Software Slump Intensifies Scrutiny on Apollo's Private Credit Risks

What happened

Barron's reports that a selloff in the software sector is spilling over into alternative asset managers, heightening investor focus on private-credit exposures and redemption risks. Apollo Global Management, with its large private credit origination platform of ~$222 billion in 2024, is directly exposed to such sectoral stresses, as detailed in the DeepValue report. The report highlights Apollo's integrated model with Athene, which provides some insulation through long-duration liabilities and downside-focused underwriting. However, this news underscores specific vulnerabilities in software, a key borrowing sector, potentially pressuring asset valuations and performance allocations. This aligns with the report's identified risks, such as credit performance and macro conditions, indicating that investors should monitor these factors more closely amid market volatility.

Implication

The software sector slump increases the risk of defaults or downgrades in Apollo's private credit holdings, potentially leading to performance givebacks and lower fee-related earnings. Redemption fears might prompt institutional withdrawals, affecting Apollo's assets under management and management fees, despite its integrated model with Athene. Apollo's current P/E discount to peers could widen further if these risks materialize, though its focus on downside protection may offer some mitigation. Long-term, secular growth in private credit and Apollo's scale could support recovery, but near-term volatility requires careful risk assessment. Investors must watch for signs of credit deterioration or regulatory responses that could exacerbate these pressures.

Thesis delta

The news does not fundamentally shift the DeepValue BUY thesis, which already incorporates risks like credit performance and macro shocks. However, it heightens the urgency of monitoring software sector exposures and redemption dynamics, potentially delaying catalysts such as the Bridge acquisition if market sentiment deteriorates. The stance remains BUY but with increased caution on short-term headwinds that could affect FRE/SRE trajectories.