Blue Owl will reduce the software exposure of its leading publicly traded private-credit fund following concerns over artificial intelligence disruption.

The shift indicates a growing caution among major alternative asset managers regarding how AI will reshape software valuations. As AI tools potentially replace or disrupt existing software-as-a-service models, the risk profile for private lending in this sector has changed.

Chief executive leadership for the firm said the decision during remarks in New York on May 7, 2024 [1]. The firm is adjusting its portfolio to mitigate the impact of AI-driven uncertainty, which has placed pressure on software valuations [1], [2].

This strategic pivot comes as the firm manages a significant scale of capital. Blue Owl's assets under management recently reached $315 billion [3]. The firm operates in a high-stakes environment where liquidity management is critical; for instance, redemptions for its private-credit funds are capped at five percent [4].

Private credit has grown as a primary alternative to traditional bank lending, but the "SaaS-pocalypse"—a term used to describe the potential collapse of traditional software subscriptions due to AI—poses a specific threat to these portfolios [2]. By lowering its exposure, Blue Owl seeks to protect its capital from volatility in the tech sector.

While the firm remains optimistic about the long-term survival of private credit, the immediate focus is on diversifying away from sectors most vulnerable to rapid technological shifts [2]. The firm continues to monitor how generative AI affects the ability of software companies to maintain their pricing power, and cash flows.

“Blue Owl will reduce the software exposure of its leading publicly traded private-credit fund.”

This move signals a broader trend of 'AI caution' within the private credit market. While institutional investors have poured capital into software for a decade, the shift toward generative AI creates a valuation gap where old software models may no longer be sustainable. Blue Owl's decision to reduce exposure suggests that the risk of permanent capital loss in the software sector now outweighs the potential yield of these loans.