Thoughts on the Software Reset for Private Credit

Fidelity’s direct lending team explores current conditions for software equities following a sharp decline, and where they are finding opportunities in more resilient segments of the market.

Key Takeaways

• Software equities have experienced a sharp drawdown, but the current reset may ultimately create a healthier lending environment than what has prevailed in periods where assets were overvalued and financed with aggressive leverage.
• Software has represented less than 10% of our direct lending investment activity over the past several years, reflecting our belief that there was indiscriminate excess focused more on loan-to-values (LTV) than business fundamentals.
• Such periods of pronounced volatility in public software markets tend to reshape capital availability, risk appetite, and, ultimately, transaction terms across the private markets. Several areas of mission-critical software should be resilient, such as cybersecurity and compliance infrastructure, enterprise controls, and secure data environments (including health care).

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1. Based on publicly available business development company (BDC) data, as of 2/12/26.

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