Key Takeaways
- • Apollo, Ares, Blackstone, KKR, and other major private capital firms are struggling to reassure public equity investors that their portfolios are insulated from a broad software sector sell-off driven by artificial intelligence disruption concerns.
- • Ares disclosed that approximately 6% of its overall group assets are invested in software companies, with only a "very small percentage" classified as having high AI disruption risk, according to CEO Michael Arougheti's recent earnings disclosure.
- • Despite billions of dollars in new client capital inflows and a resurgence in mergers and acquisitions activity that should drive revenue and profit growth, alternative asset managers' own share prices have continued to decline over recent months.
- • Ares CEO Kort Schnabel acknowledged on the February 4 earnings call that "AI is probably the most disruptive technology risk that we could have imagined," while maintaining that the firm has constructed a portfolio "highly resistant to this risk."
- • Executives' recent earnings call defenses have provided only temporary relief, recouping some losses in recent days but failing to reverse the months-long downturn in private capital firms' valuations.
Summary
Private capital executives at major firms including Apollo, Ares, Blackstone, and KKR are facing significant investor skepticism as a widespread software sector selloff has begun to pressure their own stock valuations. The downturn, rooted in concerns that artificial intelligence will render traditional software obsolete, has compounded earlier concerns about risks embedded in private credit markets that emerged late in 2025.
The irony facing these alternative asset managers is pronounced: despite receiving billions of dollars in new institutional capital and benefiting from renewed merger and acquisition momentum—factors that typically translate to stronger financial performance—their publicly traded shares have continued to decline. This disconnect reflects broader market anxiety about the composition and resilience of their investment portfolios, particularly exposure to software assets vulnerable to AI-driven disruption.
When reporting earnings over the two-week period ending February 13, executives mounted a coordinated defense of their portfolio quality. Ares provided specific disclosures about its software exposure, revealing that approximately 6% of the firm's overall group assets are allocated to software companies. CEO Michael Arougheti characterized the software portfolio as highly diversified, with only a "very small percentage" classified as carrying elevated disruption risk from artificial intelligence. However, Kort Schnabel, chief executive of a major Ares debt fund, struck a more candid tone during the February 4 earnings call, acknowledging that "AI is probably the most disruptive technology risk that we could have imagined" while emphasizing that the firm designed its portfolio to remain "highly resistant to this risk."
While these earnings announcements temporarily stabilized share prices and recovered some recent losses, the recovery proved insufficient to reverse the months-long downward trajectory. The persistent gap between fundamentals—strengthened by capital inflows and dealmaking activity—and market valuation reflects investor skepticism about management reassurances regarding software sector exposure and broader AI-related disruption risks within private capital portfolios.
The irony facing these alternative asset managers is pronounced: despite receiving billions of dollars in new institutional capital and benefiting from renewed merger and acquisition momentum—factors that typically translate to stronger financial performance—their publicly traded shares have continued to decline. This disconnect reflects broader market anxiety about the composition and resilience of their investment portfolios, particularly exposure to software assets vulnerable to AI-driven disruption.
When reporting earnings over the two-week period ending February 13, executives mounted a coordinated defense of their portfolio quality. Ares provided specific disclosures about its software exposure, revealing that approximately 6% of the firm's overall group assets are allocated to software companies. CEO Michael Arougheti characterized the software portfolio as highly diversified, with only a "very small percentage" classified as carrying elevated disruption risk from artificial intelligence. However, Kort Schnabel, chief executive of a major Ares debt fund, struck a more candid tone during the February 4 earnings call, acknowledging that "AI is probably the most disruptive technology risk that we could have imagined" while emphasizing that the firm designed its portfolio to remain "highly resistant to this risk."
While these earnings announcements temporarily stabilized share prices and recovered some recent losses, the recovery proved insufficient to reverse the months-long downward trajectory. The persistent gap between fundamentals—strengthened by capital inflows and dealmaking activity—and market valuation reflects investor skepticism about management reassurances regarding software sector exposure and broader AI-related disruption risks within private capital portfolios.
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