The already downward-trending stock prices of major US private credit firms took another hit this month amid the markdown of the software sector and concerns about AI. While executives are trying to contain those concerns, analysts say market participants may already be pricing in risks that could affect clients later.
“Red flags? We don’t even see yellow flags, only green,” said Marc Lipschultz, CEO of Blue Owl Capital, in early February during the presentation of the latest quarterly results. “Lending to tech companies has always worked and continues to work,” he added, responding directly to questions by analysts regarding exposure to the software sector. After software companies were sharply marked down in the stock market this month, the share prices of private credit firms and BDCs also fell.
Michael Arougheti, CEO of Ares Management, downplayed the recent sell-off in technology and software, remarking during the BofA Securities Financial Services Conference in New York that “for every company that is disrupted, there is likely a company that benefits.”
A similar tone was struck at Apollo Global Management during the presentation of its fourth-quarter results. CEO Marc Rowan said software remains an attractive sector, albeit not at the valuations and with the loose lending terms seen in the past. “I couldn’t be more enthusiastic,” he said about the outlook.
The performance of major private credit firms in the final quarter of 2025 supports their case. Apollo Global Management reported that fee-related earnings for 2025 rose by 23 percent to 2.5 billion dollar. The firm maintained its expectation of more than 20 percent annual growth. KKR saw management fees increase by 24 percent in the fourth quarter to 1.1 billion dollar, while other fee-related income rose by 15 percent to 972 million dollar, with a margin of approximately 69 percent.
Nevertheless, shares of KKR, Ares Management, Blue Owl Capital, Apollo Global Management, and Blackstone have been under pressure since last year. According to Koen van Mierlo, who leads the analyst team at wealth advisory firm Bluemetric, the explanation for the share price declines extends beyond concerns about software alone and reflects the earnings model of publicly listed private credit firms.
Management fees on assets under management are relatively stable and continue to grow alongside capital inflows. “If stock prices remain under pressure for a prolonged period, that usually points to concerns about carried interest and future fundraising rounds,” said Van Mierlo.
According to Arnout van Rijn, portfolio manager at Robeco, holders of private debt are, for now, paying little attention to volatile public market valuations, while earnings continue to develop satisfactorily. “But a significant gap is emerging between how public markets assess risk and how private fund managers value those risks,” he wrote this week in an analysis.
If credit losses increase or returns fall short of the historical 8 to 12 percent, carried interest becomes less valuable or is pushed further into the future. That in turn affects the appeal for new investors and the future fee base. Investors want to be compensated for a higher level of perceived risk. As a result, future cash flows are discounted more heavily and the multiple declines, even if current results remain solid, Van Mierlo explained.
Jeffrey C. Hooke, a finance professor at the Johns Hopkins Carey Business School, also argued that tensions in private credit may not be limited to concerns about the software sector. He pointed to liquidity issues and the extension of loans that should have already been repaid. “Many private credit funds have struggled to liquidate their loans,” he told US news channel CNBC. He added that recent developments mainly add another layer of uncertainty to a sector that was already under pressure.
At the same time, the sector is entering a new phase of “retailization.” In Washington, policymakers are working on rules that would give 401(k) plans more room to invest in private markets. Major players such as Apollo Global Management, Blackstone, and KKR see these employer-sponsored retirement savings plans as a new growth engine. If the stock market’s caution proves justified, the consequences could ultimately fall on retirement savers.
“If private credit structurally delivers more than public debt, you have to ask where that extra return comes from,” said Van Mierlo. “Is it better selection, or is there additional risk being masked by return smoothing, the phenomenon in which returns of illiquid investments appear artificially stable because valuations are not continuously adjusted through market prices but updated gradually through models or internal appraisals?”
Robert Cohen and Chris Stegemann, who manage the publicly listed credit strategies at Doubleline, refer to that phenomenon as “volatility laundering.” Returns appear more stable than those of public credit markets, but Doubleline argues that less visible volatility does not automatically mean less risk. Since October 2022, returns on private credit have also lagged those of publicly traded leveraged loans and high-yield bonds, according to research by the two portfolio managers. They seriously question the argument that investors receive an adequate premium for illiquidity.
UBS Group warns that in a severe disruption scenario, default rates in the US private credit market could rise to 13 percent. That is significantly higher than the stress levels the bank expects for leveraged loans and high-yield bonds—approximately 8 percent and 4 percent, respectively. The bank suggests that private credit could therefore be hit harder than public credit markets in a severe downturn.
Koen van Mierlo underscored that private debt can be an appropriate solution for investors, provided that they don’t treat it as a savings account with 10 percent interest. “That risk is sometimes underestimated. Some investors temporarily park money in private debt as if it were risk-free.”