(Bloomberg) — Executives at some of Wall Street’s biggest names have faced a barrage of questions recently about whether artificial intelligence has hurt the value of their software investments.
Their answers have a common refrain: There’s nothing to see here.
But public data from mutual funds that invest in many of these companies show sharp declines, suggesting that private market investors are sitting on tens of billions of dollars in paper losses.
Databricks Inc., the data software company, has received support from companies including BlackRock Inc., Insight Partners and Tiger Global Management. In the first three months of the year, mutual funds reduced their value by an average of 16%, regulatory filings show.
They also downgraded online graphic design platform Canva, owned by Coatue Management and others, by 15%. Video game developer Epic Games Inc. took a 22% cut. It is held by the investment fund giants as well as private equity and venture firms including KKR & Co.
To better understand the extent of the problems lurking in private market investing, Bloomberg News examined how mutual funds valued the value of nearly 50 private software companies across hundreds of portfolios. On average, they were discounted by 20%, according to public disclosures. Some have been cut by more than 50%.
“They know there is no appetite and no clear way out,” said Aram Green, portfolio manager at ClearBridge Investments, whose funds hold small stakes in private software companies. The discounts are “a harbinger and we will see more of them.”
The lower valuations underscore the ongoing turmoil in the software industry and also offer a rare glimpse into the opaque portfolios of private equity, hedge funds and venture capital firms – which are not required to publicly report valuations like mutual funds. Private market companies tend to be more flexible in labeling their investments.
Determining the fair market value of an illiquid asset has long been a sensitive issue on Wall Street. Assessing the current value of software companies’ investments parked in private funds is a particular challenge in the age of AI. Advances in technology mean AI firms can develop software faster and more cost-effectively, and some argue this poses an existential threat to the industry.
Private money managers say that’s exaggerated – or at least they’ve largely avoided the most vulnerable assets.
“You’re not going to hear a management team saying, ‘Yeah, we’re dead,'” said Dan Niles, founder of tech-focused fund Niles Investment Management.
There are signs the industry has begun to recognize the pain: A recent report from Bain & Co appreciated that software valuations in private equity portfolios fell 8% in the first quarter.
Fidelity Investments, the asset management arm of Bank of New York Mellon Corp., and Capital Group, as well as smaller firms such as ClearBridge and Hartford Funds, part of Franklin Resources Inc., have cut values more dramatically. In the case of investment funds, independent committees usually make valuation decisions.
The biggest discounts include a 50.8% discount for machine learning and enterprise software company DataRobot Inc. and a 51.4% discount for software solutions company Outreach Corp. Both are also held by some of Wall Street’s biggest names in private markets.
These cuts are in stark contrast to other investments held by investment funds that specialize primarily in AI and semiconductor companies. According to the disclosures, mutual funds have appreciated them by an average of 40%. AI company NScale, for example, gained 222%.
Epic Games and Canva said the quarterly discounts do not reflect the long-term prospects and value of their businesses. Canva added that the company is accelerating its investments in AI and continues to see “strong demand from both new and existing investors.”
BlackRock, Tiger Global, Coatue and KKR declined to comment, as did Fidelity, Capital Group, Hartford Funds and BNY Mellon. Databricks also declined to comment. Insight, like DataRobot and Outreach, did not respond to requests for comment.
For mutual funds, these holdings represent only a tiny portion of their portfolio, so on paper losses have little impact on overall performance.
The total amount of software investments on the books of alternative asset managers and venture capital funds is difficult to estimate, but by some measures it could be in the hundreds of billions. According to a recent study, the value of software-related private equity deals reached $203 billion in 2025 Report from PitchBook.
Overall, the flow of money into the software sector has skyrocketed: Data collected by Bloomberg shows that software and technology companies accounted for half of new private equity and venture capital investments, more than double the amount 15 years ago.
In private equity, concerns about the value of these software investments have exacerbated the industry’s broader problems. In recent years, companies have struggled to sell assets at a profit and return capital to investors. The market was further roiled in April when Thoma Bravo, a private equity firm specializing in software, said it lost more than $5 billion on a single bet, online customer survey company Medallia Inc. And investors are on the run from some private lending firms that have made large loans to software companies.
In conferences, television interviews and analyst calls, executives accept that there will be winners and losers but insist that software companies, by and large, will adapt to AI. Thoma Bravo founder and managing partner Orlando Bravo said on CNBC earlier this year that his fund’s software companies are “crushing it,” while Robert Smith, chief executive officer of Vista Equity Partners, said in one video The company’s website states: “This moment is not the end of the software story, but only the beginning of the next chapter.”
In June, Goldman Sachs Group Inc.’s External Investing Group, part of its asset management division, applied the bank’s AI Disruption Framework to about 700 private software companies it invests in, the company told Bloomberg News. It found that 10% of these companies were at immediate risk of disruption, and at the other end of the curve another 10% to 15% were clear winners. However, the big middle has about 18 to 36 months to figure it out, adapt and pivot or face the consequences.
Apollo Global Management Inc. is judge now Every new software investment opportunity carries the risk of AI disruption. Ares Management Corp. has hired an outside advisor to review software-focused investments in its largest publicly traded private credit fund. Blackstone Inc. and Blue Owl Capital Inc. have conducted internal evaluations of their investments.
Over at the vanilla investment funds — not a common destination for private companies looking to raise money — the phones were ringing. On the other end of the line, investment bankers would host meetings with software companies looking for backers, people involved in those discussions said. The answer these days is rarely “yes.”
“How many of these companies will make the transition successfully? That is the question.” $64,000 question” said Michael Brandmeyer, global head and chief investment officer of Goldman’s External Investing Group. “The reality of AI disruption is much more nuanced.”
https://www.wealthmanagement.com/mutual-funds/software-markdowns-at-mutual-funds-hint-at-private-markets-pain
