Long-term business software investor Hg has commented on the selloff in tech stocks this week that has crushed shares in HgCapital Trust (HGT), which invests in Hg’s private equity funds.

Over two decades Hg has built up $185bn (£136bn) of investments in 60 privately owned software providers. Although these are not directly affected by the falls in listed companies since Anthropic targeted its Claude chatbot at the legal sector, HgT shares have tumbled 19%, widening their discount to net asset value to 31%.

Matthew Brockman, chair of Hg’s investment committee, said in an online article that it was clear that artificial intelligence products were gaining traction with customers and that, as it has previously flagged, traditional software-as-a-service (SaaS) revenue growth was slowing and had declined by 3%-5% in the last 12 months.

However, repeating his line to HGT shareholders at their AGM in November, Brockman said software businesses “will win if they mobilise” around the “four Ds” of proprietary data, deep domain knowledge, distribution and dominance (he says “deterministic”) in mission-critical processes where companies require accurate, predictable outcomes. 

Brockman said the opportunity for incumbents was “huge” if they got on top of AI and used it to become “systems of action” with senior software engineers capable of overseeing the production of three times as much code. 

Software firms were no longer aiming at the $1trn annual software market but the $50trn-plus human labour market. “Let’s not get carried away, but incumbent SaaS businesses will capture some of this opportunity if they ‘re-found’ themselves as ‘AI first’ and quickly.”

Hg was helping its portfolio companies do this by deploying small, senior teams to work on accelerating AI product rollout and operational transformation. Brockman said Hg’s “Catalyst” team had helped GTreasury do this before the treasury solutions platform was bought by blockchain payment provider Ripple last year.

He admitted the stakes were high to get AI-enabled products and services working perfectly but said “this is where incumbents have a head start and the key is to have already mobilised.”

HGT shares edged 0.7% higher to 382.7p.