By Isnaini Azizah 
John Zito, the co-president of Apollo Global Management’s massive asset management division and its influential head of credit, recently delivered a scathing and remarkably candid assessment of the current state of the private markets. Speaking to clients of the investment banking giant UBS in remarks that were first brought to light by the Wall Street Journal and subsequently confirmed by CNBC, Zito did not mince words regarding the discrepancy between public and private tech valuations. His central thesis was as simple as it was provocative: the valuations currently being assigned to software companies by private equity firms are fundamentally disconnected from reality.
"I literally think all the marks are wrong," Zito told the assembled group of sophisticated investors. "I think private equity marks are wrong."
This statement has sent ripples through the financial world, particularly because it comes from a high-ranking executive within one of the world’s most dominant alternative asset managers. For years, the private equity and private credit industries have operated on the premise that their "marking-to-model" approach provides a more stable, less volatile reflection of value than the daily fluctuations of the public stock markets. However, Zito’s comments suggest that this perceived stability may actually be a dangerous lag, masking a significant erosion of value that has already been priced into public markets.
The catalyst for this reassessment is the rapid and disruptive emergence of generative artificial intelligence. For several weeks, public market investors have aggressively sold off shares in established software-as-a-service (SaaS) companies. The driving fear is that the latest breakthroughs from AI powerhouses like OpenAI and Anthropic are not merely incremental improvements but "platform shifts" that could render existing software business models obsolete. If an AI agent can perform the tasks that previously required a specialized enterprise software suite—and do so at a fraction of the cost—the "moats" that private equity firms paid billions to acquire are effectively evaporating.
This shift has created a precarious situation for private credit lenders, who have poured hundreds of billions of dollars into financing these software buyouts. Because private marks are updated infrequently and often rely on historical performance rather than forward-looking technological disruption, there is a growing consensus that these lenders are sitting on "stale" valuations. This lack of transparency has ignited a wave of anxiety among retail and institutional investors alike, leading to a significant flight of capital.
According to an analysis by the Financial Times, retail investors pulled approximately $10 billion from private credit funds in the first quarter of the year. This stampede for the exits marks a sharp reversal for an asset class that was, until recently, touted as the "hottest" corner of Wall Street. In response to the outflow, industry titans have attempted to project an image of calm, arguing that the underlying companies in their portfolios continue to generate strong cash flow and maintain healthy interest-coverage ratios. Yet, the actions of some of the world’s most sophisticated financial institutions suggest a different story.
JPMorgan Chase, for instance, has already begun to take defensive measures. The bank has started reining in its lending to private credit players and has proactively marked down the value of software-related loans on its own books. This move by JPMorgan is seen by many as a "canary in the coal mine," signaling that the banking sector is no longer willing to accept the optimistic valuations provided by private equity sponsors at face value.
While high-profile market observers like DoubleLine Capital’s Jeffrey Gundlach and noted economist Mohamed El-Erian have previously flagged systemic risks within the private credit ecosystem, Zito’s admission is unique. It represents one of the first times a top-tier insider from within the private equity and credit "golden circle" has publicly acknowledged the fundamental weakness in current market pricing.
The backdrop for Zito’s comments is a challenging one for the entire alternative asset management sector. Shares of firms like Apollo, Blackstone, and KKR have faced pressure as investors grapple with the implications of higher-for-longer interest rates and the potential for a "hard landing" in over-leveraged sectors. In this environment, Apollo has been aggressive in differentiating itself from its peers. Zito and other Apollo executives have consistently emphasized that their firm’s approach is more conservative and structurally different from the "direct lending" models that have become synonymous with the private credit boom.
Apollo’s leadership has pointed out that the vast majority of their loans are directed toward larger, more stable corporations, many of which carry investment-grade ratings. Furthermore, the firm has disclosed that software exposure represents less than 2% of its total assets under management. Perhaps most importantly, in a bid to distance itself from the current turmoil, Apollo informed analysts during its most recent earnings call that it has zero exposure to private equity stakes in software firms. By doing so, Apollo is positioning itself as a lender to the "real economy" rather than a participant in the high-multiple tech-buyout machine.
The crux of Zito’s warning centers on the "vintages" of software deals struck between 2018 and 2022. This era was characterized by a "perfect storm" of risk: historically low interest rates, an abundance of cheap capital, and a belief that software revenue growth would continue indefinitely at double-digit rates. During this period, many companies were taken private at valuations exceeding 15 or 20 times revenue—multiples that assumed a level of permanence and pricing power that AI now threatens to dismantle. Zito noted that many of these businesses were "lower quality" than their larger, publicly traded competitors, lacking the scale or R&D budgets necessary to pivot in the face of the AI revolution.
The implications for the debt held by these companies are dire. Zito pointed out a logical truth that many in the industry have been slow to admit: if the equity value of a company is in trouble due to a fundamental business model failure, the debt is rarely safe. He suggested that in the coming years, private credit lenders—and the investors who back them—could face staggering losses. Specifically, he estimated that for generic small-to-medium-sized software firms caught on the "wrong side" of the AI shift, recovery rates for lenders could be as low as 20 to 40 cents on the dollar. For an asset class that is often marketed as "senior secured" and "low risk," such a recovery rate would be catastrophic, effectively wiping out the equity and a majority of the principal.
The current upheaval serves as a reality check for the "private credit gold rush." For years, direct lenders stepped into the void left by traditional banks, offering flexible terms and rapid execution. This allowed private equity firms to engage in massive "leveraged buyouts" (LBOs) without the scrutiny of the public bond markets. However, the lack of a secondary market for these loans means that when sentiment turns, there is no easy way to discover the "true" price of the assets.
While Zito believes that lenders who focused too heavily or too aggressively on the software sector are "heading for trouble," he does not necessarily predict the demise of the entire private credit asset class. Instead, he views this as a necessary, albeit painful, period of rationalization. The "bad ending" he described is reserved for those who engaged in what he termed "stupid" and "concentrated" behaviors—those who ignored the fundamental risks of technology obsolescence in favor of chasing yield in a low-rate environment.
As the industry moves forward, the focus will likely shift toward transparency and the "real-time" valuation of private assets. The days of "smooth" returns that ignore public market volatility may be coming to an end, forced by the undeniable reality of technological disruption and the demands of increasingly skeptical investors. For now, Zito’s comments stand as a stark reminder that in the world of high finance, the "mark" is only as good as the underlying business—and if the business is being disrupted by a generational shift in technology, the mark eventually has to move.
The broader economic consequences of a private credit contraction remain to be seen. If more firms follow JPMorgan’s lead and pull back on lending, the "liquidity bridge" that has supported the private equity industry for a decade could collapse. This would lead to fewer deals, lower valuations across the board, and a potential wave of restructurings for companies that cannot refinance their debt in a higher-rate, AI-disrupted world. Apollo’s John Zito has sounded the alarm; whether the rest of the industry heeds the warning or continues to hold onto "wrong" marks will determine the severity of the impending fallout.