Howard Marks, Co-Chairman of Oaktree Capital.
By: David A. Grogan | CNBC
Veteran investor Howard Marks doesn’t believe there are widespread problems in the private credit industry, but warned that the sector’s rapid expansion over the past 15 years could expose weak lenders when the market eventually turns around.
“There is no systemic problem with private credit,” Marks, co-chairman and co-founder of Oaktree Capital, told CNBC’s “Money Movers” on Thursday.
The celebrity investor said this risk stems from the pace of expansion of direct lending, which has ballooned from its early development around 2011 to a market now worth more than $1 trillion.
His comments come as sentiment toward direct lenders has soured following the collapse of auto lenders Tricolor and First Brands. Much of the concern has focused on lending to software companies, as investors worry that artificial intelligence could disrupt their businesses.
“There’s a saying in banking that the worst loans are made at the best of times. We’ve had 17 years of good times. During the good times, or as Warren Buffett would say, when the tide turns, we’ll see whose credit analysis was more insightful and who made fewer software loans to better companies,” Marks said.
The pressure is already starting to show up in capital flows. Investors withdrew nearly 8% from Blackstone’s flagship private credit fund in the latest quarter, highlighting growing caution among allocators.
Marks said it is impossible to predict exactly when the cycle will turn.
“It’s the unforeseen events that have such a huge impact on the investment world,” Marks said. “If they were foreseeable, calibrated and priced in, they wouldn’t have such a devastating impact.”
