Private-market pilgrims find solace in rivals' sin

KKR & Co

10/06/2026 20:30

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.
By Liam  Proud

    BERLIN, June 11 (Reuters Breakingviews) - The mood at Berlin’s SuperReturn, Europe’s premier annual summit for the kingpins of private equity and credit, is supposed to be light. Promotional tote bags read “Due diligence is my cardio” or “Fluent in EBITDA.” Those slogans seemed bitterly ironic in the private meeting rooms flanking the event, where managers played defense over rising defaults and sagging returns.
Over coffee and German sausages at the InterContinental hotel, the assembled buyout barons and debt dons went back and forth over who has the most to lose from busted software loans, the Iran war, and higher rates. Most agree that there are troubles in store. Only for the firm in the next booth over, though.
SuperReturn's headline panelists this year included Apollo Global Management APO.N Co-President Scott Kleinman and Thoma Bravo co-founder Orlando Bravo. As ever, though, the real action happens behind closed doors. Managers pay tens of thousands of euros for meeting rooms – mostly hotel suites with the beds removed – to host their fund investors, known as limited partners.
Top of the agenda was software, which typically accounts for some 20% to 30% of buyout and private-debt portfolios. Now that AI tools threaten to render traditional code obsolete, fears are rising that this heavy concentration could scupper entire funds or even firms. The panic wrong-footed lending operations at giants like Blue Owl Capital OWL.N and Blackstone BX.N first, since they pander to individual investors who promptly fled semi-liquid vehicles.
The credit crew argues that code-slinging borrowers are often generating plenty of cash and are unlikely to go bust before paying back their loans. In a signal of confidence, a handful of new European software transactions have gone ahead in recent weeks, two debt investors told Breakingviews. They priced at about 5 percentage points over benchmark rates, a fairly normal outcome that betrays little panic.
More fundamentally, the lending lobby points out that they only lose money in a default after equity holders have been wiped out. In other words: go ask the buyout barons about it, not us. They’re the ones who get hit first.
Those private equity dealmakers have counterarguments of their own. Buyout investors told Breakingviews that many software portfolio companies will indeed suffer as corporate clients turn to AI tools like Anthropic's Claude Code. Yet others will benefit, as large language models allow them to reduce costs and tap bigger markets. The result will be heightened "dispersion" – perhaps the most popular buzzword at the conference – within buyout portfolios, with a small number of home-run investments compensating for the zeroes. Credit investors, who at best merely get their money back, can't say the same.
Some chunky software exits might even happen before too long, if the companies in question can be packaged in an AI-friendly narrative. It helps that the widely tracked S&P North American Expanded Technology Software Index .SPNASEUT has rebounded recently, rising about 25% from its April nadir.
Individual investors, so far, do seem more worried about credit funds than equity ones. Only Switzerland's $24 billion Partners Group has seen a noticeable uptick in withdrawals from buyout funds offering limited liquidity. Rivals are generally wary of contagion on this front, but hopeful about the minimal outflows they're seeing so far.
Nonetheless, the design of these so-called evergreen funds targeting the mass investing public was another subject of finger-pointing in Berlin. Managers with top-tier performance understandably gloat about it. Others question whether those returns are based more on paper valuations than reality. There's a general feeling, covering both equity and credit evergreens, that it might not be such a bad thing if some hot retail money gets flushed out: better to have slower and more dependable growth over time than the rollercoaster of recent months.
Even within asset classes, there's no end of buck-passing. Buyout managers with less software exposure accuse rivals of radically overpaying for assets in 2021, while technology investors maintain that they are still marking the value of their portfolio companies below where they would trade on public markets.
Within credit, the clearest debate is over whether classic direct lending, which essentially involves writing IOUs to support leveraged buyouts, has had its day. Haters complain about an oversupply of capital and tight spreads over risk-free rates, supposedly leaving an unfavorable balance of risk and reward. Proponents argue that lending at 5 percentage points above the benchmark leaves plenty of room to compensate for the risk of defaults, and then some. Besides, what are the better alternatives? Racy areas like asset-backed finance have had issues with fraud.
Wherever the truth lies amid these debates, it's the negativity that seems to be cutting through for the insurers, pension funds, endowments and sovereign wealth funds that ultimately bankroll private markets. With retail investors fleeing some vehicles, institutional fundraising is also stuck in the doldrums for now. Consultancy Bain & Co estimates that it will reach $1.3 trillion across all private asset classes this year, which would be the lowest tally since 2018. In other words, the industry's circular finger-pointing risks creating a circular firing squad.
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(Editing by Jonathan Guilford; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))