Apollo Global Management LLC CEO Marc Rowan has issued a warning that private credit firms are headed for a shakeout as rising loan defaults among software companies heighten concerns about the industry. In recent weeks, executives in the private credit sector have faced investor skepticism over whether the $1.8 trillion market can withstand prolonged stress, particularly if artificial intelligence disrupts the software industry in the coming years. Business development companies have recently experienced a wave of redemptions due to investor unease.

Rowan stated on Tuesday at the Bloomberg Invest event in New York that this will be a significant and not short-term realignment. He emphasized that the situation is predictable, and the key is for firms to maintain strong underwriting and risk management practices while avoiding unwise decisions. Amid growing investor anxiety, Apollo Global Management's stock has fallen 30% this year, far exceeding the S&P 500's 2% decline.

Rowan also pointed to recent loan defaults as indicative of broader issues in the credit markets. He noted that the sector will undergo a correction, similar to challenges faced by the banking industry, and stressed that instances of fraud and underwriting mistakes are inevitable. The critical factor, according to Rowan, is identifying which firms are effective risk managers. He remarked that having 30% of a portfolio concentrated in a single industry facing technological disruption is a sign of poor risk management.

Although Apollo itself is not heavily concentrated in software, Rowan acknowledged that the software segment represents nearly one-third of the leveraged loan market, making it overrepresented and more vulnerable to sector-specific shocks.