Oaktree Co-CEO Armen Panossian Says Potential Private Credit Correction Is Not a Systemic Risk

Armen Panossian, Co-CEO of Oaktree Capital Management, indicates that while the private credit market is due for a correction, it does not pose a systemic risk to the broader financial system. Despite the rapid growth in direct lending, the risk remains concentrated among institutional investors with long-term capital rather than traditional banks. Panossian notes that rising interest rates will likely lead to an increase in defaults; however, recovery rates are expected to remain robust compared to public debt markets, signaling a maturing phase for the asset class.

• Private credit is facing a market correction that is viewed as a natural evolution rather than a systemic threat.
• The financial risk is largely held by institutional investors with locked-up capital, which limits the potential for sudden liquidity crises.
• Higher interest rates are expected to increase default rates as leveraged borrowers face rising debt-servicing costs.
• Recovery rates in private credit are anticipated to outperform public markets due to tighter covenants and direct relationships between lenders and borrowers.
• The industry is transitioning from a period of rapid expansion into a mature phase where success depends more on disciplined credit selection.

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