AI Reshapes Private Credit’s Software Investment Strategy

AI is changing how private credit firms view their major software investments, pushing lenders and investors to reassess which companies can thrive in an AI-driven economy. While fears of a widespread “SaaSpocalypse” initially unsettled the market, industry leaders now believe AI will create a divide between adaptable companies and those that fail to evolve.

Private credit firms such as Ares and Man Group argue that AI is unlikely to eliminate the software sector altogether. Instead, the technology will reward businesses that build resilient business models, offer mission-critical products, and successfully integrate AI into their operations.

Early concerns about AI making traditional software obsolete intensified during the technology market sell-off earlier this year. However, improving investor sentiment and the recovery of software stocks suggest that many companies are finding ways to adapt to the changing landscape.

The discussion has shifted from whether AI will disrupt software to which companies are best equipped to navigate the transition. Investors increasingly see opportunities alongside the risks, creating a more balanced and selective approach to software lending.

AI Is Redefining the Software Investment Landscape

According to Ares co-president Blair Jacobson, the conversation around AI and software has matured significantly. Rather than expecting a complete collapse of the software sector, lenders are now evaluating which businesses can successfully incorporate AI into their long-term strategies.

Software stocks have also demonstrated resilience after recovering from earlier losses. The rebound has reinforced confidence that AI will produce market leaders and laggards rather than trigger a broad-based decline across the entire industry.

For private credit investors, this environment creates new opportunities to identify strong software companies with sustainable growth potential. At the same time, it requires deeper due diligence and a clearer understanding of AI’s long-term business impact.

Jacobson noted that pricing dynamics are already reflecting this shift, with wider lending spreads, tighter documentation standards, and lower loan-to-value ratios creating more attractive conditions for disciplined credit investors.

Mission-Critical Software Continues to Attract Capital

Companies providing essential enterprise services are viewed as more resilient because the cost of failure or switching platforms can be extremely high. Enterprise resource planning systems and software serving highly regulated industries remain attractive targets for private credit financing.

These businesses often benefit from long-term customer relationships and deeply integrated operations, making them less vulnerable to rapid disruption. As AI adoption expands, firms that enhance their offerings with new capabilities may strengthen their competitive positions even further.

Private credit has become a major funding source for the software industry, with software-related investments accounting for a significant portion of many alternative lenders’ portfolios over the past several years.

The evolving market is encouraging investors to focus on software companies that can demonstrate operational value, customer retention, and the ability to integrate AI-driven innovation without undermining their core business models.

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Private Credit Firms See Long-Term Opportunities Beyond SaaS

Man Group’s Kevin Marchetti believes AI represents an important test for the private credit investment thesis, similar to disruptive shifts that have transformed other industries in the past. Rather than avoiding the sector, investors are becoming more selective about where they allocate capital.

The firm is increasingly targeting “old economy” sectors such as business-to-business healthcare services and distribution companies, where AI can improve efficiency and productivity instead of replacing existing business models.

These industries are expected to use AI as a practical tool to improve operations. AI can help businesses streamline processes, reduce costs, boost productivity, and create additional value while supporting stable revenue growth.

Although the software credit thesis faces new challenges, many investors still believe high-quality software companies can perform well. Their future success will largely depend on how effectively they adopt AI and adapt their business strategies over the next several years.