(April 10): Oaktree Capital Management assured clients its exposure to software companies and direct lending remains limited, as global private credit funds retreat from areas showing heightened risk.
Co-founder Howard Marks wrote in a note on Thursday that its credit exposure to software is “extremely small on an absolute basis and relative to peers”.
He added that Oaktree’s “direct lending portfolios generally have limited software exposure”, and over the last 12 to 18 months the firm has maintained “a particularly high bar” for participating in new software transactions.
Some private credit funds have been turning away software borrowers as they seek to shrink their exposure to the sector, while a number of such sales planned by private equity have stalled.
As much as 15% of software direct lending could default in the coming years, Marathon Asset Management LP chairman Bruce Richards has said. Others are less concerned. While many private credit managers have as much as 30% of portfolios exposed to software and tech, their credit is usually at the top of the capital structure and relatively insulated from restructurings, according to Vivek Bantwal, global co-head of private credit at Goldman Sachs Asset Management LP.
Oaktree has invested in private credit for decades, including distressed debt, mezzanine and asset-backed lending. The company has deliberately avoided heavy exposure to direct loans, Marks said.
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“Private credit represents well under half of Oaktree’s performing credit assets, and direct lending represents less than half of our private credit book,” he wrote, adding that direct lending is only about 20% of Oaktree’s investments in performing credit and less than 15% of its total assets under management.
Marks said that very little of Oaktree’s private credit investment was placed with the public. He estimated that while the leading managers of public direct lending vehicles have US$40 billion to US$50 billion, Oaktree has just more than US$10 billion.
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