Oaktree's Credit Playbook: Why This Isn't Your Grandma's Private Credit

What's New

In a recent interview on the Alt Goes Mainstream podcast, Oaktree co-CEO Armen Panossian outlined the firm's defensive positioning ahead of an expected uptick in private credit defaults, warning that the 2018-2021 vintage of leveraged buyouts represents the market's soft underbelly as weak credits face a "day of reckoning" in 2027—while simultaneously highlighting asset-backed finance as a multi-trillion dollar opportunity created by the banking sector's retreat.

Why It Matters

As private credit evolves from a niche strategy into a $2 trillion mainstream allocation, Panossian's framework for distinguishing "core/beta" from "alpha" opportunities—and his candid assessment that first-lien sponsor lending has become commoditized—provides critical guidance for advisers navigating an increasingly complex and potentially over-crowded market where differentiation will determine outcomes.

Big Picture Drivers

• Market expansion: Below investment grade credit has grown from $3.9 trillion in 2007 to approximately $13 trillion today, fundamentally changing the opportunity set

• Banking retreat: Post-Silicon Valley Bank regulatory pressure has forced banks to reduce specialty lending from 1,000+ relationships to 400-500 largest borrowers while cutting LTVs from 85% to 60%

• Vintage risk: The 2018-2021 LBO cohort faces compounding challenges from COVID disruption, rapid rate increases, and weakened covenant protections

• Commoditization: Upper middle market direct lending has become "almost syndicated," with capital no longer a differentiator when pricing, leverage, and terms drive deal flow

• Convergence pressure: Insurance companies, banks, and asset managers are increasingly competing across traditional boundaries in credit markets

By The Numbers

• $209B+: Oaktree's current AUM, with distressed debt/opportunistic credit at $50B as largest single strategy

• $3-4T: Estimated size of unrated/below investment grade asset-backed finance opportunity

• 100-150 bps: Spread premium for private credit versus public markets, consistent with historical range

• 80/20: Panossian's framework—focus on the best 80% of credits while the opportunistic team hunts the troubled 20%

• 1,600: Oaktree employees today, up from roughly 320 when Panossian joined in 2007

Memorable Quotes

• On market positioning: "It's not your grandma's private credit... It's so much more complex today and so much more established in many ways but also a new frontier in many ways."

• On discipline: "We don't have to reach for risk to deliver the right return. We don't have to overlever to deliver the right return."

• On timing: "Being early sometimes is indistinguishable from being wrong."

• On commoditization: "My money is no more green than anybody else's money. It really comes down to pricing, max leverage, most flexible terms—anybody could do those."

• On patience: "Long-term greedy. What that means is let's not try to be the best in any one year... because if we do that then we risk being the worst."

Key Trends to Watch

• Public-private integration: Oaktree's ability to toggle between public and private credit in 2022—buying discounted bonds in H1 while competitors blindly deployed—demonstrates the value of cross-market visibility that few managers possess.

• ABF complexity moat: Unlike standardized sponsor lending, asset-backed finance requires originator relationships, servicing capabilities, and sector expertise that create genuine barriers to entry and mispricing opportunities.

• Default cycle preparation: Oaktree is entering this period "underlevered, non-cyclical in portfolio selection, and very diversified" to capitalize on distressed opportunities as the 2018-2021 vintage unwinds.

• Platform as differentiator: The Brookfield combination provides cross-asset intelligence (infrastructure, real estate, renewables) that helps identify both opportunities and risks in credit investments touching those sectors.

The Wrap

Panossian's message to advisers is clear: private credit requires portfolio construction, not single-product allocation. The commoditization of core direct lending means manager selection matters most in adjacent strategies—rescue lending, life sciences, asset-backed finance—where complexity creates alpha. As defaults rise and the market bifurcates between quality and distress, the firms positioned to be "a friend in bad times" will capture disproportionate opportunity while those who reached for yield face painful mark-to-market realities.