Key facts
- Apollo Global Management is screening all new software investment opportunities for AI disruption risk.
- The firm developed a new framework last year to categorize software into 12-14 segments by AI susceptibility.
- This framework is being applied to both new deals and Apollo's existing portfolio.
- Other major asset managers, including Ares Management, Blackstone, and Blue Owl Capital, are also conducting AI-related reviews.
- Investor concerns over AI's impact on business models have affected software company valuations and the private credit market.
Apollo Global Management Inc. is now formally screening all new software investment opportunities for the risk of disruption by artificial intelligence. The firm has developed a new framework, introduced last year, that categorizes software into 12 to 14 segments based on their susceptibility to AI advancements. This assessment is applied to both prospective deals and Apollo's existing portfolio to identify and mitigate potential risks.
This proactive approach by Apollo aligns with a broader trend across the asset management industry, where firms are increasingly scrutinizing their software-focused investments due to heightened investor concerns about AI rendering business models obsolete. Other major players like Ares Management Corp., Blackstone Inc., and Blue Owl Capital Inc. have also undertaken similar reviews of their holdings.
The heightened focus on AI disruption has contributed to pressure on software company valuations and has impacted the $1.8 trillion private credit market. Apollo's deputy global head of private equity, Antoine Munfakh, indicated that the firm is now specifically looking at whether AI could replace or weaken a target company's products. This shift is altering the due diligence process, with investors now prioritizing factors such as proprietary data ownership, dependence on the company as a system of record, and the robustness of their AI roadmap.
Companies offering generic workflow automation, mid-market CRM solutions without deep specialization, and analytics dashboards that merely aggregate data are considered particularly vulnerable. Conversely, sectors like healthcare, where regulatory hurdles slow AI adoption, are seen as more shielded. Apollo's president, Jim Zelter, noted that the firm's overall software exposure is less than 2% of its total assets under management, suggesting a diversified approach to risk management.