Apollo executive John Zito has raised concerns about the accuracy of software valuations held by private equity firms, stating that 'all the marks are wrong' and suggesting that these firms are broadly misstating the value of their software holdings [1]. Zito made these remarks to UBS clients last month, which were later confirmed by CNBC, and warned that lenders to smaller software companies could recover as little as 20 to 40 cents on the dollar, indicating potential for significant losses [1].
Zito's comments come at a time when shares of comparable public tech companies have plunged, driven by investor fears that new tools from Anthropic and OpenAI could render existing software companies obsolete. This has led to concerns that private credit lenders are relying on outdated valuations for their software loans, prompting a wave of redemptions as investors seek to withdraw funds from private credit vehicles [1]. Retail investors have pulled approximately $10 billion from private credit funds in the first quarter, according to analysis by the Financial Times [1].
In response to these market pressures, industry leaders have attempted to reassure investors by emphasizing that the underlying companies remain fundamentally sound. However, major financial institutions such as JPMorgan Chase have begun to mark down the value of software loans and restrict lending to private credit players [1]. While Wall Street figures like Jeffrey Gundlach and Mohamed El-Erian have previously highlighted risks in private credit, Zito is among the first industry insiders to openly acknowledge weaknesses in the market [1].
Apollo has sought to differentiate itself from other alternative asset managers, noting that software companies represent less than 2% of its assets under management and that it has zero exposure to private equity stakes in software firms [1]. Most of Apollo's loans are to larger, more stable companies rated investment grade, according to statements made to analysts last month [1]. An Apollo spokesman declined to comment further on Zito's remarks [1].
CONCLUSION
John Zito's candid assessment signals significant risk in private equity software valuations and has contributed to heightened investor anxiety, resulting in substantial withdrawals from private credit funds. Apollo has emphasized its minimal exposure to the sector, seeking to reassure stakeholders amid broader market turbulence. The episode underscores growing scrutiny of private credit markets and the potential for further repricing and losses.