Orlando Bravo Defends Private Markets Amid Rising Valuation Criticism

This analysis examines Orlando Bravo’s March 17, 2026 public defense of private markets in the context of escalating criticism from major financial institutions [1]. The event represents a significant moment in the ongoing debate over private equity valuations, particularly in the software sector.

The core tension lies in fundamentally different perspectives on how software companies should be valued:

Orlando Bravo argues that private equity firms operate with deep operational knowledge that public market analysts lack. His assertion that “we have been living in the details of the space for a very, very long time, not on a high level, not investing in stocks, [but] investing in companies, customer contracts, knowing the details” represents a direct counter to valuation criticism [1].

Morgan Stanley and Apollo Global Management have challenged this view. Morgan Stanley’s warning that direct-lending default rates will reach approximately 8%—approaching pandemic-peak levels—driven by AI disruption of software companies, directly contradicts Bravo’s optimism [2]. Apollo’s John Zito has been particularly vocal, stating that private equity software valuations are “all wrong” and significantly misaligned with market reality [3].

The contrasting views on AI represent perhaps the most critical divergence in industry outlook:

• Bullish Perspective (Bravo):
  Thoma Bravo’s 77 portfolio companies besides Medallia “are absolutely crushing it” with AI-enabled solutions. Bravo contends that private companies can implement AI transformations without the quarterly earnings pressure faced by public companies [1].

• Bearish Perspective (Analysts):
  Morgan Stanley’s analysis positions AI as a threat to software businesses, predicting demand erosion and weakened cash flows for borrowers [2]. Bravo himself acknowledged this risk, stating: “In the public markets, if you look at it, there are many, many software companies in the public markets that will be disrupted from AI… AI will create a disruption a lot faster” [1].

Morgan Stanley’s 8% default rate forecast for direct lending represents a significant escalation of risk concerns in the private credit market [2]. Key data points include:

• Software exposure among direct lenders stands at 26% via business development companies and 19% via private credit collateralized loan obligations
• Software loans exhibit the highest leverage and lowest coverage ratios across major sectors
• The “maturity wall” creates substantial refinancing vulnerability, with 11% of software loans maturing by year-end 2027 and another 20% in 2028

Bravo responded to these concerns by stating: “We are so comfortable with our private credit book, given the choices we’ve made us a specialist” [1].

The Medallia acquisition represents a notable instance of private equity executive transparency about valuation errors. Bravo explicitly stated: “When we bought it, we way overestimated or extrapolated the very high rate of growth of that company into the future. We made a mistake… Our equity from our standpoint has been impaired for a long time” [1]. This acknowledgment frames the issue as a known, isolated problem rather than a portfolio-wide concern.

Bravo’s defense emphasizes Thoma Bravo’s positioning as a sector specialist in software and technology. This specialist approach may become increasingly important as institutional investors seek managers with demonstrable operational expertise rather than purely financial engineering capabilities. The assertion that “everybody’s extremely comfortable” with their performance suggests confidence in existing investor relationships [1].

The event highlights a growing narrative that private and public software companies face fundamentally different competitive dynamics. However, the validity of this distinction remains contested—public market corrections may be “very warranted” according to critics, suggesting both markets may ultimately converge [1][2].

A notable gap exists between Bravo’s assertion of investor comfort and the skepticism from analysts at major financial institutions. This divergence may indicate either the superior insight of those with operational involvement or a potential blind spot in private equity self-assessment.

1. Valuation Disconnect Risk:
   The criticism from Apollo and Morgan Stanley suggests potential mark-to-market corrections that could impact private equity returns and LP confidence [2][3].

2. Credit Default Risk:
   The 8% default rate forecast represents a material increase from historical norms, with concentrated exposure in the software sector [2].

3. Refinancing Vulnerability:
   The maturity wall in 2027-2028 creates potential catalysts for credit stress across leveraged software companies [2].

4. AI Disruption Uncertainty:
   While Bravo is bullish, the actual impact of AI on portfolio company performance remains to be demonstrated over the next 6-24 months.

1. AI Implementation Success:
   Portfolio company performance will validate or refute Bravo’s optimistic view, potentially validating sector specialization as a value driver.

2. Valuation Methodology Improvements:
   Increased scrutiny may lead to greater transparency in private market valuation practices, potentially reducing the “marks are wrong” criticism.

3. Market Consolidation:
   Selective corrections could present opportunities for well-positioned private equity firms to acquire assets at distressed valuations.

This event represents a pivotal moment in the private markets debate, with Orlando Bravo publicly defending Thoma Bravo’s approach against criticism from Morgan Stanley and Apollo. The key findings include:

• Valuation Methodology Dispute:
  Fundamental disagreement between private equity practitioners who emphasize operational expertise and analysts who see marks as disconnected from market reality [1][2][3]
• AI Impact Uncertainty:
  Contrasting views on whether AI represents opportunity (Bravo’s position) or threat (Morgan Stanley’s analysis) to software companies [1][2]
• Credit Risk Escalation:
  8% default rate forecast for direct lending with 19-26% software concentration creates elevated risk profile [2]
• Maturity Wall Concerns:
  31% of software loans maturing by end of 2028 creates refinancing vulnerability [2]
• Specific Acknowledgment:
  Bravo’s admission regarding the Medallia impairment demonstrates a degree of transparency about valuation challenges [1]

The ultimate resolution of these debates will depend on actual portfolio performance, credit default experience, and the trajectory of AI disruption in the software sector over the coming 1-3 years.