US Private Capital Shifts Toward "HALO" Heavy Assets, Software Stocks Left on the Bench

The wave of artificial intelligence is reshaping the private equity investment landscape. Leading private equity giants like Blackstone, Bain Capital, and Brookfield Asset Management are shifting their focus from software to “Low Obsolescence Heavy Assets” (HALO), with industrial manufacturing, energy, infrastructure, and even defense becoming new areas of competition.

The trigger for this shift is the disruptive threat AI tools pose to the Software-as-a-Service (SaaS) business model. According to Bloomberg data, private equity investments in the software sector over the past five years exceeded $1 trillion. Now, these assets face valuation pressures, and some exit plans have been shelved.

The capital markets are also changing direction. A €1.3 billion leveraged loan for German medical software company Dedalus was paused due to investor concerns, while infrastructure security firm Ramudden Global’s approximately €1.2 billion M&A financing was completed at a lower spread than issuance price due to strong demand. This contrast reflects differing risk appetites in the credit market for these two asset types.

HALO Deals Heat Up, Industrial Assets Become the Focus

HALO, meaning “Low Obsolescence Heavy Assets,” refers to tangible assets considered less likely to be replaced by AI, including ship engines, conveyor belts, and other industrial manufacturing upstream and downstream.

Blackstone President Jonathan Gray stated in an interview:

“People are looking for solid footholds. Whether in public markets or private equity, interest in tangible assets like medical supplies, energy, real estate, and industry is significantly increasing.”

In Europe, several landmark deals have emerged. Private buyers are competing for the heavy diesel engine division of Volkswagen, UK aerospace supplier Senior Plc has attracted three bidders, and Advent and Cinven are in talks to sell Thyssenkrupp Elevator TK Elevator for up to €25 billion (about $29 billion).

Meanwhile, Triton Partners, Warburg Pincus, and Brookfield are raising new funds to invest in industrial technology, data centers, and the long-neglected defense sector.

Software Assets Under Pressure, Exit Channels Tightening

The struggles in the software sector contrast sharply with the enthusiasm for HALO assets. Bloomberg data shows that private equity investments in software over the past five years totaled about twice the amount invested in industrials, exceeding $1 trillion.

By 2026, new tools from AI startups like Anthropic are directly impacting many SaaS business models in private portfolios. Industry concerns about over-concentration in software assets are rising, with potential impairments looming.

Bain Capital partner Robin Marshall estimates that about 40% of assets held by private equity buyout funds have exposure to software businesses. She noted that the routine valuation assessments at the end of Q1 will be a test—“some assets will face valuation challenges, and planned sales in 2026 may be further delayed.”

Credit Markets Diverge, “Tangible Assets” Premiums Highlighted

This divergence also appears in private credit markets. Credit investors like Blue Owl Capital, Cliffwater, and KKR are under pressure due to holdings of loans to the software industry.

Igno van Waesberghe, managing partner at Aquiline Capital Partners, which focuses on financial services investments, said: “The issue is, anyone holding software or SaaS assets doesn’t want to hear what they’re worth right now.”

The case is more straightforward in the credit market: Dedalus paused a €1.3 billion leveraged loan, and Team.Blue canceled plans to amend, extend, or reprice existing loans in a two-stage deal.

On the other side, heavy assets are seeing strong demand. Ramudden Global’s M&A financing was completed at better-than-issue terms, and investors are eagerly awaiting major financings for acquisitions like Continental’s industrial division ContiTech.

Hadrien Servais, leveraged finance partner at Simpson Thacher & Bartlett LLP, said: “We are seeing a flow of capital back into companies with tangible assets, predictable cash flows, perhaps slower growth, and less glamour—assets that are less favored in uncertain environments but more attractive to investors now.”

Software Is Not Out, But Repricing Is Needed

Despite the cooling sentiment, software deals are not completely halted. Thoma Bravo completed its acquisition of human capital management software provider Dayforce in February, and Nordic Capital announced the acquisition of trading monitoring software company TradingHub this month.

Industry insiders generally believe private equity will not abandon software assets entirely, as these companies have proven their ability to lock in customers and generate stable revenue. However, under AI disruption, reassessing entry points takes time.

Shonnel Malani, managing partner at Advent, said: “As traditional clients seek more AI-enabled solutions, the terminal value of these companies is hard to determine at the moment.” He added that once investors find a way to reprice, they will revisit this sector.

Servais predicts that the market’s “one-size-fits-all” coldness toward software will eventually fade, and distinctions will emerge among software companies with genuine sustainable competitive advantages. “But until then, investors will continue to seek refuge in HALO assets.”

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