Keep pulling the thread on Howard Marks.
Following the global financial crisis, direct lending evolved from mezzanine financing to first lien loans as banks reduced their lending activities.
The non-bank direct lending market, which emerged around 2011 to meet demand from the private equity industry, has grown to approximately $1.5 trillion.
The popularity of the healthcare sector among lenders in Europe led to excessive debt issuance, which subsequently caused a wave of defaults when companies could not pass on cost inflation.
Howard Marks predicts that much better buying opportunities will emerge in the coming months as market sentiment shifts from FOMO to risk aversion.
Before the global financial crisis, private credit primarily consisted of junior mezzanine direct lending that was subordinate to syndicated bank loans.
In the 1990s, Wall Street began syndicating loans to dozens or hundreds of institutional lenders, a practice known as broadly syndicated loans, which expanded the sub-investment grade market.
As of one to two years ago, the direct lending market became highly competitive, with returns that were merely adequate and no longer offered significant excess returns or "alpha".
The illiquidity premium in direct lending has compressed to only 100 to 125 basis points over public credit, which is considered adequate but not substantial.
Oaktree Capital created a multi-asset credit product approximately eight years ago by combining its strategies in US high yield, European high yield, US senior loans, European senior loans, convertibles, emerging market debt, real estate debt, and structured credit.
The investment industry is increasingly moving away from selling single products and toward offering combined multi-asset solutions to clients.
The healthcare sector has recently been a primary driver of corporate defaults in Europe.
Investors who bought the "Nifty 50" stocks in 1969 and held them for five years lost approximately 95% of their investment, despite these companies being considered the best in America.