A sharp sell-off in the software sector, driven by fears that artificial intelligence could devalue the industry, has prompted executives from major private capital firms including Apollo, Ares, Blackstone, and KKR to struggle to convince equity investors that their portfolios are shielded from the downturn.

These alternative asset managers, which primarily invest outside traditional stock and bond markets, have not yet shaken off concerns from late last year regarding risks in their private credit businesses. Now, the software stock sell-off has further depressed the share prices of these asset management firms—even as they attract billions in new client capital and benefit from a resurgence in merger activity, factors analysts say should translate into increased revenue and profits.

During earnings releases over the past two weeks, executives have defended the quality of their investment portfolios, helping recoup some losses in recent days. However, these efforts have not been enough to reverse a months-long downward trend.

**Disruptive Risk**

Kurt Schnabel, CEO of a large debt fund under Ares, stated during a February 4 earnings call, "AI may be the most disruptive technological risk we can imagine, and I don’t want to downplay that. But we remain confident that the portfolios we’ve built are highly resilient to this risk."

Ares informed investors in last week’s earnings report that roughly 6% of its total assets are invested in software companies. CEO Michael Arougheti noted that its software investments are highly diversified, with only a "very small portion" identified as facing high AI disruption risk.

Following the report, Ares’ stock saw a modest rebound, though it remains down approximately 30% over the past six months.

Apollo CEO Marc Rowan told analysts on Monday that software assets make up less than 2% of the firm’s assets under management. He detailed the company’s minimal exposure across business segments: "virtually zero" in private equity, and "infinitesimally close to zero" in the investment portfolio of its insurance subsidiary, Athene.

Within Apollo’s Debt Solutions platform, which has recently faced scrutiny over its private lending business, Rowan claimed its software exposure is only half that of larger peers. Fund disclosure documents show that software remains its largest sector allocation, accounting for 13.2% of assets.

Despite this, investors sold off Apollo shares this week, driving the stock down nearly 6% for the week and 11% over six months.

KKR has approximately 7% of its portfolio allocated to software, and its stock has fallen 29% in six months. Blue Owl, which focuses on credit investments, reported that 8% of its assets are in software; its shares have plunged more than 36% over the same period.

Spokespeople for Apollo, Ares, Blackstone, Blue Owl, and KKR declined to comment beyond public statements.

**Strong Portfolio Fundamentals**

Blue Owl Co-CEO Marc Lipschultz said in the firm’s earnings last week, "Our portfolio fundamentals are strong, with no material losses and no deterioration in performance."

KKR Co-CEO Scott Nuttall told investors that the firm sees opportunities amid market volatility, while Apollo’s Rowan described software as an "excellent" sector, though recently overvalued.

Nuttall said KKR has "conducted a full inventory of our portfolio over the past two years" to assess whether AI presents an "opportunity, threat, or unknown" for each asset. The firm currently holds $118 billion in dry powder—capital committed by investors but not yet deployed—and he added, "That’s many multiples of the size of any exposure we have to assets where there are AI-related concerns."

Even Blackstone, the world’s largest alternative asset manager, has not been spared, with its stock down 24% over six months. Blackstone CFO Michael Chae said at a conference in Florida on Tuesday that software assets account for 7% of total assets and 10% of credit assets.

T. Rowe Price analyst Karim Lebhour pointed out that last summer, investors worried alternative asset managers had financed too much AI infrastructure, making them "losers if the bubble bursts."

"Now the narrative has shifted: these alternative asset managers will suffer from AI’s disruptive impact. The story has changed, but the predicted outcome hasn’t," Lebhour said. "That may suggest these narratives themselves are flawed."