Starting in late 2025, a fear gripped investors that the loans from software companies held in private credit funds would default in large numbers. The thesis was that because of AI, companies could easily write software for their own needs, and therefore, software companies would lose a large portion of their clients and revenues.
Here is the three-year chart of the iShares Expanded Tech-Software Sector ETF (IGV). You can see the steep sell-off that started at the end of October 2025, and produced a 37% drop in the value of the software sector.
A large portion of software company financing is through private credit loans. Large money managers packaged the loans and sold them through investment advisors. As the fears grew about software company loans, investors tried to pull out their money. However, these credit funds limit the amount investors can withdraw.
The financial media fed the fear mongering, with stories about frustrated investors who wanted to get their money out of the private credit funds. There was very little news about actual problems with the loans themselves. The fears about the software sector lasted until mid-April, 2026, as shown by the chart above.
Business development companies (BDCs), both private and publicly traded, were hit hard by the private credit fears. BDC businesses are private credit lenders. Here is the one-year chart for the VanEck BDC Income ETF (BIZD). From the 52-week high to the recent low, the ETF dropped by 27%.
Investors own BDC shares primarily for the dividend income. These stocks offer attractive yields, from high single digits to low double digits. When share prices start to fall, uninformed investors start to worry about dividend cuts.
Through the drop in both software stocks and BDC share prices, I closely monitored the facts, and I was pretty sure the fears were very much overblown. It was mostly the news media pushing a narrative, without providing any supporting data.
I told my newsletter subscribers that the fall in prices for my recommended BDCs was an opportunity to pick up shares “on sale.” A lower share price means a higher yield in the future.
BDCs have started to recover. Of the four I recommend, one is up 15% from its low, and the other three are up between 21% and 29%.
To highlight one of my recommendations, Hercules Capital (HTGC) has about half of its loan portfolio with technology companies. The BDC focuses on supporting venture capital sponsors. From its recent low, HTGC has rebounded by 22.7%. Investors who bought or added shares when fear was running high are happy campers now.
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