Widely viewed as a sector in decline only a few years ago, midstream infrastructure is benefiting from stronger demand, renewed investment and expanding opportunities to both acquire and monetize assets.
Learn More Widely viewed as a sector in decline only a few years ago, midstream infrastructure is benefiting from stronger demand, renewed investment and expanding opportunities to both acquire and monetize assets.
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The U.S. residential mortgage market has undergone a structural shift. Bank lending standards have changed and documentation requirements have become more rigid. A growing number of high-quality borrowers are turning to private lenders to meet their mortgage financing needs, creating an investment opportunity that is distinct from other areas of credit. Hear from leaders across Brookfield and Angel Oak—one of our specialized partners—on how the opportunity is unfolding.
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In data infrastructure, connectivity—and the constraints around it—is increasingly determining which assets can be built, scaled and able to deliver durable returns.
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Why real asset lending is built for today’s environment
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Given the suggestion that fraud may have played a role in both the First Brands and Tricolor bankruptcies, and given that both companies had borrowed in the private credit market, people saw a connection. Is this the beginning of a problem?
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Often framed as rivals, private and liquid credit should instead be viewed as powerful complements for both issuers and investors. We believe these two markets are settling into a symbiotic coexistence, as the distinctions blur between the likes of direct lending and broadly syndicated loans.
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In the current installment of The Roundup, Oaktree experts explore the bifurcated nature of credit markets, discuss potential disruption within the healthcare sector, assess the ramifications of limited private equity deal activity, and evaluate the current state of the real estate capital markets. Plus, we’ve included an excerpt from Howard Marks’s latest memo.
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On July 28, I flew to South America on a plane without Wi-Fi, leaving me without email or entertainment. What was I to do but start in on a memo? Interestingly, the things I wrote during that flight turned out to be the answers to many of the questions I received from clients after I landed, so writing what follows served me well. I hope it’ll do the same for you.
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The United States has been on a remarkable run: exceptional growth and innovation, multiple structural advantages, and the financial market dominance to match. Yet this year there’s been increased murmuring regarding the feasibility of continued U.S. exceptionalism, as several economic challenges seem to lurk. Given that U.S. assets form the core of most global portfolios, this uncertainty has naturally led to questions regarding asset allocation.
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Where are we currently in the credit cycle? Why might issuers be delaying their day of reckoning? And how are investors using demographic shifts to find new opportunities in the real estate market? In the latest episode of The Insight: Conversations, Robert O’Leary (co-CEO), Steve Tesoriere (Co-Portfolio Manager, Value Opportunities), Kenya Williams (Senior Real Estate Product Specialist), and Nicole Adrien (Chief Product Officer and Global Head of Client Relations) discuss these and other topics from the recently published edition of The Roundup: Top Takeaways from Oaktree’s Quarterly Letters.
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On Monday, September 15, 2008, shortly after the close of the New York Stock Exchange, Lehman Brothers surprised the world by filing for bankruptcy. This came on the heels of rescues/bankruptcies of Bear Stearns and Merrill Lynch and was followed quite soon by more of the same at Wachovia, Washington Mutual, and AIG. Market participants quickly concluded that the U.S. financial sector was on the verge of melting down. It had become patently obvious (unlike a few days earlier) that financial institutions might fall like dominoes due to the combination of (a) financial deregulation, (b) a manic housing boom, (c) unwise mortgage lending, (d) the structuring of mortgages into thousands of tranched securities that were rated too high, (e) investment in these securities on the part of highly levered banks, and (f) “counterparty risk” resulting from the banks’ interconnectedness. Reflecting this fear, the markets embarked on what felt like a downward spiral without end.
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Positive tailwinds should continue to propel the private credit market in 2025 and beyond. At around $1.7 trillion under management today, the asset class is forecast to hit an all-time high of $2.64 trillion in 2029, according to Preqin.1
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Private commercial real estate credit fundraising has nearly quadrupled over the past 15 years. We expect regulatory and economic trends to continue to provide compelling opportunities to nonbank real estate lenders.
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We see operational expertise as the dominant driver of private equity returns today and in the coming years, overtaking traditional financial engineering strategies that relied on low-cost debt.
Read More In the current installment of The Roundup, Oaktree experts explore various investment risks and opportunities, including the heightened demand for mezzanine financing, potential entry points for special situations investors, the limited competition for unrated asset-backed finance investments, and the growing need for specialized life sciences lenders. Plus, we’ve included an excerpt from Howard Marks’s 2024 year-end letter to clients.
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The questions I get from clients enable me to understand in real time what’s on their minds. At various points in the last ten years, the most frequently asked question was “when will the Fed raise/cut rates?” During crises, it’s usually “what inning are we in?” For a year or two, it’s been “can we talk about private credit?” And in the last few months, it’s “what about spreads?”
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A surge in liability management exercises (LMEs) has manifested from a potent combination of weak credit documentation, elevated debt costs, impending maturities, and resourceful sponsors in need of a way to create equity value. While most of the sub-investment grade credit universe remains healthy, the sheer amount of outstanding debt means even a relatively low distress rate can inspire significant LME volume. LMEs remain ill-defined but generally encompass actions taken by a troubled borrower to restructure its debt obligations outside of court rather than through a formal bankruptcy process, or to raise money through unconventional means in order to address a liquidity need.
