Key Takeaways
- • Alternative asset managers lost almost $60 billion in market value as an AI-driven selloff in software stocks, which has erased nearly $1 trillion in software market capitalization, spilled over into the sector, according to Reuters.
- • The Dow Jones US Asset Managers Index was down nearly 5% for the week as of Friday afternoon, versus the S&P 500 at roughly flat, with Ares, Blackstone, Blue Owl, Carlyle, Apollo, TPG and KKR each falling between 7% and 14% during the week.
- • Software borrowers are the largest exposure for private lenders: KBRA data shows they carry 7.4 times leverage on average versus 5.9 times across a pool of more than $1 trillion in loans, with sales growth slowing to 10% from 18% a year earlier.
- • BNP Paribas estimates software exposure at about 17% of U.S. leveraged loans, 4% of the U.S. high yield loan market and about 20% of private credit, based on BDC quarterly filings.
- • Blue Owl put its software portfolio at 8% of total AUM and Carlyle at 6%, while Blackstone, which manages $1.27 trillion, said AI disruption risk was "top of the page."
Summary
Asset managers and private equity firms were hit hard by the AI-driven shock to the software sector this week, as investors grew concerned about their exposure to software-related loans and leverage. According to Reuters, the pullback in software, which has wiped out nearly $1 trillion in market capitalization, spilled over into the asset management group. The Dow Jones US Asset Managers Index was down nearly 5% for the week as of Friday afternoon, while the S&P 500 was roughly flat. Ares, Blackstone, Blue Owl, Carlyle, Apollo, TPG and KKR each fell between 7% and 14% during the week, though several recovered some ground in a Friday rebound.
Mark Hackett, chief market strategist at Nationwide, said several issues were compounding the drawdown, with the trigger being the software selloff and concern over loan exposure and leverage. Wasif Latif, chief investment officer at Sarmaya Partners, said the AI trade had "subsumed parts of the market," especially for asset managers and private equity firms. Morgan Stanley estimated technology services deal volumes at nearly 21% of overall private equity activity, with TPG, Carlyle and KKR slightly above that level and Apollo the lowest among the asset managers in its coverage.
BNP Paribas analysts Meghan Robson and Ben Cannon said software stocks, down 22% since January, have pushed up loan-to-enterprise value for associated credits, raising default risk concerns. Their note put software and services exposure at about 17% of U.S. leveraged loans and 4% of the U.S. high yield loan market, and at about 20% of private credit, based on quarterly filings of business development companies.
The non-bank lending sector, including private credit funds and collateralised loan obligations, is also exposed. KBRA data published February 5 showed software borrowers are the most highly indebted group among private lenders, with sales growth down to 10% from 18% a year earlier as companies delay or cut IT spending. Their average leverage stood at 7.4 times, compared with 5.9 times across a pool of more than $1 trillion in loans studied by KBRA. One banker working with asset managers said alternative managers will face a test when exiting software investments.
BDC managers have faced questions about their software holdings. Ares executive Kort Schnabel said on a conference call that Ares Capital Corporation had "a very small amount of portfolio companies that could be disrupted." KKR Co-CEO Scott Nuttall said the firm had inventoried its portfolio over the last two years to identify whether AI was "an opportunity, or a threat, or a question mark." Blue Owl said software represents 8% of its total AUM, and Carlyle said software accounted for 6% of its AUM. Blackstone President and COO Jon Gray said, at a conference before the selloff, that AI disruption risk was "top of the page" and that the safest way to play the AI megatrend was investing in data centers and related infrastructure. Apollo declined to comment ahead of its quarterly results on Monday, while Blackstone and Blue Owl did not respond to Reuters' requests for comment.
Mark Hackett, chief market strategist at Nationwide, said several issues were compounding the drawdown, with the trigger being the software selloff and concern over loan exposure and leverage. Wasif Latif, chief investment officer at Sarmaya Partners, said the AI trade had "subsumed parts of the market," especially for asset managers and private equity firms. Morgan Stanley estimated technology services deal volumes at nearly 21% of overall private equity activity, with TPG, Carlyle and KKR slightly above that level and Apollo the lowest among the asset managers in its coverage.
BNP Paribas analysts Meghan Robson and Ben Cannon said software stocks, down 22% since January, have pushed up loan-to-enterprise value for associated credits, raising default risk concerns. Their note put software and services exposure at about 17% of U.S. leveraged loans and 4% of the U.S. high yield loan market, and at about 20% of private credit, based on quarterly filings of business development companies.
The non-bank lending sector, including private credit funds and collateralised loan obligations, is also exposed. KBRA data published February 5 showed software borrowers are the most highly indebted group among private lenders, with sales growth down to 10% from 18% a year earlier as companies delay or cut IT spending. Their average leverage stood at 7.4 times, compared with 5.9 times across a pool of more than $1 trillion in loans studied by KBRA. One banker working with asset managers said alternative managers will face a test when exiting software investments.
BDC managers have faced questions about their software holdings. Ares executive Kort Schnabel said on a conference call that Ares Capital Corporation had "a very small amount of portfolio companies that could be disrupted." KKR Co-CEO Scott Nuttall said the firm had inventoried its portfolio over the last two years to identify whether AI was "an opportunity, or a threat, or a question mark." Blue Owl said software represents 8% of its total AUM, and Carlyle said software accounted for 6% of its AUM. Blackstone President and COO Jon Gray said, at a conference before the selloff, that AI disruption risk was "top of the page" and that the safest way to play the AI megatrend was investing in data centers and related infrastructure. Apollo declined to comment ahead of its quarterly results on Monday, while Blackstone and Blue Owl did not respond to Reuters' requests for comment.
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