A first-quarter snapshot of Ares Capital Corp suggests the firm is not bracing for significant fallout from the liquidity strains affecting private credit markets or from rising concerns about artificial intelligence disrupting software borrowers, according to a report by Reuters.
Despite a period marked by elevated redemptions across private credit and heightened scrutiny of tech exposure, the company reported only a modest dip in earnings while maintaining strong funding capacity. Notably, anticipated markdowns across higher-risk assets – particularly in software – largely failed to materialise.
Software and services accounted for roughly 22% of Ares Capital’s loan portfolio at the end of March, according to filings, representing a slight reduction from prior levels. Overall, the firm reported a fair value of $29.5bn against an amortised cost of $29.6bn, indicating limited valuation pressure.
Only a small number of software investments were marked below their December valuations. Among the more significant adjustments, combined debt and equity exposure to Cornerstone OnDemand and Sunshine Software Holdings stood at $261.9 million – approximately 26% below cost. This included a notable markdown on a second-lien loan. Additional write-downs were recorded on positions in Symplr Software, DigiCert and CoreLogic.
Conversely, some investments moved higher, including exposures to Global Medical Response and FEH Group.
The report cites CEO Kort Schnabel during an earnings call as highlighting findings from an independent review of the firm’s software portfolio, conducted with external advisors. The assessment concluded that AI-related risks remain contained, with approximately 85% of holdings classified as low risk and only a limited number flagged as more vulnerable.
Still, some market participants question the stability of valuations in private credit. Alex Cordover, head of private credit platform Tradable, noted that valuation practices often rely heavily on internal judgment and non-public information, creating incentives for managers to maintain stability.
Shares in Ares Capital have declined around 6.5% year-to-date, trading at $18.92. Net asset value per share—a key measure of portfolio health—fell to $19.59 at the end of the first quarter, down from $19.94 at year-end.
