Oaktree Capital Management CEO Howard Marks said that some direct lending managers “accepted too much money and invested it too fast, applying standards that were too low and setting the scene for a correction.”
He added that the massive amounts of capital that had previously been available in direct lending created a “goldrush mentality,” in a memo entitled “What’s Going on in Private Credit?”
In the last 15 years, direct lending has surged to $2 trillion, while just two decades ago the whole private credit market stood at only about $150 billion, Marks pointed out.
“In the last several months, the tide has begun to go out for direct lending (generalized to all of private credit by those who don’t make fine distinctions). To paraphrase Buffett, this created the possibility that some bare bottoms would be exposed,” Marks said.
The CEO added that the bankruptcies of First Brands and Tricolor took investors by surprise last year, sparking concerns about how publicly traded vehicles for direct lending were structured. In particular, questions arose over the methods used to value their private debt holdings.
“It’s usually the case that if a confluence of troubling events builds up, a critical mass can eventually be reached, rendering …
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