What happened
Private equity firms face valuation declines in software holdings as generative AI replaces traditional SaaS functions. Apollo Global Management initiated short positions against software companies. Investors withdrew capital from software-focused debt funds. These shifts follow warnings that AI risks decelerate growth and devalue wealth managers. Firms now re-evaluate exit strategies for legacy software assets. The trend affects mid-market buyouts and large-cap software consolidators.
Why it matters
Fund managers face liquidity constraints because AI reduces the defensibility of seat-based SaaS revenue. Procurement teams now replace expensive legacy subscriptions with cheaper AI-native tools, cutting software margins. This follows investors exiting software credit funds on 10 February and private capital warnings on 6 February. Therefore, LPs face lower returns as exit multiples for software companies contract. This pattern proves that AI shifts value from application layers to infrastructure and proprietary data.
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