Deep Discounts in Private Credit: Oaktree’s O’Leary Navigates a Shifting Landscape

The private credit market is undergoing a seismic shift, as highlighted by Oaktree Capital Management’s Co-Chief Executive Officer Robert O’Leary. Investors are offloading stakes at significant discounts—starting as low as 90 cents on the dollar—amid fears of an impending economic slowdown. This trend, driven by liquidation activity in continuation vehicles and secondary markets, reflects a broader reckoning with risk in the credit space.

The Rise of Deep Discounts: A Market in Transition

O’Leary’s comments underscore a stark reality: private credit investors are increasingly willing to accept substantial markdowns to secure liquidity. This shift is not merely cyclical but structural, as macroeconomic headwinds—high interest rates, trade tensions, and geopolitical instability—force a reevaluation of asset values.

The discounts are most pronounced in secondary markets, where holders of illiquid assets sell stakes to return capital to investors. For example, reveal a 12% decline in share price, alongside a dividend yield of 6.5%, signaling investor caution and Oaktree’s focus on capital preservation.

Oaktree’s Playbook: Capitalizing on Chaos

Oaktree has positioned itself to capitalize on these discounts through its distressed-debt strategy. The firm’s recent closure of a $12 billion fund—the largest in its history—demonstrates confidence in acquiring undervalued assets. Robert O’Leary emphasized that such opportunities arise when “investors panic and overreact to short-term volatility.”

However, Oaktree’s optimism is tempered by risk. Co-Chief Executive Officer Armen Panossian noted that 2025’s outlook hinges on navigating economic shifts, regulatory changes, and interest rate fluctuations. The firm’s focus on “performing credit” and selective investments aims to mitigate exposure to sectors like luxury real estate, which have seen demand destruction due to high borrowing costs.

The Broader Context: Why Discounts Matter

The deep discounts in private credit are not isolated to Oaktree’s strategy. Across industries, companies like Ryanair and DMC Global are adopting cost-containment measures, such as supplier diversification and automation, to offset tariff-driven inflation. While unrelated to private credit, these moves highlight a sector-wide emphasis on financial resilience—a theme Oaktree’s strategy mirrors.

For instance, show a 14% drop in Q1 2025 sales, with Arcadia’s luxury residential exposure contributing to weaker results. Such data underscores the macroeconomic pressures that drive private credit discounts.

Risks and Opportunities Ahead

While Oaktree’s strategy appears opportunistic, risks loom large. The firm’s success depends on the depth of discounts and the timing of economic recovery. If the U.S. economy enters a recession, private credit valuations could plummet further, testing Oaktree’s ability to realize gains. Conversely, a soft landing might limit downside while still offering bargains.

O’Leary’s caution is evident: “We’re not immune to macro risks, but we’ve built a business to thrive in dislocations.” This sentiment is reflected in Oaktree’s emphasis on diversification—spanning real estate, energy, and infrastructure—to avoid overexposure to any single sector.

Conclusion: A Calculated Gamble on Value

Oaktree’s bet on deep discounts in private credit is a high-stakes wager on market inefficiencies. With discounts already at 90 cents on the dollar and likely to deepen, the firm’s scale and expertise position it to capitalize on opportunities others may avoid. However, the path to returns hinges on factors beyond its control, such as interest rate trajectories and geopolitical stability.

Investors should note that Oaktree’s largest-ever distressed-debt fund—$12 billion—carries both promise and peril. If executed well, it could deliver outsized returns in a market desperate for liquidity. Yet, should economic conditions deteriorate further, the fund’s performance may test Oaktree’s long-held reputation as a crisis manager.

In a world where private credit discounts mirror the volatility of the broader economy, Robert O’Leary’s insights offer a roadmap for navigating uncertainty—but one that demands patience, discipline, and an appetite for risk.