You know that scene in "The Big Short" where Michael Burry stares at the subprime numbers and goes, "This is all wrong, and nobody wants to admit it"?
Yeah. It happened again. Only this time it's not subprime. It's software.
The Insider Who Opened His Mouth
John Zito isn't some random Twitter analyst with strong opinions and a weak portfolio. The guy is co-president of Apollo Global Management's asset management division and the firm's head of credit. We're talking about one of the biggest alternative asset managers on the planet.
And what he said at a UBS client event last month was the financial equivalent of yanking the tablecloth off a black-tie dinner:
"I literally think all the marks are wrong. I think the private equity marks are wrong."
Let me translate from Wall Street-speak: the private equity firms that bought software companies in recent years are, according to Zito, lying about what those investments are actually worth today. The marks — the "mark-to-market" or "mark-to-model," a.k.a. the price that shows up on investor reports — are inflated. Fictional. An accounting illusion that hasn't collided with reality yet.
And reality, my friends, is that Anthropic, OpenAI, and the entire generative AI crew are eating alive the niche software companies that private equity loved to gobble up between 2018 and 2022.
The Bill Has Arrived
Let's recap what went down during that period: rock-bottom rates, cheap money, sky-high valuations. Private equity threw a rager. They bought mediocre software companies at premium prices, levered them up with private credit debt, and slapped it all into a pretty report for investors.
Now, with public software company stocks melting down — because the market is pricing in that AI is going to make a huge chunk of these businesses obsolete — investors are looking at their private credit funds and asking: "Wait a minute, if Salesforce dropped X%, why does my private credit fund that lent money to a software company worse than Salesforce still show the same value it did six months ago?"
Bingo. Welcome to the problem.
Zito got specific: software companies that were taken private between 2018 and 2022 are the most exposed. He called many of them "lower quality" compared to their larger public competitors. And he warned that creditors of these smaller companies may recover — brace yourself — between 20 and 40 cents on the dollar.
That's a 60% to 80% loss for the lenders. Imagine what it looks like for the equity holders.
The Exodus Has Already Begun
The numbers don't lie: retail investors pulled roughly $10 billion from private credit funds in Q1 alone. JPMorgan Chase is already dialing back exposure to private credit loans and marking down the value of loans to software companies.
Meanwhile, the usual circus: a parade of "industry leaders" trying to calm the market, saying "the underlying companies are performing well." Same old song and dance. "Everything's fine, trust us."
Apollo, for its part, made sure to distance itself from the blast zone. It told analysts that software represents less than 2% of the firm's assets under management and that it has zero exposure to private equity stakes in software companies. Smart. The guy throws the grenade and walks out of the room before it goes off.
The Quote That Says It All
Zito closed with a gem that should be tattooed on the forehead of every fund manager:
"If you do stupid things, concentrated things, and things that you shouldn't do in your vehicle — you're probably going to have a bad ending."
Nassim Taleb would give a standing ovation.
What's happening in software private credit is the 2025 version of a timeless truth: when money is cheap, everybody looks like a genius. When the tide goes out, you find out who's been swimming naked.
But the real question is this: if even an insider like Zito is publicly saying all the marks are wrong, what the hell are they saying behind closed doors?
And more importantly — if you've got money in a private credit fund with software exposure, have you already asked your manager for the detailed marks report, or are you waiting for the final chapter to find out it was fiction all along?
