The private equity world had a rough Tuesday. Really rough. And it's all tied to a problem that's been building quietly for years: what happens when your favorite investment sector suddenly isn't so bulletproof anymore?
Apollo Global Management Inc. (APO) fell 4.8%, Blackstone Inc. (BX) dropped 5.2%, KKR Inc. (KKR) plunged 9.7%, and Ares Management Inc. (ARES) shed 10.3%. These aren't small moves for major financial firms. And they didn't happen in a vacuum.
The catalyst? A continuing rout in software stocks. The iShares Expanded Tech-Software Sector ETF (IGV) dropped for a sixth straight session, hitting levels last seen in April 2025. Software valuations are getting hammered by rising competition from generative AI platforms and worries about slowing enterprise spending. And here's the uncomfortable part: private equity has bet big on software.
Why Software Suddenly Matters So Much
Over the past few years, software has been the largest single sector for private equity buyouts, representing roughly 25% of total deal value according to industry data. That's a lot of eggs in one basket. And when that basket starts to crack, people get nervous about what's underneath.
Enter Andreas Steno Larsen, CEO of Steno Research, who issued a stark warning on Tuesday about what he sees coming. "The software trade, the undisputed golden child of the private equity and credit industries, is facing a reckoning," Larsen said in a note.
His diagnosis? The industry fell for a dangerous assumption: that software platforms were "un-disruptable" moats. Larsen says he warned PE firms about the impact of AI on financial software deals, telling them, "We are going to build stuff again, as the services economy will die because of AI."
Turns out, even the stickiest software isn't immune when artificial intelligence starts eating its lunch. And now that software selloff is spilling into the private credit world, where those concentrated exposures live.
The Cockroaches Are Coming
The concentration in software deals has left some lenders holding significant exposures to companies whose earnings and valuations are suddenly under serious stress. Larsen doesn't mince words about what this means.
"Lenders have significant 'bags' on their books," he warns. "This is potentially where the 'cockroaches' will be found in this credit cycle."
It's the classic hidden-risk problem: you never see just one cockroach. If software companies start defaulting or restructuring their debt, it won't be isolated incidents. It'll be a pattern, because everyone made the same bet at the same time.
The fears aren't abstract. We're talking about the $1.7 trillion private credit market, where visibility is limited and mark-to-market pricing doesn't always reflect reality until it absolutely has to.
An Unlikely Comparison
Larsen also offered an eyebrow-raising take on where private equity sits in the current market environment. He suggests the larger listed players in private credit have become high-beta liquidity proxies.
"Interestingly, we have reached a point where Apollo and Bitcoin are effectively the same trade," Larsen argued. Both, in his view, are expressions of the "shadow" monetary system's expansion.
It's a provocative comparison, but the underlying point is serious: when liquidity tightens and risk appetite fades, these levered bets on financial engineering and credit expansion are vulnerable. And right now, with software crumbling and credit concerns mounting, that vulnerability is showing up in stock prices.
