Apollo took bearish software view with bets against corporate debt

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Apollo Global has grown increasingly bearish about technology companies vulnerable to artificial intelligence, betting against several large loans to software makers and cutting its exposure to the sector.

Apollo, with more than $900bn in assets, made bets against the loans of companies including Internet Brands, SonicWall and Perforce, which are owned by large private investment groups KKR, Francisco Partners and Clearlake, respectively, according to sources briefed on the matter,

Apollo’s short bets in the software sector, which lasted through a large part of 2025, have been closed, one of the people said.

Apollo believes AI may be a threat to many enterprise software companies, the largest area of investment for the $13tn private capital industry over the past decade. While AI poses a challenge to many industries, private lenders view the software sector as particularly vulnerable because AI can automate many products for coders, customer service representatives and workers doing rote financial tasks.

Apollo’s short bets amounted to less than 1 per cent of its overall $700bn in credit assets, said one person briefed on the matter. They added that some shorts had been used as market hedges for their various funds and capital pools. The precise size of the short positions and their returns was unclear.

The software loans Apollo shorted have sold off at times this year, but all are now trading above 80 cents on the dollar, indicating little fear of imminent distress.

Apollo, KKR, Clearlake and Francisco Partners declined to comment.

Software borrowings were practically non-existent on Wall Street because the companies did not have substantial physical assets or profits under standard accounting principles. But since the early 2010s, specialist buyout firms borrowed hundreds of billions of dollars to buy software companies as private lenders warmed to the idea of lending against their recurring subscriptions and high operating margins.

While Apollo has also judged AI as a potential opportunity for software companies, the group’s top leadership has decided to actively cut its exposure, believing that it should not be making directional industry bets.

“Technology change is going to cause massive dislocation in the credit market,” said Marc Rowan at a recent conference. “I don’t know whether that’s going to be enterprise software, which could […] benefit or be destroyed by this. As a lender, I’m not sure I want to be there to find out.”

Apollo has been rapidly cutting its lending commitments to the sector as a means of trimming risk through the course of the year.

Apollo entered 2025 with many of its private credit funds holding roughly 20 per cent exposure to software groups, but has cut that concentration by almost half, Rowan told some investors in private meetings at a Goldman Sachs conference on Wednesday, said a source who attended.

Apollo’s goal is to soon have its overall software exposure in its credit funds dip below 10 per cent of their net assets, Rowan told the investors. Internally, it has reviewed software companies to assess their potential risks from AI.

Apollo isn’t alone in seeing the potential for AI to disrupt many software business models. Jonathan Gray, president of Blackstone, said at an FT conference in October that investors were underestimating the potential disruption coming from the breakthrough technology.

Gray said he had challenged dealmakers to quantify AI risks at the top of every investment memo and highlighted certain types of companies as particularly vulnerable.

“We’ve told our credit and equity teams: address AI on the first pages of your investment memos,” Gray said at the October FT conference. “If you think about rules-based businesses — legal, accounting, transaction and claims processing — this is going to be profound,” he added.

Adding to investors’ fear over AI risks to software companies is the overall private capital industry exposure to the sector.

Leveraged buyouts of software companies surged in 2020 and 2021, commanding valuations that many now see as too high given a subsequent rise in interest rates and the looming technological change. Many of the largest private credit funds now hold a quarter to a third of their overall assets in software companies.