U.S. private equity is shifting toward "HALO" heavy assets, while software stocks have already taken a back seat.

The wave of artificial intelligence is reshaping the investment landscape of private capital. Private equity giants such as Blackstone, Bain Capital, and Brookfield Asset Management are shifting their focus from software to "Heavy Asset, Low Obsolescence" (HALO), making industrial manufacturing, energy, infrastructure, and even defense the new frontiers of competition.

The trigger for this shift is the disruptive threat that AI tools pose to the Software as a Service (SaaS) business model. According to Bloomberg, private equity investments in the software sector exceeded $1 trillion over the past five years, but these assets are now facing downward valuation pressure, and some exit plans have stalled.

The direction of capital markets is changing in tandem. German medical software company Dedalus suspended its €1.3 billion leveraged loan due to nervous investor sentiment, while infrastructure safety company Ramudden Global completed pricing for its approximately €1.2 billion acquisition financing at a spread below the issue price due to strong demand. This contrast reflects the credit market’s sharply different risk preferences toward the two asset classes.

HALO Deals Heat Up, Industrial Assets Become the Focus

HALO, or "Heavy Asset, Low Obsolescence," refers to assets believed to be difficult for AI to obsolete, covering upstream and downstream industrial manufacturing items such as ship engines and conveyor belts.

Blackstone President Jonathan Gray stated in an interview:

"People are looking for solid footholds. Whether in public or private markets, interest in tangible assets like medical supplies, energy, real estate, and industry is rising sharply."

Europe has seen several landmark transactions. Private equity buyers are vying for Volkswagen’s heavy-duty diesel engine unit, UK aerospace supplier Senior Plc has attracted three competing bidders, and Advent and Cinven are in talks to sell Thyssenkrupp’s TK Elevator for up to €25 billion (about $29 billion).

Meanwhile, Triton Partners, Warburg Pincus, and Brookfield have raised new funds, targeting industrial technology, data centers, and previously overlooked defense sectors.

Software Assets Under Pressure, Exit Channels Crowded

The plight of the software sector stands in stark contrast to the HALO boom. According to Bloomberg, private equity investments in software over the past five years were roughly double those in the industrial sector, totaling more than $1 trillion.

In 2026, new tools launched by AI startups such as Anthropic are directly impacting the business models of many SaaS companies within private equity portfolios. Concerns about overconcentration in software assets are rising rapidly, and potential impairment risks are emerging.

Bain Capital partner Robin Marshall estimates that about 40% of assets held by acquisition funds have software business exposure. She says end-of-first-quarter routine market value assessments will be a testing moment—"some assets will face pricing challenges, and sales originally planned for completion in 2026 may be further delayed."

Credit Market Divergence, Tangible Asset Premiums Stand Out

The HALO shift is also evident in private credit markets. Credit investment firms like Blue Owl Capital, Cliffwater, and KKR are under pressure due to their holdings of software industry loans.

Igno van Waesberghe, managing partner at Aquiline Capital Partners, which specializes in financial services investments, said bluntly: "The problem is, anyone who holds software or SaaS assets right now doesn’t want to hear how much those assets are worth."

The credit market provides more direct examples: Dedalus suspended its €1.3 billion leveraged loan, and Team.Blue canceled its two-stage plan to amend, extend, and reprice existing loans.

On the heavy asset side, Ramudden Global’s acquisition financing was priced with terms better than the issue price amid strong demand, and investors eagerly await heavyweight acquisition financings for companies like ContiTech, Continental’s industrial division.

Hadrien Servais, leveraged finance partner at law firm Simpson Thacher & Bartlett LLP, said: "We are seeing capital flowing back—toward companies with physical assets, predictable cash flow, perhaps low growth, not very sexy, but more attractive to investors in uncertain times."

Software Not Out, But Waiting for Repricing

Despite the cooling atmosphere, software deals haven’t ground to a halt. Thoma Bravo completed its acquisition of human capital management software vendor Dayforce in February, and Nordic Capital announced this month its majority stake acquisition in trade monitoring software firm TradingHub.

Industry insiders generally believe private capital won’t entirely abandon software assets, as these companies are proven in locking in customers and generating stable income. However, under the AI impact, reevaluating approaches will take time.

Advent managing partner Shonnel Malani, who specializes in industrial acquisitions, said: "As traditional clients increasingly seek more AI-enabled solutions, the terminal value of these companies is simply undeterminable right now." He added that once investors find a method to reprice, they will naturally revisit the sector.

Servais predicts that the cold, blanket attitude toward the software sector will ultimately dissipate. By then, the market will gradually distinguish which software companies have true lasting competitiveness. "Meanwhile, investors will continue to seek a safe haven in HALO assets."

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