What’s Going on in Private Credit?

Direct lending: Marks says the last 15 years followed the classic fad pattern: too much capital, too fast, lower standards. "In the last several months, the tide has begun to go out for direct lending," and he suspects some managers "set the scene for a correction." Software debt: This is the pressure point. Direct lending has the heaviest software exposure of the sub-investment-grade markets, often lent against LBOs done at ~20x EBITDA. AI's disruption of coding hit sentiment hard in early February 2026. Oaktree's team says borrowers are "generally performing well" and the moves are "flow- and sentiment-driven rather than the result of credit deterioration" — with investors not discriminating between winners and losers. Risk vs volatility: Marks insists private loans' smooth marks are not lower risk: direct loans "embody no less credit risk" than high yield bonds or broadly syndicated loans; low volatility ≠ high risk-adjusted return. BDCs and liquidity: Redemption gating, questionable NAVs and embedded leverage are now biting retail and retirement investors. Traded BDCs have widened to bigger discounts to NAV. He warns each gating episode invites more redemption requests next time. Oaktree's positioning: Deliberately underweight: direct lending is around 20% of performing credit and under 15% of total AUM; software exposure small, mostly first-lien, little PIK; 80% of private credit is institutional money. Private equity: The Sea Change thesis stands: the 40-year rate tailwind is gone, higher rates cut profitability, valuations, exits and LP distributions. Future PE and PE-debt returns hinge on manager skill, not rates. Bottom line: Marks sees a sentiment-driven, not fundamentals-driven, dislocation in direct lending, and expects his restraint during the boom to produce better entry points now that skepticism has returned.