The wave of artificial intelligence is reshaping the investment landscape for private capital. Private equity giants, led by Blackstone, Bain Capital, and Brookfield Asset Management, are shifting their focus from software to &#34;Hard Assets, Low Obsolescence&#34; (HALO), with industrial manufacturing, energy, infrastructure, and even defense becoming the new focus of competition.
The catalyst for this shift is the disruptive threat posed by AI tools to the Software-as-a-Service (SaaS) business model. According to Bloomberg data, private equity invested over $1 trillion in the software sector over the past five years; now, these assets face pressure for valuation markdowns, and some exit plans have been shelved.
The direction of the capital markets is shifting in tandem. A €1.3 billion leveraged loan for German medical software company Dedalus was halted due to investor unease, while the approximately €1.2 billion M&amp;A financing for infrastructure security company Ramudden Global was priced at a spread tighter than initial guidance due to strong demand. This contrast reflects the credit market's starkly different risk appetites for these two types of assets.
<h2>HALO Deals Heat Up, Industrial Assets Become the New Focus</h2>
HALO, or &#34;Hard Assets, Low Obsolescence,&#34; refers to tangible assets considered less likely to be rendered obsolete by AI, covering the upstream and downstream of industrial manufacturing such as ship engines and conveyor belts.
Blackstone President Jonathan Gray stated in an interview:
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&#34;People are looking for solid ground. Whether in public or private markets, interest in real, tangible assets such as medical supplies, energy, real estate, and industrial goods is rising significantly.&#34;
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Landmark deals have already emerged in the European market. Private buyers are competing for Volkswagen's heavy-duty diesel engine division, UK aerospace supplier Senior Plc has attracted a three-way bidding war, and Advent and Cinven are in talks to sell Thyssenkrupp's elevator division, TK Elevator, for up to €25 billion (approximately $29 billion).
At the same time, Triton Partners, Warburg Pincus, and Brookfield have successively raised new funds to target industrial technology, data centers, and the previously long-neglected defense sector.
<h2>Software Assets Under Pressure, Exit Channels Becoming Congested</h2>
The plight of the software track stands in sharp contrast to the heat of HALO. According to Bloomberg data, private equity investment in the software sector over the past five years was approximately double that of industrial investment during the same period, exceeding $1 trillion.
Moving into 2026, new tools launched by AI startups such as Anthropic have caused the business models of many SaaS companies in private equity portfolios to suffer direct hits. Concerns about over-concentration in software assets are rapidly escalating, and potential impairment risks are emerging.
Robin Marshall, a partner at Bain Capital, estimates that about 40% of the assets held by buyout funds have exposure to software businesses. She noted that routine valuation assessments at the end of the first quarter will be a testing moment—&#34;The price tags on some assets will face challenges, and sales originally planned for 2026 may continue to be delayed.&#34;
<h2>Credit Market Divergence, &#34;Tangible Asset&#34; Premium Emerges</h2>
The shift toward HALO is also permeating the private credit market. Credit investment firms such as Blue Owl Capital, Cliffwater, and KKR are under pressure due to their holdings of software industry loans.
Igno van Waesberghe, managing partner at Aquiline Capital Partners, which focuses on financial services investments, put it bluntly: &#34;The problem is that anyone holding software or SaaS assets right now doesn't want to hear what those assets are worth.&#34;
Examples in the credit market are even more direct: Dedalus suspended its €1.3 billion leveraged loan, and Team.Blue canceled a two-stage transaction plan to amend, extend, and reprice its existing loans.
Conversely, on the hard asset side, Ramudden Global's M&amp;A financing was priced at terms superior to initial guidance due to strong demand, and investors are also eagerly awaiting the finalization of major M&amp;A financing for industrial divisions such as Continental's ContiTech.
Hadrien Servais, a leveraged finance partner at the law firm Simpson Thacher &amp; Bartlett LLP, said: &#34;We are seeing capital flow back—toward companies that own tangible assets, have predictable cash flows, perhaps lower growth rates, and may look less glamorous, but are more favored by investors in an uncertain environment.&#34;
<h2>Software Is Not Out, But Awaits Repricing</h2>
Despite the cooling atmosphere, software deals have not completely ground to a halt. Thoma Bravo completed its acquisition of human capital management software provider Dayforce in February, and Nordic Capital announced its acquisition of a majority stake in trade surveillance software company TradingHub this month.
Industry insiders generally believe that private capital will not completely abandon software assets, as such companies have been well-proven in locking in customers and generating stable revenue. However, under the impact of AI, it will take time to re-evaluate entry strategies.
Shonnel Malani, a managing partner at Advent focusing on industrial M&amp;A, stated: &#34;When traditional customers are all seeking solutions with greater AI capabilities, the terminal value of these companies is currently impossible to judge.&#34; He added that once investors find a way to reprice the sector, they will naturally revisit it.
Servais predicts that this &#34;one-size-fits-all&#34; cold attitude toward the software sector will eventually dissipate, at which point the market will gradually distinguish which software companies possess true sustainable competitiveness. &#34;But until then, investors will continue to seek safe havens in HALO assets.&#34;

PAVE

Under the threat of AI disruption, the software sector—which attracted $1 trillion in investment over the past five years—is mired in a valuation and exit slump. Private equity giants such as Blackstone, Bain Capital, and Brookfield Asset Management are shifting their focus from software to "Hard Assets, Low Obsolescence" (HALO), with industrial manufacturing, energy, infrastructure, and even defense becoming the new battlegrounds

- The surge of artificial intelligence is reshaping private equity investments, with firms like Blackstone and Bain Capital shifting focus to "low attrition heavy assets" (HALO) in sectors like manufacturing and energy.  
- This pivot is driven by disruptive threats to the SaaS business model, leading to valuation pressures and stalled exit plans for software investments, which have doubled industrial investments in the past five years.  
- Despite the cooling atmosphere, software investments persist as firms seek to reassess and reprice assets in response to competitive AI solutions, which has created a bifurcated credit market favoring tangible assets.

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US Private Capital Pivots to "HALO" Hard Assets as Software Stocks Are Sidelined