GMO argues that private equity portfolios have quietly become concentrated bets on leveraged, low-quality software companies just as AI threatens to disrupt the economics of software itself.
- Over the last decade, public-to-private buyouts increasingly targeted highly leveraged, lower-profitability companies trading at elevated valuations relative to peers.
- Roughly 40% of recent leveraged buyouts have been concentrated in software and services, an unprecedented sector concentration in private equity history.
- GMO warns that private equity portfolios may be far more exposed to economic shocks, refinancing stress, and AI disruption than many allocators realize.
- The report challenges the idea that private equity inherently provides diversification, arguing that most portfolios ultimately concentrate exposure toward smaller, lower-quality companies.
One of the report’s sharper observations is that the industry may have spent years buying software businesses precisely as AI begins commoditizing software creation itself.
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