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The world needs $94 trillion of capital in the next 15 years to maintain and upgrade legacy infrastructure and develop new projects like data centers. With strong deployment opportunities emerging across the infrastructure universe, private capital is crucial for financing this supercycle.
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Exactly 25 years ago today, I published the first memo that brought a response from readers (after having written for almost ten years without receiving any). The memo was called bubble.com, and the subject was the irrational behavior I thought was taking place with respect to tech, internet, and e-commerce stocks. The memo had two things going for it: it was right, and it was right fast. One of the first great investment adages I learned in the early 1970s is that “being too far ahead of your time is indistinguishable from being wrong.” In this case, however, I wasn’t too far ahead.
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In Performing Credit Quarterly 2Q2024: The Dual Economy, we wrote about mixed economic signals frustrating the U.S. Federal Reserve’s ability to act decisively on monetary policy. After being – incorrectly – priced in multiple times over the past year, the first interest rate cut finally came in September, marking the end of the Fed’s hiking cycle. As we discuss below in Credit Markets: Key Trends, Risks, and Opportunities to Monitor in 4Q2024, this may unlock new M&A and LBO activity, generating more loan supply for the public debt and direct lending markets, both of which are hungry for new-money issuance. While the leveraged finance markets continue to readily absorb newly issued corporate loans, one less familiar area of the credit markets – asset-backed finance – faces a potential financing void.
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Interest in private infrastructure debt is increasing, thanks to the low volatility and downside mitigation that these loans can offer. These transactions are also getting bigger, as significant capital is needed across global themes like digitalization, decarbonization and deglobalization. In a Q&A, Brookfield infrastructure debt leaders discuss their approach to investing in this growing asset class.
Read More In September, the Federal Reserve reduced interest rates for the first time in over four years. But even though debt costs are moderating, we still believe the corporate credit market is bifurcating. While the majority of companies will likely be able to comfortably refinance their debt in the coming year, a meaningful percentage may struggle. In the current installment of The Roundup, Oaktree examines the risks and opportunities in various asset classes at a time when diligence – and attentiveness to documentation – is paramount.
Read More Where are we currently in the credit cycle? Why might issuers be delaying their day of reckoning? And how are investors using demographic shifts to find new opportunities in the real estate market? In the latest episode of The Insight: Conversations, Robert O’Leary (co-CEO), Steve Tesoriere (Co-Portfolio Manager, Value Opportunities), Kenya Williams (Senior Real Estate Product Specialist), and Nicole Adrien (Chief Product Officer and Global Head of Client Relations) discuss these and other topics from the recently published edition of The Roundup: Top Takeaways from Oaktree’s Quarterly Letters.
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Conflicting trends in a bifurcated U.S. economy are creating challenges for central bankers trying to determine their next move and investors determining where to allocate their next dollar. On one hand, the stock market continues to reach unprecedented heights, with more companies now sporting market caps exceeding $1 trillion. As the wealthy have seen their asset bases expand in the last year, they’ve increased their investment activities by participating in both traditional and nascent markets, which has put upward pressure on prices in most asset classes. On the other hand, consumers lower down the income ladder are facing mounting challenges due to high interest rates and the elevated cost of basic goods. Importantly, the excess savings that this latter group accumulated during the pandemic has mostly been depleted, even as the wealth of those in the highest income deciles continues to grow.
Read More The disparity between the haves and the have-nots has widened meaningfully in the U.S. economy over the last year. As a result, healthy aggregate macroeconomic indicators have often obscured the weakness building among pockets of the population. In the latest episode of The Insight: Conversations, Armen Panossian (Co-CEO and Head of Performing Credit) and Wayne Dahl (Co-Portfolio Manager, Global Credit) consider how this dual economy is impacting credit investors as they discuss topics from the recently published Performing Credit Quarterly 2Q2024: The Dual Economy.
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Private credit has become mainstream—growing tenfold since 2007 to $1.7 trillion—as investors increasingly seek portfolio diversification, low correlation to public markets and relatively high returns. Among private credit, infrastructure debt stands out. It can offer downside mitigation, compelling relative risk-adjusted returns and diversification benefits—characteristics stemming from the nature of infrastructure assets themselves.
Read More Oaktree recently held its biennial client conference featuring presentations from co-chairman Howard Marks, co-CEOs Robert O’Leary and Armen Panossian, and many other key Oaktree thought leaders. In a special edition of The Roundup, we’ve highlighted various topics discussed at Oaktree Conference 2024, including the next frontier of private credit, dislocation in India’s corporate debt markets, and the potentially once-in-a-generation opportunity in commercial real estate.
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My partner Bruce Karsh recently supplied me with a newspaper article about chess that inspired me to write a brief memo called The Indispensability of Risk. The response to the memo was favorable, hopefully because people found the content valuable, but quite possibly because it was only three pages long versus the usual ten to twelve. Thus encouraged, I’m following up with another short memo.
