March 27, 2026
Private Credit After the Software Reset: Where Stress Is Emerging
KEY SUMMARY POINTS
- Software risk is being repriced across private credit and private equity as higher financing costs and Artificial Intelligence (AI) driven business model pressure erode assumptions once considered durable.
- Stress is concentrated in legacy vintages with heavier software exposure, floating-rate debt, weaker structures and underwriting completed before AI disruption was fully appreciated.
- CI Private Markets funds’ software exposure is modest, diversified and anchored in later-vintage, more disciplined underwriting, leaving the platform better insulated than peers most exposed to legacy software risk.
Why Stress Is Emerging Now
Private credit is showing the earliest signs of strain because it has the highest concentration of software exposure and because semi-liquid vehicles such as business development companies (BDCs) and evergreen funds make stress visible sooner through redemptions and write-downs. The broader market narrative has shifted from identifying the winners of AI to identifying those most exposed to AI disruption.
This is not only a private credit problem. It is as much a private equity issue as a private credit issue; private credit is simply where the pressure is surfacing first.
Software as the Epicenter
Software was a long-time favourite of private equity. Over the past decade, there were more than 1,900 software transactions representing more than $440 billion in value. What attracted capital was predictable revenue, high margins and the ability to support leverage and acquisition-led growth.
The problem is that much of the growth came from price increases rather than new users, while cash flow was often directed to bolt-on acquisitions rather than deleveraging. Many of these companies were financed with floating-rate debt and survived a doubling of interest costs since 2022. They now face a second challenge: AI disintermediation. As the cost of software development falls and rules-based workflows become more programmable, some business models may prove less durable than once assumed.
That may not show up immediately in near-term financial results, but terminal equity values can still move lower.
The BlackBerry example is instructive. Apple launched the iPhone in 2007, but BlackBerry’s revenue continued to grow for several years before collapsing. AI disruption may prove similar: the damage to a business model can come before the full damage appears in reported results.
Why Old Vintages Are Breaking First
This is less about a broad sector collapse and more about vintage quality. The most vulnerable credits are older, software-heavy deals underwritten at higher valuations, with floating-rate leverage, looser covenant packages and weaker documentation. These deals were originated before AI disruption was fully incorporated into underwriting assumptions.
The key distinction is not software versus no software, but legacy underwriting versus disciplined underwriting. Loans originally underwritten at 50% to 60% loan-to-value can move toward 90% loan-to-value at maturity if equity values compress, reducing refinancing capacity and margin of safety.
This same issue is visible in private equity. Distributions to Limited Partners (LPs) have fallen below 20%, a level seen only during the dot-com unwind, the Global Financial Crisis (GFC) and the current environment.
Why Private Credit Is Showing the Pressure First
Software represents about: 3% of the high-yield market, 13% of the loan market, and approximately 20% to 24% of private credit, at least as measured by some BDCs.
Private credit is under greater scrutiny because that exposure is more concentrated and because the semi- liquid structure of BDCs and evergreen funds makes stress visible sooner. That explains why the issue is surfacing there first, but not why it belongs there alone.
How CI Private Markets’ Funds Are Positioned
Our funds have adopted a non-thematic, defensive stance toward software exposure. The platform has not treated software as a growth trade; instead, exposure remains modest and selective, supported by diversified manager selection, stronger structures and later-vintage underwriting.
Why Our Private Credit Exposure Is Especially Well-Positioned Today
A key differentiator of our funds’ private credit exposure is that it is both newer—originated after the widespread adoption of large language models (LLMs)—and deliberately constructed without the legacy, pre-AI underwriting issues now driving stress across the market. This results in portfolios that are not burdened by older, software-heavy vintages or the weaker structures common in 2020–2022 deal flow.
Equally important, the managers selected within the private credit allocation are intentionally non-generic. We hold Avenue Europe International Management, L.P. because it is not a traditional middle-market private lender; its strategy is structurally differentiated and positioned to capitalize on European dislocation rather than simply extend conventional sponsor finance. Monarch Alternative Capital LP provides counter-cyclical credit expertise, benefiting from market stress rather than being harmed by it. Canal Road Capital, LLC brings decades of experience and underwriting discipline that stand apart from many of the younger, more pro-cyclical direct lending platforms that expanded aggressively in the last decade.
Taken together, this creates exposure that is both more insulated from legacy software risk and better aligned with the disciplined, post-LLM underwriting standards that are increasingly defining the winners in private credit.
Across the platform:
- CI Private Markets Growth Fund (CIPMG) – approximately 4% software exposure.
- CI Private Markets Income Fund (CIPMI) – approximately 5% software exposure.
Where CI Private Markets’ funds does have software exposure, it is concentrated with specialist partner managers such as Dawson Partners Inc, Avenue Capital Management II, L.P., and Canal Road Capital, LLC. These managers are long-tenured general partners with pre-GFC experience, applying post-LLM underwriting frameworks.
Most allocations are in later-vintage deals where AI-related disruption was already being incorporated into underwriting, rather than in the 2020–2022 vintages where aggressive structures, weaker documentation and higher leverage were more common.
The strategies referenced are accessed through CI Private
Markets’ network of specialist partner managers.
Bottom line
The repricing of software risk is real, but it is better understood as a dispersion story than a broad collapse. The weakest links are legacy vintages with high software concentration, floating-rate leverage and aggressive underwriting.
We believe CI Private Markets’ funds better positioned not because software risk is absent, but because exposure is modest, selective and structured for today’s environment.
As markets continue to differentiate between legacy underwriting and more disciplined post-LLM underwriting, manager selection, deal structure and selectivity should matter far more than broad sector labels.
About the Author
Geof Marshall, SVP, Head of Fixed Income & Lead – Private Markets, joined CI GAM in 2006 and leads the fixed income group’s high yield team efforts in addition to leading the private markets group. Geof is also the lead manager on CI GAM’s income strategies, and co-manages the private markets and income & growth funds as well as a number of multi-asset fixed income portfolios. He brings over 25 years of valued industry experience to his role at CI GAM, especially in asset allocation and analyzing, managing and trading corporate bonds, leveraged loans, and private credit. Prior to CI GAM, Geof was a portfolio manager at Manulife Financial. Geof is a CFA charterholder with a Bachelor of Arts in Political Science from the University of Western Ontario. He is also a member of the CFA Society Toronto and sits on the Investment Committee at the Royal Ontario Museum.
IMPORTANT DISCLAIMERS
Leverage: An investment strategy of using borrowed money - specifically, the use of various financial instruments or borrowed capital - to increase the potential return of an investment.
Liquidity: The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Cash is considered to be the most liquid asset, while things like fine art or rare books would be relatively illiquid.
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