Key Takeaways
- • Apollo's John Zito, co-president of the firm's asset management division and head of credit, publicly stated "all the marks are wrong" regarding private equity valuations of software holdings, marking a rare candid admission from within the industry.
- • Software companies represented 30–40% of private equity activity from 2018 to 2022, making valuation accuracy critical; public software shares have plunged on AI disruption concerns, creating a gap between public market and private equity valuations.
- • Retail investors withdrew approximately $10 billion from private credit funds in Q1 2026 amid concerns that lenders hold stale valuations of software loans; JPMorgan Chase and other sophisticated players have begun marking down software loan values.
- • Zito criticized what he described as "arrogance" in private markets and argued that private credit is the safer investment avenue even as AI fundamentally shifts the investment landscape.
- • This represents one of the first candid acknowledgments of weakness in private credit from within the alternative asset management industry, contrasting with broader efforts by industry leaders to reassure markets about underlying company performance.
Summary
Apollo Global Management's John Zito, co-president of the firm's asset management division and head of credit, delivered a blunt assessment of private equity's valuation practices in remarks to UBS clients last month. "I literally think all the marks are wrong," Zito stated, directly challenging how private equity firms are valuing their software holdings. His comments, first reported by the Wall Street Journal and confirmed by CNBC, represent a rare instance of industry leadership publicly acknowledging widespread valuation concerns.
The context for Zito's critique is acute. Public software company shares have experienced significant declines on investor fears that generative AI tools from Anthropic and OpenAI will render established software solutions obsolete. This market repricing has created a substantial valuation gap: private credit lenders and private equity firms continue to carry software assets on their books at valuations that no longer align with public market reality. Historically, software has been a major focus for private equity, comprising 30–40% of deal activity between 2018 and 2022, driven by near-perfect customer retention rates and strong growth trajectories.
The valuation disconnect has triggered measurable capital flight. Retail investors pulled approximately $10 billion from private credit funds during the first quarter of 2026 as concerns mounted about stale marks on software loans. Sophisticated institutional players, including JPMorgan Chase, have begun taking defensive action by marking down the value of software loan portfolios, signaling that the market recognizes the problem.
Zito's broader criticism extended to what he termed "arrogance" within private markets, while simultaneously positioning private credit as a relatively safer investment haven despite the AI-driven disruption reshaping the sector. His willingness to acknowledge industry-wide mispricing distinguishes him from other Wall Street figures, including fund manager Jeffrey Gundlach and economist Mohamed El-Erian, who have flagged private credit risks externally. An Apollo spokesperson declined to elaborate on Zito's remarks beyond confirming they addressed software valuations and the firm's perspective on sector viability. These comments arrive amid broader pressure on alternative asset managers, whose publicly traded shares have faced headwinds throughout 2026.
The context for Zito's critique is acute. Public software company shares have experienced significant declines on investor fears that generative AI tools from Anthropic and OpenAI will render established software solutions obsolete. This market repricing has created a substantial valuation gap: private credit lenders and private equity firms continue to carry software assets on their books at valuations that no longer align with public market reality. Historically, software has been a major focus for private equity, comprising 30–40% of deal activity between 2018 and 2022, driven by near-perfect customer retention rates and strong growth trajectories.
The valuation disconnect has triggered measurable capital flight. Retail investors pulled approximately $10 billion from private credit funds during the first quarter of 2026 as concerns mounted about stale marks on software loans. Sophisticated institutional players, including JPMorgan Chase, have begun taking defensive action by marking down the value of software loan portfolios, signaling that the market recognizes the problem.
Zito's broader criticism extended to what he termed "arrogance" within private markets, while simultaneously positioning private credit as a relatively safer investment haven despite the AI-driven disruption reshaping the sector. His willingness to acknowledge industry-wide mispricing distinguishes him from other Wall Street figures, including fund manager Jeffrey Gundlach and economist Mohamed El-Erian, who have flagged private credit risks externally. An Apollo spokesperson declined to elaborate on Zito's remarks beyond confirming they addressed software valuations and the firm's perspective on sector viability. These comments arrive amid broader pressure on alternative asset managers, whose publicly traded shares have faced headwinds throughout 2026.
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