Executives from Apollo Global Management LLC (APO.US), Ares Management LP (ARES.US), Blackstone Group LP (BX.US), KKR & Co LP (KKR.US), and other private equity firms are actively working to convince stock market investors that their investment portfolios remain insulated from the ongoing selloff in the software sector. This downturn is driven by fears that advancements in artificial intelligence could render parts of the software industry obsolete.

Alternative asset managers, which primarily invest in assets outside traditional stock and bond markets, have struggled to shake off concerns about private credit risks that emerged late last year. Now, despite an influx of billions in new client capital and a revival in merger and acquisition activity—factors analysts believe should boost revenues and profits—the software stock selloff has further depressed the share prices of these asset management firms.

Over the past two weeks, executives have used earnings announcements to emphasize the quality of their investment portfolios, helping to recoup some recent losses. However, these efforts have not been sufficient to reverse a downtrend that has persisted for several months.

**Disruptive Risk Concerns**

Kort Schnabel, CEO of a major debt fund under Ares Management LP, commented during a February 4th earnings call, "AI may represent the most disruptive technological risk we can envision. I don’t want to sugarcoat it. But we remain highly confident that the portfolios we’ve built will be resilient to this risk."

When Ares reported earnings last week, it informed investors that approximately 6% of its total group assets are invested in software companies. CEO Michael Arougheti noted that its software portfolio is highly diversified, with only a "very small portion" considered at high risk of disruption from AI. While the company’s stock has seen a slight rebound since then, it remains down about 30% over the past six months.

Apollo Global Management LLC CEO Marc Rowan told analysts on Monday that the software industry accounts for less than 2% of its assets under management. He detailed the firm’s minimal exposure across business segments: "close to zero" in its private equity business, and "closer to zero than one" in the investment portfolio held by its insurance division, Athene. Rowan also stated that within its business development company, Apollo Debt Solutions, software exposure is only half that of larger peers. This fund invests in private loans that have recently come under scrutiny. According to the fund's disclosures, software is its largest investment sector, comprising 13.2% of assets. Despite these assurances, investors have sold off the private market firm's shares this week, pushing them down nearly 6%, with an 11% decline over the past six months.

KKR & Co LP has approximately 7% of its portfolio invested in the software industry, and its stock has fallen 29% over the last six months. Blue Owl Capital Inc. (OWL.US), an investment firm focused on credit, reported that 8% of its portfolio consists of software stocks; its share price has plummeted more than 36% over the same period.

**Strong Book Performance Cited**

Blue Owl co-CEO Marc Lipschultz said during the company's earnings report last week, "The book is performing strongly. We do not anticipate significant losses or a deterioration in performance."

KKR co-CEO Scott Nuttall told investors that the firm sees opportunities arising from market volatility. Apollo’s Rowan described the software sector as "amazing," even if current valuations are not ideal. Nuttall mentioned that KKR has "taken stock of our portfolio over the past two years" to assess whether AI presents an "opportunity, threat, or unknown." He noted the firm has $118 billion in "dry powder"—capital committed by investors but not yet deployed—adding, "Our concerns related to AI are far lower than any exposure we currently hold."

Even Blackstone Group LP, the world's largest alternative asset manager, has not been spared from the selloff. Its shares have declined 24% over the past six months. Chief Financial Officer Michael Chae stated at a conference in Florida on Tuesday that software represents 7% of the firm's total assets and 10% of its credit holdings.

Karim Laib, an analyst at T. Rowe Price, observed that last summer, investors worried alternative asset managers had over-allocated to AI infrastructure, making them potential "losers if AI falters." Laib noted, "Now, the narrative has shifted to these firms suffering losses due to AI's transformative impact. The story has changed, but the outcome remains the same, which may suggest the narrative itself is flawed."