Wealth clients pull back from private credit while software valuations wobble
Wealthy investors are pulling cash from private credit funds just as AI jitters hit software-heavy portfolios, forcing the world’s biggest alternative managers to defend the core of their growth story.
According to Reuters, shares of large listed managers in private equity, private credit and real estate have come under pressure as investors question whether AI will disrupt portfolio companies and whether the retail bid for private credit is fading for more than a quarter or two.
Total fundraising for private credit was nearly flat at US$49.9bn in the first quarter versus the previous quarter, while direct lending fundraising dropped to US$10.7bn, its lowest quarterly level in three years, based on data from With Intelligence cited by the same outlet.
The retail channel sits at the centre of that concern.
In a note on Ares Management, KKR and Blue Owl Capital, Oppenheimer analysts highlighted what they called a central issue this year: wealthy individuals trying to pull money from funds that provide access to illiquid private loans, a space that pension funds once dominated.
As per Reuters, retail capital now accounts for about 24 percent of total assets at Blackstone and around 40 percent at Blue Owl.
Oppenheimer wrote that recent retail fund redemptions raise doubts about the stocks’ retail growth story. Still, the analysts maintain that retail markets will “ultimately be a very large opportunity” for much of the group.
Those flows feed directly into earnings expectations.
Evercore ISI analyst Glenn Schorr said this week that first-quarter results will trail the big banks’ performance.
He pointed to slower fundraising, uneven deal flow and “retail investors running for the exits.”
Ahead of quarterly results starting with Blackstone, Oppenheimer said it was cutting price targets for several firms “grudgingly as recognition of the change in investor perceptions.”
Some industry watchers see deeper issues than a temporary sentiment swing.
Francesca Ricciardi, a private credit expert at Debtwire Europe, told Reuters that the “key difference today” is that pressures are structural, not transitory.
She said the causes of current market stress are unlikely to clear up in just a few quarters.
Managers, however, have underscored what they describe to Reuters as the resilience of their portfolios, saying credit quality remains stable and that investor fears reflect media coverage more than fundamentals.
AI risk in software adds another stress point.
S&P Global reported that private equity and venture capital investment in application software slowed for at least three consecutive years as worries rose over how advances in AI could affect software-company growth.
Application software deals backed by private equity and venture capital firms fell to 3,665 globally in 2025, down 21 percent from 4,638 in 2024.
Deal volume declined for at least the third year in a row, even as aggregate deal value reached US$148.72bn in 2025, the highest since 2022, and the median value of private equity transactions rose to US$280m from US$241.8m in 2022.
Alternative managers’ exposure to software came under sharper scrutiny after an early-February selloff in technology stocks.
S&P Global said the turbulence reflected “rising anxiety among public market investors that AI-powered automation could trim software company growth and erode valuations in the sector,” citing 451 Research senior analyst Scott Denne.
He said investors “don’t feel like they have clarity on how to price the risk of AI.”
Private markets managers have been wrestling with the same questions.
Ares Management Corp. CEO Michael Arougheti told S&P Global that it is “quite odd” public markets are only now waking up to AI disruption.
He said anyone investing over the past five years who ignored AI-related opportunities and risks has “probably been asleep at the switch.”
On Ares’ fourth-quarter 2025 earnings call, he said software investments made up about 6 percent of the firm’s roughly US$622.5bn in assets under management.
Software exposure levels differ across major listed players.
As per S&P Global, software accounted for 2 percent to 7 percent of assets under management at the “Big Four” listed private equity firms, with Apollo Global Management at the low end and Blackstone and KKR at the high end; the Carlyle Group put its software exposure at 6 percent.
On TPG’s fourth-quarter 2025 earnings call, co‑managing partner Nehal Raj said “you will see more risk” in companies underwritten in 2018, 2019 and 2020, “prior to the advent of generative AI,” and described those fund vintages as “more susceptible to risk and disruption.”
On the same call, TPG CEO Jon Winkelried estimated the firm’s overall software exposure at 11 percent of assets under management and 18 percent within its private equity business.
S&P Global also reported that private equity and venture capital exits from application software investments increased to 605 in 2025 from 516 in 2024 and 421 in 2023, mirroring a broader uptick in private equity exits since 2023.
At the same time, Reuters said investors remain focused on how quickly large managers can clear a backlog of about 29,000 private equity‑backed companies, a task complicated by higher interest rates and by market volatility linked to the recent conflict in Iran.
Some executives frame AI as creating a spectrum of outcomes rather than a uniform threat.
Blackstone CFO Michael Chae told S&P Global that AI progress will lead to varied results for software companies and their investors.
He said bigger, established firms with strong moats and resources should be better shielded and could emerge as “beneficiaries of AI.”
Dhaval Moogimane, hi‑tech and software industry lead at consulting firm West Monroe, told S&P Global that companies in regulated markets, with proprietary data and deep customer expertise, enjoy stronger moats.
However, he warned that businesses cannot “sit still on that moat” and need to keep extending it over time.
