Milwood Hobbs, Jr., Managing Director and Head of Sourcing and Origination at Oaktree Wealth Solutions, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss the evolution of the credit markets.
Historically, regional banks were the largest competitors in private credit, primarily holding commercial real estate and middle-market loans. After the Fed tightened in 2022, deposit rates rose and banks are shrinking their balance sheets by reducing lending. When loans mature, banks refer borrowers to private lenders for continued access to capital.
In the fourth quarter of 2022, the banks were hung with $78 billion of LBO risk, priced at rates that were too low by the end of the Fed’s tightening cycle. Many of those loans were sold to private lenders at rates higher than originated, leaving the banks with losses.
There is an opportunity for both private and public credit markets to coexist, with standardized deals financed in public markets and customized and urgent deals financed in private markets. In evaluating deals, Brookfield Oaktree seeks to price risk rather than focus on specific sectors.
The private equity firms have hired capital markets professionals who reach out to the seven largest private credit firms that can participate in large-scale financing. Relationships matter both in sourcing deals and raising capital from RIAs. Some deals are better for Oaktree’s direct lending products, while others fit better in opportunistic offerings.
Hobbs states that the private credit market could grow to $3 trillion in the next two to four years after increasing from $300 billion in 2009 to $1.8 trillion in 2024. Part of this growth could be sourced from the private equity funds’ $3 trillion in dry powder.
WEBCAST – Insights on Allocating to Alts: Survey Says
Kick off the new year with a webcast featuring valuable, research-based insights on integrating alternative investments into your clients’ portfolios.
Key Takeaways:
- Understanding the investor mindset around alternatives
- Strategies for implementing alternatives effectively
- Tools and resources to support client conversations and portfolio construction
- Perspectives on how alternatives deepen client relationships and drive business growth
Accepted for 1 CFP® / IWI / CFA CE Credit