Unrealised losses in private credit have been a headwind to total returns, with recent markdowns concentrated in software, but these reflect uncertainty over AI rather than weakening fundamentals, according to BlackRock.

Markdowns on software loans have accounted for roughly two-thirds of total unrealised losses in the asset class since the fourth quarter of 2025, BlackRock’s latest quarterly private credit outlook found.

The weighted average valuation of first-lien software loans fell from near par at the end of 2025 to around 97 per cent of cost in the second quarter of 2026, while moves in other sectors were far more modest.

Media and entertainment loans saw the next-largest markdowns, followed by consumer services, according to Cliffwater Direct Lending Index data cited by the asset manager.

Software has been under a cloud since February’s so-called SaaSpocalypse, when the rapid pace of AI development called the future of the industry into question.

However, BlackRock said data from Lincoln International suggests the markdowns have not reflected a broad deterioration in software fundamentals, but rather uncertainty around the terminal value of these businesses amid AI-related disruption.

Read more: BDCs turn defensive amid redemption pressure

In the second quarter of 2026, 68 per cent of software borrowers posted positive year-on-year growth in last-12-month adjusted Ebitda, compared with 64 per cent of the wider pool of companies tracked by Lincoln.

Average adjusted Ebitda growth was also somewhat stronger for software borrowers, at 6.8 per cent versus 5.6 per cent across the wider pool.

But the data also revealed dispersion within the sector. Software borrowers with higher retention rates tend to support greater leverage, which BlackRock said highlighted meaningful differences in business quality.

Read more: Managers hunt for software winners and losers amid AI panic