U.S. private equity is shifting towards "HALO" heavy assets, while software stocks are already sitting on the sidelines.

Ask AI · Why have low-turnover, heavy assets become a safe haven for private equity giants?

The wave of artificial intelligence is reshaping the investment landscape of private capital. Private equity giants such as Blackstone, Bain Capital, and Brookfield Asset Management are shifting their focus from software to “low-turnover, heavy assets” (HALO). Industrial manufacturing, energy, infrastructure, and even the defense sector have become the new battleground.

The spark for this shift is a disruptive threat that AI tools pose to the software-as-a-service (SaaS) business model. According to Bloomberg data, over the past five years private equity has invested more than $1 trillion in the software sector. Now, these assets face valuation write-down pressure, and some exit plans have already been put on hold.

The signals from the capital markets are switching in parallel. A €1.3 billion leveraged loan for German medical software company Dedalus was paused due to investor unease, while a merger and acquisition financing for infrastructure security company Ramudden Global of about €1.2 billion was priced to a spread below the issue price because demand was strong. This mix of “cold and hot” reflects the credit market’s sharply different risk appetite for the two asset types.

HALO deals are heating up, industrial assets becoming the main focus

So-called HALO—“low-turnover, heavy assets”—refers to physical assets that are believed to be difficult to displace with AI, covering upstream and downstream industrial manufacturing such as ship engines, conveyor belts, and more.

Blackstone President Jonathan Gray said in an interview:

“People are looking for solid places to land. Interest in real, tangible assets in areas such as medical supplies, energy, real estate, and industrials is rising significantly—whether in public markets or in private markets.”

A series of signature transactions has emerged in Europe. Private buyers are competing for Volkswagen’s heavy diesel engine business; UK aerospace supplier Senior Plc has attracted a three-way bidding contest; and Advent and Cinven are in talks to sell Thyssenkrupp elevator business TK Elevator for up to €25 billion (about $29 billion).

Meanwhile, Triton Partners, Warburg Pincus, and Brookfield have raised new funds one after another to invest in industrial technology, data centers, and the defense sector—long neglected.

Software assets under pressure, exits becoming more congested

The troubles in the software track stand in stark contrast to the heat around HALO. According to Bloomberg data, over the past five years, private equity’s spending in software has been about twice that of industrial investment over the same period, with a scale of more than $1 trillion.

Entering 2026, new tools rolled out by AI start-ups such as Anthropic have directly hit the business models of many SaaS companies in private equity portfolios. Concern about excessive concentration in software assets has quickly intensified across the industry, and potential impairment risks have surfaced as well.

Bain Capital partner Robin Marshall estimates that about 40% of the assets held by M&A funds face software business exposure. She said that routine mark-to-market valuations at the end of the first quarter will become the testing moment—“the price tag on some assets will face challenges, and the sales originally planned to be completed in 2026 may continue to be delayed.”

Credit market diverges, “tangible assets” premium becomes prominent

The HALO shift is also running through the private credit market. Credit investment institutions such as Blue Owl Capital, Cliffwater, and KKR are taking pressure because they hold loans tied to the software industry.

Igno van Waesberghe, managing partner at Aquiline Capital Partners, which focuses on investing in financial services, said plainly: “The problem is that anyone holding software or SaaS assets, right now, doesn’t want to hear how much these assets are worth.”

The case in the credit market is even more straightforward: Dedalus paused its €1.3 billion leveraged loan, and Team.Blue canceled its two-stage plans for amended, extended, and repriced transactions for existing loans.

By contrast, on the heavy-asset side, merger and acquisition financing for Ramudden Global was priced on terms better than the issue price amid strong demand. Investors are also eagerly waiting for major M&A financing deals such as ContiTech’s industrial business at Continental Group to land.

Hadrien Servais, a leveraged finance partner at the law firm Simpson Thacher & Bartlett LLP, said: “We are seeing money flow back in—into companies that hold real assets, have predictable cash flows, perhaps slower growth, and don’t look as ‘sexy’—but are more favored by investors in an uncertain environment.”

Software isn’t out, but needs to wait for repricing

Even though the atmosphere is cooling, software deals have not completely shut down. In February this year, Thoma Bravo completed its acquisition of Dayforce, a human capital management software vendor. This month, Nordic Capital also announced an acquisition deal to buy a majority stake in TradingHub, a transaction monitoring software company.

Industry participants generally believe that private capital will not completely abandon software assets, because these businesses have already been proven in locking in customers and generating stable revenue. But under the AI shock, reevaluating how to enter the market needs time.

Shonnel Malani, an Advent managing partner focused on industrial M&A, said: “When traditional customers are all seeking solutions with more AI capability, the terminal value of these businesses can’t really be judged at the moment.” He added that once investors find a way to reprice, they will naturally revisit this sector.

Servais also predicts that this kind of “blanket” cold attitude toward the software segment will eventually fade. At that point, the market will gradually distinguish which software companies have truly durable competitive strength. “But until then, investors will continue to look for shelter in HALO assets.”