AustralianSuper, one of Australia’s largest superannuation funds, manages retirement savings for millions of Australians. The fund invests in a diverse range of assets to generate returns for its members. Outgoing chief investment officer Mark Delaney previously addressed a disastrous investment in US software group Pluralsight, which cost the fund $1.1 billion. Now, the super industry faces fresh concerns as exposure to private equity and private credit is threatened by artificial intelligence disruption. Valuations of publicly listed software companies have already fallen significantly.
The $35 trillion private capital industry has a considerable stake in software, with estimates suggesting approximately 40 per cent of global private equity investments are in software companies. These investments occurred mostly during peak market conditions, raising concerns about inflated valuations. Private credit, which often finances private equity deals, also has substantial exposure, with roughly a third of its portfolios tied to software loans. This confluence of factors puts pressure on private equity firms to sell assets, but the AI-driven sell-off complicates matters further, as software businesses become harder to sell or float.
Listed private credit vehicles have already experienced declines, and analysts warn of potential fallout for the credit sector. Assessing the impact is challenging due to limited transparency and access to financial data within private equity-backed borrowers. While private equity and private credit players reassure investors about the performance of software companies, the risk remains that the software sell-off could impact public equities, public credit, private equity, and private credit simultaneously. Apollo Global Management is warning of further pain to come.
Super funds with allocations to private equity, credit, and international equities may have more exposure to software than their members realize. The pressures on private equity were already building before the AI scare, with concerns about returns and fundraising. As the private credit industry matures, some firms will adapt, and others will struggle. The situation warrants close attention as the industry navigates this Darwinian moment.
