The core of the "software-PE" death spiral: America's three PE giants continue to plunge, KKR and Blue Owl admit financial challenges in conference calls.

Under the concerns of AI disrupting the software industry, U.S. private equity giants are caught in a multi-faceted dilemma of slowed fundraising, delayed asset exits, and increased redemption pressure. Over the past decade, software assets have been the core sector for private equity investment, but now this foundation is shaking, threatening the industry's growth logic and profit model. On February 5th, KKR and Blue Owl issued warnings about their financial prospects for 2026 during their earnings calls. KKR CFO Robert Lewin stated that if market conditions deteriorate, the company may postpone some asset sales this year, which would reduce cash flow and lead to lower earnings in 2026. Blue Owl disclosed that redemption requests from its credit funds have increased, causing the company to miss its long-term growth goals. It expects "moderate" expense growth in 2026, compared to approximately 20% asset and expense growth in 2025—a significant slowdown. On Thursday, the stock prices of the three major U.S. private equity firms fell across the board. Ares plunged over 11% to $121.87, KKR dropped 5.5% to $99.19, and Blue Owl fell 3.8% to $11.65. So far this year, shares of these three companies—along with other private equity peers including Blackstone—have all fallen more than 15%, as investors reassess their growth outlook. The core of this sell-off lies in a fundamental shift in market logic. In the past ten years, the Software as a Service (SaaS) sector, relying on stable recurring revenue (ARR), has been the most favored asset category for private credit investors. However, as risks of AI replacing coding and data analysis functions rise, the logic of stability akin to bonds is collapsing. According to a Wallstreetcn article citing Bloomberg Intelligence, more than $17.7 billion in technology company loans have turned nonperforming over the past four weeks. Analysts note that this volatility has prompted private equity groups to consider delaying asset sales—which would affect their ability to generate lucrative performance fees, while overall assets also grow more slowly as investors withdraw from certain funds or delay new investments. **Delayed Asset Exits and Intensifying Redemption Pressure** Market volatility is directly impacting private equity institutions’ core business model. Delayed asset sales mean performance fee income is postponed, while redemption pressure threatens the continued growth of assets under management. Robert Lewin stated on the call that if the environment indeed worsens, delayed asset sales would defer profits to subsequent years, but emphasized that KKR remains "very positive" about the future. Blue Owl CFO Alan Kirshenbaum said that, with rising redemption requests, this tech-focused private equity group will see only "moderate" expense growth by 2026. Analysts believe this cautious guidance marks a significant slowdown; the company had previously set ambitious goals to manage over $500 billion in assets and earn more than $3.1 billion in fee-related revenue by 2029. Despite facing challenges, the three firms had mixed Q4 results but saw sharp asset growth. In the three months ending last December, Ares saw a record $34.4 billion in capital inflows, boosting its assets under management to a new high of $623 billion. KKR’s assets rose 17% year-on-year to $744 billion, with fee-related earnings up 15%, in line with expectations, though adjusted net income was $1.12 per share. Results were dragged down by two factors: the group returned over $200 million in performance fees to clients from its 2013 Japan fund, and asset sale profits fell short of analyst expectations. Blue Owl raised $12 billion in capital commitments, plus $5.3 billion added through fund leverage, bringing total assets under management to $307 billion. Its $417 million in fee-related earnings grew 22% year-on-year, exceeding Wall Street expectations, but its $187 billion in fee-paying assets was slightly below Bloomberg analysts’ forecasts. **Software Exposure in Focus; Executives Seek to Reassure** During earnings calls, analysts repeatedly questioned KKR, Ares, and Blue Owl executives about their lending exposure to software companies and whether AI could lead to rising default rates and significant losses. Blue Owl CEO Marc Lipschultz took a firm stance, calling claims of software companies becoming obsolete "absurd", and said its loan portfolio makes a surge in defaults "mathematically impossible". "We have not seen significant losses. We have not seen portfolio deterioration," he said, estimating that companies borrowing from Blue Owl saw profits rise 14% last quarter. KKR Co-CEO Scott Nuttall said its deal team has been preparing for AI-related disruption for years, having sold off companies deemed vulnerable. "Our anxiety level is pretty low because we've been thinking about this for the past several years," Nuttall said, and predicted recent "dislocation has created many important opportunities for us." Ares also sought to clarify its total exposure to software on Thursday. Including its real estate and infrastructure debt businesses, software accounts for 9% of its private credit assets under management. CEO Mike Arougheti said on the call that the proportion of non-performing loans in its software portfolio is "close to zero," and that, due to AI risks, Ares's growth outlook "remains unchanged". **Private Credit Faces Dual Unwinding** As cited by previous Wallstreetcn articles, this crisis is quickly spreading from the stock market to private credit. The private credit market is experiencing two simultaneous "unwinding" processes: - **First, the logic for lending to software companies has collapsed.** Annual recurring revenue (ARR) was once seen as providing stable, bond-like cash flow, making predictable payments that justified lending even when free cash flow was negative. But now, as business models suddenly face obsolescence risk, the "stable annuity" turns into a binary gamble. - **Second, private credit itself is losing its appeal.** Now that public market yields are catching up, the promised "liquidity premium" looks less attractive. And the so-called insulation effect—no daily mark-to-market, limited volatility—is becoming a harder sell now that defaults are seen as a real risk. Jeffrey Favuzza from Jefferies’ equity trading desk described the current situation as "SaaS Armageddon," noting the trading style is now sheer "get me out at any cost" panic selling, with no signs of stabilization yet. Analysts say that, as software equity valuations plummet, private credit firms face pressure to revalue their balance sheets, which could lead to tighter credit conditions. **This in turn will further squeeze the already endangered growth space for software companies, creating a dangerous negative feedback loop.** **Risk Warning and Disclaimer** The market has risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the special investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investing based on this information is at your own risk.