What's Going on in Private Credit?

Key Takeaways

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  Direct lending replaced bank lending after 2008

  “The rise of direct lending is one of the most important developments in the financial world since the Global Financial Crisis.”

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  Higher rates boosted private credit yields significantly

  “The change in the interest rate environment has transformed the returns available to credit investors from meager to attractive.”

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  Excess capital supply risks lowering credit standards

  “When there's too much capital chasing too few deals, the quality of those deals and their terms usually suffer.”

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  Private equity performance dictates credit outcomes

  “The success of direct lending is now inextricably linked to the success of the private equity industry.”

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  Private credit is now a permanent fixture

  “Private credit has moved from a niche sub-asset class to a major, permanent part of the investment landscape.”

Episode Description

In his latest memo, Howard Marks discusses the evolution of the sub-investment grade credit market from its beginnings in the 1970s to its present state. He focuses on the rise of direct lending following the Global Financial Crisis, identifying the reasons for its fast growth but also the issues created by rapid capital deployment. Looking ahead, he describes the entwined fates of direct lending and private equity, with the performance of private equity portfolio companies being a key determiner of the future success of direct loans. You can read the memo here (https://www.oaktreecapital.com/insights/memo/whats-going-on-in-private-credit). This episode uses an AI reader.