Apollo Global Management, a financial giant overseeing more than $900 billion in assets, has taken short positions on the debt of several software companies while significantly reducing its overall exposure to the sector in 2025—driven by concerns that artificial intelligence (AI) could disrupt traditional enterprise software business models.
**From Tactical Shorts to Strategic Pullback** Sources reveal that Apollo’s short-selling strategy targeted software firms backed by major private equity players, including KKR’s Internet Brands, Francisco Partners’ SonicWall, and Clearlake’s Perforce. Although these credit instruments faced sell-offs earlier this year, they continue to trade above 80% of face value, showing no immediate signs of default distress.
Apollo’s bearish bets spanned much of 2025, with positions now closed. The short exposure reportedly accounted for less than 1% of Apollo’s $700 billion credit portfolio, with some trades serving as hedges for its funds and capital pools.
**Aggressive Risk Reduction** CEO Marc Rowan privately informed investors that Apollo entered 2025 with software exposure at roughly 20% across its private credit funds—a figure since halved. The firm aims to slash this to below 10% of net assets, conducting internal reviews to assess AI’s potential threats.
**Core Concern: AI Undermining Software Economics** Enterprise software firms, long favored by private capital for their recurring revenue and high margins, now face existential risks from AI. Apollo warns that AI’s ability to automate coding, customer service, and financial tasks could destabilize the sector. While acknowledging AI’s potential upside for some players, Apollo avoids directional bets.
“Technological shifts will create massive dislocations in credit markets,” Rowan stated. “I don’t know if enterprise software will thrive or collapse, but as a lender, I’m not keen to find out.”
Blackstone President Jonathan Gray echoed similar warnings in late 2024, mandating AI risk quantification in investment memos and flagging “rules-based” sectors like legal and accounting services for disruption.
**Valuation Bubble Adds Pressure** The software sector’s leveraged buyout (LBO) boom during 2020–2021 inflated valuations. Now, with high interest rates and AI-driven obsolescence risks, these assets look increasingly fragile. Given that private credit funds still allocate 25–33% of assets to software, an AI-induced shakeup could trigger cascading effects.
Apollo’s retreat may signal the start of a broader credit market reckoning fueled by technological upheaval.
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