Howard Marks: Private Credit Not Systemic Problem, But Growth Poses Risks

Howard Marks, co-chairman and co-founder of Oaktree Capital, stated that he does not perceive a widespread systemic problem within the private credit sector.

He did, however, caution that the sector's rapid expansion over the past 15 years could expose weaker lenders when market conditions eventually change.

Marks indicated that the risk stems from the pace of growth in direct lending, a market that has expanded to over $1 trillion since its early development around 2011. He remarked that "the worst of loans are made in the best of times" and noted a 17-year period of favorable market conditions.

"The worst of loans are made in the best of times."

Concerns regarding direct lenders have increased following the collapses of auto-related borrowers Tricolor and First Brands. Additionally, investors are worried about loans made to software companies, citing potential disruption from artificial intelligence.

Marks suggested that a market downturn would reveal the quality of credit analysis among lenders. Evidence of increasing caution among investors is apparent, with nearly 8% of funds being pulled from Blackstone Inc.'s flagship private credit fund in the most recent quarter. Marks also commented on the unpredictability of market cycles, stating that significant events affecting the investment world are typically unforeseen.