A senior executive at Apollo Global Management is warning that software valuations in the private equity sector have become dangerously overpriced, and that firms are misstating the value of assets they hold. Marc Zito, a partner at the investment giant, said the practice could trigger large financial write-downs, shaking investor confidence and threatening broader market stability.
Why Zito is speaking out
Zito’s remarks, made during a recent industry briefing, target a recurring tension in private equity: how firms mark the value of their portfolio companies. Unlike publicly traded stocks, which adjust in real time, private assets rely on periodic appraisals. Zito argued that those appraisals have drifted from reality, especially for software companies that rode a pandemic-era boom.
He didn't name specific firms or funds, but his critique cuts at the core of how private equity reports performance. If assets are marked too high, investors — including pension funds and endowments — could be sitting on inflated returns. A correction, Zito suggested, would be painful.
Overpriced software and misstated marks
Software companies have been a favorite target for private equity, prized for recurring revenue and high margins. But Zito said valuations for many of these businesses have detached from fundamentals. Revenue growth has slowed, competition has intensified, and interest rates have stayed higher than expected. Yet the marks on private-equity-held software firms haven't fallen in step.
That mismatch, he warned, means some firms are effectively reporting paper gains that don't reflect economic reality. When those marks eventually adjust — and Zito indicated they will — the financial statements of private equity firms will take a hit. Investors could lose confidence, not just in specific funds but in the broader private equity model.
The warning comes as regulators and institutional investors are already paying closer attention to how alternative asset managers value their holdings. The Securities and Exchange Commission has proposed stricter rules on private fund valuation. Zito’s comments add weight to calls for more transparency.
If widespread markdowns occur, the effects could ripple beyond private equity. Banks that lend to these firms, limited partners who commit capital, and even public markets that track private equity performance via indexes could all feel the tremor. Zito didn't predict a systemic crisis, but he made clear that the current pricing assumptions aren't sustainable.
Apollo itself holds a large portfolio of private assets, though Zito said the firm has been more disciplined than many peers. He didn't elaborate on how Apollo's marks compare.
Unanswered questions
Zito's blunt assessment raises a question that hangs over the industry: How many other private equity executives share his view but won't say it publicly? For now, there's no sign of a coordinated effort to revalue software stakes. But the clock may be ticking. If interest rates stay elevated and software growth continues to cool, the gap between book value and market value will only widen.
The SEC’s proposed valuation rule is still in the works. Whether Zito’s warning will spur faster action — or more firms quietly adjusting their own books — remains to be seen.
