funds in Q1 were driven in significant part by fears about software exposure. If the true software exposure is meaningfully higher than what funds are reporting — as the Journal’s analysis suggests — investors cannot accurately assess the risk they’re taking on. Barclays analysts flagged this “sector massaging” problem directly in a recent report, noting it “generates concern from the investor community and makes it difficult to assess degrees of true diversification across funds.” For retail investors who bought into these funds on the promise of diversification and stable income, the hidden concentration represents a material disclosure gap.
What’s Next?
The most immediate risk is a second wave of redemptions once investors absorb the full picture of their software exposure. Fund managers have so far argued that AI will affect each software company differently — and that some will adapt or benefit — but that narrative is becoming harder to sustain as AI-driven disruption accelerates across enterprise software categories. Regulatory attention is also likely: the SEC has been scrutinizing private-credit fund disclosures, and the lack of a uniform categorization standard across the industry is precisely the kind of gap that invites enforcement action. Investors in BDC shares or private-credit funds from Apollo, Ares, Blackstone, or Blue Owl should request granular portfolio breakdowns and compare them against independent data sources, rather than relying solely on fund filings. The firms that get ahead of disclosure concerns proactively will likely fare better than those that continue to minimize the sector’s risks.
