The actual exposure of the US private credit industry to the software sector may significantly exceed disclosed levels. A review conducted on February 13 of thousands of holdings across seven major business development companies (BDCs) revealed that at least 250 investments, representing over $9 billion in loans, were not classified by lenders as software industry loans, despite the borrowing companies being explicitly defined as software firms by other lenders, private equity sponsors, or the companies themselves.

This classification discrepancy not only makes it difficult for outsiders to accurately measure the concentration of credit funds in the software sector but also leads to an underestimation of market vulnerabilities at a time when AI is disrupting traditional software business models. Market observers note that while these differences do not necessarily imply intentional concealment, they highlight long-standing issues in the private credit industry, including inconsistent reporting standards, complex fee structures, and excessive valuation discretion.

Analyst Robert Dodd from Raymond James Financial Inc. warned that existing classification methods often cover only general software, severely underestimating exposure to the software-as-a-business-model industry. He stated that this traditional classification system has become obsolete in the AI era.

Currently, software industry loans represent the largest single industry exposure for BDCs. According to estimates from Barclays Plc, software loans account for approximately 20% of all loans held by BDCs, significantly higher than the 13% share in the US leveraged loan market. With software stocks recently suffering heavy losses and AI startups like Anthropic PBC introducing new tools that threaten traditional software services, this substantial and ambiguous risk exposure has raised investor concerns about a potential "new subprime crisis."

**Invisible Exposure: The Redefined "Software Company"** Bloomberg News reviewed disclosure documents from BDCs managed by Sixth Street, Apollo Global Management Inc., Ares Management Corp., Blackstone, Blue Owl Capital Inc., Golub Capital, and HPS Investment Partners. The review found that all these institutions exhibited instances of categorizing software companies under other industry classifications.

For example, Pricefx prominently describes itself on its website as the "number one leading pricing software." However, one of its primary lenders, Sixth Street Partners, classifies it as a "business services" company rather than a software company.

Sixth Street stated in its filings that it groups investments by end-market, so software does not appear as a separate category. The firm acknowledged that many portfolio companies primarily offer software products or services, which also exposes them to the sector's downside risks.

Furthermore, Apollo classifies Kaseya, which self-identifies as an "IT management software" company, under "specialty retail," while Blackstone and Golub categorize it under software.

In a more extreme case, Golub labels Restaurant365, which calls itself a provider of "back-office restaurant system software," under "food products," alongside manufacturers of Louisiana fish fry and Bazooka bubble gum. Ares, conversely, includes it in its software and services holdings.

Barclays strategist Corry Short pointed out that such inconsistencies make comparing software exposure across the entire market exceptionally difficult.

**Confused Classification Standards Amplify Risk Assessment Challenges** According to the Bloomberg report, this classification confusion can even exist within the same company.

Blue Owl Capital Corp., the largest publicly traded BDC under Blue Owl, classified at least four companies under categories such as "chemicals," "infrastructure & environmental services," and "business services." However, within its tech-focused fund, Blue Owl Technology Finance Corp., these same four companies are explicitly labeled as "software."

A Blue Owl spokesperson responded that each fund has a different investment strategy, which can lead to variations in industry classification. The goal, they stated, is to provide information consistently so investors can understand the risks.

Because private credit loans are typically privately negotiated and trade infrequently, lacking independent price discovery mechanisms or universal benchmarks, the labels assigned by fund managers to assets carry extraordinary importance.

Michael Anderson, Global Credit Strategist at Citi, emphasized that this increases the responsibility on BDC managers to correctly assess, value, and classify these assets, as the loans are not publicly traded and are not part of widely tracked indices that investors can independently review.

**Concentration Concerns Under AI Disruption** Over the past decade, attracted by predictable revenue streams, alternative asset managers have flooded into the software sector.

Apollo co-President Jim Zelter revealed earlier this month that approximately 30% of private equity capital during this period flowed into the industry, and the software sector accounts for about 40% of all sponsor-backed private credit.

However, with breakthrough advancements in AI technology—particularly as new tools from startups like Anthropic PBC begin to threaten sectors from financial research to real estate services—anxiety about the future of software businesses has rapidly intensified.

The S&P North American Software Index has fallen more than 20% year-to-date and has experienced multiple single-day declines exceeding 4% in recent weeks. Analysts believe that as AI reshapes the software industry, private credit managers will face increasing scrutiny.

Raymond James's Dodd noted that the differing reporting methods for the same loans by BDCs create problems, and this inconsistency obscures the truth. The AI revolution is fundamentally disrupting software and its business functions, rendering historical industry classification guides inadequate.