After the software sell-off, the panic appears to have subsided and parts of the market are now starting to recover. Where do private credit investors focus their efforts?
The future viability of software as an industry – and as an investment opportunity – was called into question earlier this year after artificial intelligence (AI) developer Anthropic unveiled tools thought to be capable of revolutionizing much of the sector.
The breakthrough initially jolted markets and triggered a sell-off in software companies that impacted private lenders, with the sector favored by lenders and hitting U.S.-listed private credit vehicles.
However, a few months later, the sector has partially recovered. The software company Snowflake, for example, experienced a sharp sell-off between February and April, with its share price at times more than 50 percent below the previous year’s level.
By June, the company had experienced a strong rebound, recouping much of those losses, after announcing increased investments in AI. Investors now expect the company to benefit from AI-driven demand.
“There was a bit of panic initially, but there was a significant recovery,” said Anant Kumar, global investment strategist at Benefit Street Partners Alternative credit investor. “Software sold massively in the first quarter, but if you look at the IGV ETF, for example, it has recovered a lot of its losses.”
When it comes to software companies, Kumar said there are parts of the market that are “truly doomed,” some that will be disrupted in a manageable way, and others that could benefit from AI. A nuance that is not yet fully priced in.
The idea that some software companies could benefit from AI has also been overlooked, according to Jakob Schramm, head of private credit at Golding Capital Partners, because the technology can improve existing models, not replace them.
“AI is also an opportunity for many software companies,” he said ACI.
Golding has a software exposure of about 10 to 15 percent, which Schramm said is unlikely to change significantly. Exposure is focused on lower middle market and mid-market companies rather than large-cap names with higher headline risk.
He added that the most resilient companies are those that are vertically integrated, data-rich and embedded in customer systems.
Elsewhere, Jason Georgatos, president of $1bn (£755m) Partners for Growth (PFG), said the company’s software exposure was also around 15 per cent, but warned that PFG was becoming more selective and continued to support SaaS companies.
“We are still investing in SaaS companies despite the potential for disruption. We believe there are still many good reasons to support certain SaaS companies,” he said ACI.
However, Georgatos described building a software portfolio as a “constant debate”, favoring regulated and defensive areas such as healthcare and financial services, where switching costs are high.
He warned that more standardized SaaS and dashboard tools could be more exposed to AI substitution.
Meanwhile, Solomon Nevins, partner at research platform The Fund Review, said private credit exposure to software for the asset class was unlikely to be “infinite,” but responding to disruptions was important. He noted that IT and communications services are most at risk of AI disruption, accounting for an average of 22 percent of semi-liquid private credit funds.
Overall, Nevins said he has seen a gradual move away from IT exposure within the personal lending industry, but also a reclassification of some holdings.
https://alternativecreditinvestor.com/2026/07/06/managers-hunt-for-software-winners-and-losers-amid-ai-panic/