Read More Where are we in the market cycle? Why is it healthy to be uncertain? And what does it mean to actually “be opportunistic”? In the latest episode of The Insight: Conversations, Howard Marks (Co-Chairman), Armen Panossian (Co-CEO), and David Rosenberg (Head of Liquid Performing Credit) discuss these and other topics from the recently published Performing Credit Quarterly 1Q2024: Unusually Uncertain.
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What were some of the biggest surprises in credit markets during the first quarter? Why might global convertibles be set for a rebound? And why do many Chinese equities look more attractive today than they did a year ago?
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Since the global financial crisis, it has been more difficult for companies to access traditional forms of capital. And while the private markets increasingly have filled the void, flexible capital solutions have emerged as a strong alternative for companies with specific needs.
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The broad rally that boosted many leveraged credit and equity markets in the fourth quarter continued through the last three months, even as one of the main drivers of market optimism – expectations regarding near-term interest rate cuts – continued to shift. In the current installment of The Roundup, Oaktree examines the risks and opportunities in various asset classes at a moment when many investors are waiting to see whether this long-awaited dovish turn will actually materialize.
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While some investors may be hesitant to invest in real estate in today’s environment, our experience shows us that uncertain markets—and investors who remain nimble and ready to deploy capital—often generate the most attractive returns. We believe that cycle is happening now.
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The prevailing market narrative for the coming year demands a level of optimism that may be bordering on credulousness. The U.S. economy is expected to be neither too hot nor too cold, and the Federal Reserve is projected to begin cutting interest rates meaningfully without there being a recession or other crisis. In other words, everything is expected to be “just right.” While this could happen, we believe – to quote our co-chairman Howard Marks – that this all “smacks of Goldilocks thinking.”
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In 2023, credit markets have experienced dramatic swings in investor sentiment, unexpected geopolitical events, and the second consecutive year of rising interest rates. In the current installment of The Roundup, Oaktree experts consider where opportunities and risks are emerging in various asset classes and what normal may mean in this unsettled environment.
Read More How healthy are today’s leveraged credit markets? If you focus on averages, you’d likely conclude that fundamentals are fairly strong despite elevated interest rates and slowing earnings growth. The average debt-to-EBITDA ratio for U.S. leveraged credit was around 4.0x at the end of the second quarter, down from a high of 6.5x in 4Q2020 and just under 5.0x in 4Q2019. While average interest coverage ratios have deteriorated over the last year, the current levels – 5.3x for U.S. high yield bonds and 4.5x for U.S. leveraged loans – aren’t sounding alarm bells. However, this environment reminds us of one of our co-chairman Howard Marks’s favorite adages, concerning the six-foot-tall man who drowned crossing the stream that was five-feet deep on average.
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In May, I wrote a follow-up memo to Sea Change (December 2022) that was shared exclusively with Oaktree clients. In Further Thoughts on Sea Change, I argued that the trends I had highlighted in the original memo collectively represented a sweeping alteration of the investment environment that called for significant capital reallocation. This memo was originally sent to Oaktree clients on May 30, 2023.
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On this episode of Deal Debrief, we unpack Brookfield’s acquisition of Fosber, a global leader in machinery used to produce corrugated packaging—an essential part of modern logistics.
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Brookfield’s John Roglieri and Remo Plunkett join the InsuranceAUM.com podcast to discuss how private asset-based finance is creating new opportunities for insurers seeking to diversify beyond direct lending.
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How are private and liquid credit evolving into complementary forces? And how can combining these two distinct but interlinked markets be of benefit to both investors and issuers? In an in-depth conversation, Armen Panossian (Co-CEO and Head of Performing Credit), Raghav Khanna (Co-Portfolio Manager, Strategic Credit), and Danielle Poli (Assistant Portfolio Manager, Global Credit) discuss the implications of the liquid-private credit convergence.
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Oaktree’s Ross Rosenfeld joins the InsuranceAUM.com Podcast to discuss the rise of liability management exercises and what it means for restructuring and distressed investing.
Read More In the latest episode of The Insight: Conversations, we assess the state of the public and private credit markets, looking at the current balance of supply and demand and considering the risks and opportunities for investors. Join Wayne Dahl (Co-Portfolio Manager, Global Credit) and Suzana Perić (Managing Director, Sourcing & Origination) as they discuss topics from the recently published Oaktree Credit Quarterly 1Q2025: Gridlock.
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Host Stewart Foley explores the dynamic world of real estate debt with the head of Brookfield’s Real Estate Credit Group, covering market trends, key opportunities, and valuable career advice.
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Armen Panossian is the co-CEO and Head of Performing Credit at Oaktree Capital.
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Hadley Peer Marshall is the Managing Director, Co-Head of Infrastructure Debt and Structured Solutions Strategies, and CFO at Brookfield Asset Management, and Eric Wittleder is the Managing Director of Infrastructure at Brookfield Asset Management.
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On April 10, Howard Marks opened Oaktree Conference 2024 in Los Angeles with a deep dive into his sea change thesis, exploring the broad implications for the investment world. You can now watch an excerpt of this talk.
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Bob O’Leary is the co-CEO of Oaktree Capital Management.
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