Oaktree’s Howard Marks says there’s no systemic problem with private credit

Veteran Investor Howard Marks Discusses Private Credit Risks

Veteran investor Howard Marks recently shared his thoughts on the private credit sector, emphasizing that while he does not see a widespread issue, the rapid growth in this area over the past decade could expose weaker lenders in the future.

Co-chairman and co-founder of Oaktree Capital, Marks explained during an interview on CNBC’s “Money Movers” that the expansion of direct lending has surged to over $1 trillion from its modest beginnings in 2011. He cautioned that this rapid growth could lead to vulnerabilities when the market experiences a downturn.

Concerns surrounding direct lenders have heightened following the failures of Tricolor and First Brands, both auto-related borrowers. There is particular unease regarding loans extended to software companies, with worries that advancements in artificial intelligence could disrupt these businesses.

Marks referenced a common banking adage that states the riskiest loans are often made during prosperous times. With nearly two decades of economic growth, he highlighted the importance of discerning credit analysis and prudent lending practices.

Market sentiment has started to shift, with investors withdrawing almost 8% from Blackstone Inc.’s primary private credit fund in the latest quarter. This trend reflects a growing sense of caution among investors and fund allocators.

Despite the mounting concerns, Marks acknowledged the unpredictability of market cycles, stating that the most impactful events are often unforeseen. He emphasized the importance of adaptability and resilience in navigating through potential market disruptions.