Hg Capital Trust cut the value of most of its largest investments during the first quarter, pointing to a broad pullback in software valuations tied to AI-related concerns.
The firm saw a 5.4% drop in net asset value for the quarter. It also saw a 9% decrease in portfolio valuations. Fourteen of Hg’s 20 largest positions were marked down over the period, the Financial Times reported.
"While all technology assets will be impacted by the adoption of AI, the Hg portfolio companies are well placed to see their specific value propositions enhanced by AI integration rather than to be replaced altogether. Indeed, Hg continues to lead the thinking on how such effective augmentations and collaborations can be made," Strang continued.
Hg Pullbacks
Hg’s reduced its investment in IFS, a Sweden-based business focused on AI for manufacturing, by 7%. Its stake in London-based insurance group Howden fell 9%. It also trimmed its position in Visma Software by 1% after the sell-off delayed its London listing.
The pullback comes as investors reassess the software subscription model amid new AI tools that could let customers do more work internally.
"The broad-based sell-off in the software sector, substantively driven by fears over the disruptive threat of AI to existing businesses, has been largely indiscriminate with little distinction between the many different types of businesses that are found across the software sector," Hg Captial Chair Jim Strangsaid.
Other firms have been marking down fund values as pressure in the private credit market intensifies.
BlackRock (NYSE:BLK) recently reduced the valuation of its publicly traded private credit vehicle, BlackRock TCP Capital Corp., by roughly 5%. The middle-market lending fund also recorded about $35 million in total markdowns in the first quarter.
The fund has faced ongoing strain from deteriorating credit conditions, including rising levels of distressed loans, asset write-downs, and weaker overall returns.
Photo: Shutterstock