Private credit and Artificial Intelligence (AI) have been regular topics in our Monday morning meetings – both in isolation, and increasingly, in tandem.

These topics aligned once again this past week as an enterprise-focused launch of Anthropic’s AI assistant Claude with enhanced legal and financial capabilities triggered a sell-off across the information technology sector. Specifically, the launch called into question whether AI will serve as a replacement for, rather than an enhancement of legacy software and services.

While publicly traded stocks reprice quickly, private credit is valued less frequently and with less transparency. Where this matters is that software companies are widely credited with helping to propel the dramatic growth in business development companies (BDCs) since 2020. PitchBook posted a chart alongside an article about the renewed focus on private credit showing that software represented over 16% of BDC holdings (by count) in September 2025, second only to the commercial services sector at between 20-22%.

The significance of all of this depends on who’s opining. On a JPMorgan earnings call in September, following the bankruptcy of First Brands and Tricolor, admittedly not software companies, but private credit borrowers, CEO Jamie Dimon quipped “when you see one cockroach, there are probably more”.

Cliffwater, a manager offering direct lending strategies, quickly responded with a note titled “No Cockroaches in Private Debt”. Cliffwater argues that syndicated loan sponsors (like JP Morgan) introduce more risk into the credit markets owing to private credit’s more sophisticated and higher quality structures, borrowers, and incentives.

Howard Marks of Oaktree Capital Management, another manager active in the private credit market, took Dimon’s metaphor a step further with a November memo titled “Cockroaches in the Coal Mine”. In his memo, Marks implies that these, and other recent sub-investment grade defaults, are well within bounds of normal market activity while offering that the credit markets have been relatively benign in the decade and a half since private credit has risen in prominence. Marks expands on the idea that “good times” may result in a lowering of lending standards that become problematic in challenging times.

During the Apollo earnings call today, CEO Mark Rowan shared his bullish view citing the firm’s limited exposure to software while highlighting expanding appetite for private debt, “we are going from serving one market, institutional alts portfolios, to serving six markets.”. Per Rowan these additional markets include individuals, insurers, institutional clients’ traditional portfolios, asset managers, and the 401(k) market.

“Each of these markets has the ability to be roughly the same size as our original market, which powers the entire industry,” Rowan said.

Apollo and State Street’s ETF PRIV which invests in public and private investment grade debt was up 0.4% year to date through volatility. PRIV will be a year old on February 28th.

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