Howard Marks outlines growing concerns about private credit in new memo

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In a memo to Oaktree clients Thursday, veteran investor Howard Marks outlined growing concerns about the private credit (VPC [https://seekingalpha.com/symbol/VPC]) market, particularly direct lending, as the sector faces its first major test since the 2008 Global Financial Crisis.

Marks traces the evolution of credit markets from the late 1970s through today, noting how direct lending exploded over the past 15 years as banks pulled back from risky lending. The sector has ballooned from roughly $150B two decades ago to about $2T in direct loans.

“I imagine some direct lending managers accepted too much money and invested it too fast, applying standards that were too low and setting the scene for a correction,” Marks wrote.

The memo highlights particular concerns about software (IGV [https://seekingalpha.com/symbol/IGV]) company debt, which represents 20-30% of direct lending portfolios. Recent advances in artificial intelligence—including Anthropic’s (ANTHRO [https://seekingalpha.com/symbol/ANTHRO]) powerful new coding model released in late 2025—have raised questions about the long-term viability of many software businesses that borrowed heavily during the boom years.

Marks points to recent bankruptcies at First Brands and Tricolor, which “caught credit investors by surprise” and raised concerns about possible fraud. Some investors in non-traded business development companies have faced redemption limits when attempting to withdraw their money. Meanwhile, investors sought to get back [https://seekingalpha.com/news/4573678-investors-asked-to-withdraw-over-20b-from-private-credit-funds-in-q1-ft-says] more than $20B of their investments from private credit firms in Q1 2026

“Investors initially fall in love with the new thing, swallow its promises whole, and overpay,” Marks observed. “Then, when disappointment and disillusionment set in, the bravado and confidence that originally supported the investment evaporate.”

Oaktree has positioned itself defensively, with direct lending comprising less than 15% of overall assets under management. Marks noted that the firm’s software exposure is “substantially less than that of our peers.”

Drawing parallels to the high-yield bond (HYG [https://seekingalpha.com/symbol/HYG]) market turmoil of the early 1990s, Marks concluded that direct lending will ultimately prove sound but “may have to go through a credit cycle to get to a better place.”

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