Ares Management and peers intensify scrutiny of software loans as AI threatens borrowers

Headline: Private‑credit managers like Ares face fresh scrutiny as AI threatens software borrowers

Private‑credit managers are intensifying reviews of underwriting and portfolio risk as investors and analysts flag artificial intelligence advances that could erode cash flows at software firms — a sizable borrower class for direct lenders. Industry commentary from CNBC and notes from platform iCapital highlight that software accounts for roughly one‑fifth of private loans from direct lenders, prompting asset managers such as Ares Management to reassess sector concentration, covenant protections and stress‑testing frameworks. Market participants say the reassessment is driven less by macro rates than by the prospect that AI could materially change earnings power and competitive moats across legacy enterprise software businesses.

Ares Management and peer firms are responding by boosting monitoring of existing credits and recalibrating new originations toward more diversified or higher‑quality sponsors, people close to the matter say. Lenders are revisiting loan documentation that governs borrower behavior, lengthening diligence on product road maps and intensifying scenario analysis for revenue disruption. The heightened focus also filters into limited partner discussions, where managers must demonstrate active risk management and transparency on exposures that could be vulnerable to rapid technological substitution.

The reassessment has implications beyond single portfolios. Industry executives and analysts warn that a broad repricing of private credit could change capital allocation across direct lending and co‑lending platforms, affect covenant structures and slow deployment into software‑heavy sectors. At the same time, managers with diversified private‑asset strategies may find opportunities to reallocate into non‑software industries or into asset classes seen as more resilient to AI disruption, including infrastructure, real assets and selective natural‑resource investments.

Market and policy backdrop

The private‑credit scrutiny comes amid wider investor concern about technology valuations after a sharp sector rotation that follows new AI initiatives from major firms and mixed corporate guidance from chipmakers. CNBC coverage and UBS commentary underline that guidance and product road maps are central to how investors are recalibrating risk across both public and private markets.

Separately, geopolitical and industrial policy developments — notably a U.S. State Department conference on critical minerals and new European collaboration — are drawing attention from asset managers looking to deploy capital into upstream supply chains. Managers such as Ares may view mineral and industrial investments as diversification avenues that reduce concentration in software‑linked credit exposures.