Ares Capital Software Loan Valuations Hold Steady Despite Sector Concerns

Ares Capital Corp maintained largely stable valuations across its software loan portfolio in the first quarter, signaling limited immediate impact from broader concerns over private credit liquidity and potential disruption from artificial intelligence.

The private credit lender, part of Ares Management, reported only modest valuation adjustments at the end of March, even as the industry faced heightened scrutiny over exposures to software companies and rising redemption pressure in retail-focused credit funds.

Analysts had expected more significant markdowns, particularly in technology-related holdings, but filings showed only a limited number of loans were adjusted downward during the period.

Limited Valuation Changes

Software and services accounted for nearly 22% of Ares Capital’s loan portfolio at quarter-end, a level that declined slightly during the period. Despite this sizable exposure, the firm reported minimal changes in the fair value of its assets.

Ares Capital disclosed a total portfolio fair value of $29.5 billion, compared with an amortized cost of $29.6 billion, indicating only a marginal difference between book value and market estimates.

Only a handful of software investments were marked below prior valuations. Among the more notable adjustments, the firm’s combined debt and equity exposure to Cornerstone OnDemand and Sunshine Software Holdings was valued at approximately $261.9 million, representing a discount of about 26% to its original cost.

Other positions in companies including Symplr Software, DigiCert and CoreLogic were also marked lower, though the overall impact on the portfolio remained limited.

At the same time, certain investments—such as those in Global Medical Response and FEH Group—were marked higher, reflecting mixed performance across sectors.

AI Risk Viewed as Contained

Concerns about artificial intelligence disrupting software business models have been a focal point for investors in recent months, particularly for private credit funds with concentrated exposure to the sector.

Ares Capital said it conducted an independent review of its software portfolio with the assistance of an external consultant. The assessment concluded that the majority of the portfolio carries relatively low exposure to AI-related disruption.

“Overall, the independent review found that AI-related risk across our software-oriented portfolio is relatively limited,” Chief Executive Officer Kort Schnabel said during an earnings call.

According to the firm, roughly 85% of its software investments were categorized as low risk, with only a small portion identified as higher risk.

Broader Industry Context

The findings come as private credit markets face growing attention over valuation practices and transparency. Unlike public markets, private credit assets are typically valued based on internal models and non-public information, which can lead to concerns about delayed or muted adjustments in response to changing market conditions.

Industry observers note that this structure can create a degree of “valuation inertia,” where asset prices remain relatively stable even as external conditions evolve.

“Because valuations rely heavily on management judgment and non-public data, there is an inherent tendency toward stability,” said Alex Cordover, chief executive of private credit platform Tradable.

Performance and Outlook

Ares Capital’s net asset value declined slightly to $19.59 per share at the end of the first quarter, down from $19.94 at the end of 2025. The firm’s shares have fallen about 6.5% year to date, reflecting broader market concerns around private credit and sector-specific risks.

Despite these pressures, some analysts remain constructive on the company’s long-term outlook. Market participants point to Ares Capital’s scale, diversified portfolio, and track record across multiple economic cycles as key strengths.

The firm is also one of the largest origination platforms in private credit, providing it with flexibility in sourcing and structuring new investments.

Ares Capital’s relatively stable valuations suggest that, for now, concerns around software exposure and AI-driven disruption have not materially impacted its portfolio.

However, as private credit markets continue to evolve and external pressures persist, investors are likely to remain focused on how asset valuations respond to shifting economic conditions and technological change.

The coming quarters may provide a clearer indication of whether current valuations fully reflect underlying risks or if further adjustments are ahead.

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