Investors are fleeing Business Development Companies (BDCs) as artificial intelligence disrupts valuations across the software sector. Shares and bonds of these listed credit funds have tumbled this year, reflecting growing concerns about their exposure to mid-market tech firms facing AI-driven obsolescence.

BDCs, which provide debt financing to smaller businesses, hold significant stakes in software companies now grappling with rapid technological shifts. The AI revolution has accelerated fears that traditional software models may become outdated, eroding collateral values for lenders. This marks a sharp reversal for a sector that attracted $19 billion in net inflows last year.

Major BDCs including Ares Capital and Main Street Capital have seen double-digit percentage declines in their securities since January. The selloff signals deeper market anxieties about private credit's vulnerability to tech disruption, with investors reallocating capital to less exposed asset classes. Analysts say the slump could pressure BDCs to tighten lending standards.