By the end of March 2026, the company reported only a modest dip in earnings while maintaining strong funding levels. This comes amid broader चिंता over how emerging technologies like artificial intelligence could disrupt borrowers—especially in the software sector, where many private credit lenders have significant exposure.
Limited Valuation Adjustments Raise Eyebrows
Despite expectations of widespread markdowns, Ares Capital’s portfolio showed relatively few valuation cuts. Software and services still accounted for roughly 22% of its loan book, only slightly reduced during the quarter. Analysts had anticipated more aggressive “marks” on higher-risk loans, but those adjustments were limited.
The firm reported a fair value of approximately $29.5 billion in assets, compared to an amortized cost of about $29.6 billion—indicating only a narrow gap between book value and estimated market worth.
Some exceptions did emerge. Investments tied to companies such as Cornerstone OnDemand and Sunshine Software Holdings were marked significantly lower, with combined exposure reduced by about 26% from cost. Additional markdowns were recorded for positions in DigiCert and CoreLogic, among others.
However, these declines were offset in part by gains in other holdings. Investments in firms like Global Medical Response and FEH Group were marked higher, helping stabilize the overall portfolio.
AI Risk Seen as Contained
To address growing concerns about artificial intelligence disrupting software-driven business models, Ares Capital engaged an independent consultant to review its exposure. According to CEO Kort Schnabel, the findings were largely reassuring.
The review concluded that roughly 85% of the firm’s software portfolio falls into a low-risk category with respect to AI disruption. Only a small portion of holdings was identified as potentially vulnerable, suggesting that the broader portfolio may be more insulated than some investors feared.
Transparency Questions Persist
Even with these assurances, some market participants remain cautious. Alex Cordover of Tradable pointed out that private credit valuations inherently rely on internal models and limited public data. This dynamic can create what he described as “information asymmetry,” where managers have discretion that may favor stability in reported valuations.
Such concerns have become more prominent as private credit grows in size and importance, yet remains less transparent than public markets.
Market Performance and Outlook
Shares of Ares Capital have declined about 6.5% so far this year, recently trading around $18.92. Meanwhile, the company’s net asset value—a key measure of portfolio health—fell to $19.59 per share at the end of the first quarter, down from $19.94 at the close of 2025.
Still, some analysts remain optimistic. Richard Shane of JPMorgan Chase reiterated an “overweight” rating on the stock, maintaining a year-end 2026 price target of $19. He cited the firm’s long track record across market cycles, flexible investment strategy, and scale as one of the largest origination platforms in private credit.
A Test Case for the Industry
As private credit navigates a more uncertain environment—marked by tighter liquidity, technological disruption, and increased scrutiny—Ares Capital’s performance may serve as a bellwether. For now, its results suggest a degree of stability, though questions around valuation practices and sector-specific risks are unlikely to fade anytime soon.