Betting on AI impact, Apollo shorts the debt of multiple software companies

Due to concerns about the disruptive impact of artificial intelligence (AI) on the business models of enterprise software, Apollo Global Management, a giant with over $900 billion in assets under management, has not only shorted the debt of several software companies but has also significantly reduced its overall risk exposure in the industry by 2025. From Tactical Shorting to Strategic Reduction On Saturday, the Financial Times reported, citing informed sources, that Apollo's shorting targets are aimed at several software companies held by large private equity firms, specifically including Internet Brands under KKR, SonicWall under Francisco Partners, and Perforce under Clearlake. However, despite a sell-off of these shorted credit bonds earlier this year, their current trading prices remain above 80% of face value, showing no signs of imminent default panic. The Financial Times reported that Apollo's shorting strategy has been in place for most of 2025, and the relevant positions have now been closed. Another informed source revealed that these short positions account for less than 1% of Apollo's $700 billion credit asset portfolio, and some operations are used as market hedging measures for its funds and capital pools. A more aggressive move is reflected in Apollo's proactive contraction of overall risk exposure in the software industry. According to the Financial Times, sources attending a recent Goldman Sachs meeting revealed that Apollo CEO Marc Rowan privately told investors that as Apollo entered 2025, many of its private credit funds had a risk exposure to software groups of about 20%, but this ratio has now been reduced by nearly half. Rowan informed investors that Apollo's clear goal is to reduce the overall exposure to software in its credit funds to below 10% of net assets. To this end, the company has conducted a comprehensive review of software companies to assess the potential risks posed by AI. Underlying Logic: Is AI Undermining "Enterprise Software" Companies? Over the past decade, enterprise software companies with recurring subscription revenues and high operating profit margins have been the most favored investment area in the $13 trillion private capital industry. The traditional Wall Street logic holds that although software companies lack physical assets, their highly sticky recurring subscription revenues and high operating profit margins are sufficient to support substantial leveraged debt. However, Apollo is concerned that AI technology fundamentally threatens the survival logic of many enterprise software companies. The company believes that AI's capabilities in automating coding, customer service, and routine financial tasks make the software industry exceptionally vulnerable. Although Apollo also acknowledges that AI may present opportunities for some software companies, management has decided to avoid directional industry bets. "Technological change will cause significant dislocation in the credit markets," Marc Rowan candidly stated at a recent meeting, "I don't know whether the enterprise software industry will benefit or be destroyed as a result. But as a lender, I'm not sure I want to be in a position to verify the outcome." Coincidentally, Jonathan Gray, President of Blackstone, also issued a warning last October, pointing out that investors severely underestimate the risks of technological disruption. He has mandated that investment teams quantify AI risks on the front page of every investment memorandum, specifically naming that "rules-based businesses" such as legal, accounting, and transaction processing will face profound impacts. Adding to investors' concerns is the legacy valuation bubble issue in the software sector. Between 2020 and 2021, leveraged buyouts (LBOs) of software companies surged, driving up industry valuations. Now, in the face of high interest rates and imminent technological replacement risks, these high-priced assets appear particularly vulnerable. Considering that many large private credit funds currently have a quarter to a third of their asset allocation in software companies, the chain reaction triggered by AI-induced industry reshuffling should not be underestimated. Apollo's short selling and retreat may just be the prelude to a credit market reassessment triggered by technology