Private Credit Fund Investors Offload Stakes at Significant Discounts, Oaktree's O'Leary Reports

Oaktree Capital Management's Robert O'Leary reports that private credit fund investors are selling stakes at discounts as low as 50 cents, indicating a potential worsening of the US economy. This suggests that investors are increasingly pessimistic about the credit market, leading to a decline in asset values.

Private credit fund investors are offloading stakes at significant discounts, with some trades reaching as low as 50 cents on the dollar, according to Oaktree Capital Management Co-Chief Executive Officer Robert O’Leary. This trend suggests a growing pessimism among investors about the credit market and a potential worsening of the U.S. economy.

Oaktree sees opportunities to buy marked-down assets in continuation vehicles and secondary markets, where private asset holders sell stakes in relatively illiquid funds to bring returns to their own investors. Discounts are starting at about 90 cents on the dollar and going as low as 70 cents, O’Leary said [1]. This activity has been building in private equity for some time, but credit investors are now putting up bigger trades.

The private credit market, now valued at $1.6 trillion, has grown rapidly in recent years. However, the relative lack of regulation has fueled concerns about the quality of private credit loans if the economy deteriorates [2]. O’Leary is among senior executives at Oaktree preparing for a potential worsening of the economy and more pain among credit funds.

Poorly Underwritten
High-yield debt markets could see high-single-digit default rates, according to O’Leary. Other markets are even more vulnerable. “If loans are going to see double-digit defaults, I see no reason why ultimately private credit couldn’t end up there,” he said. “It’s poorly underwritten, in the main. I’m not saying everybody is” [2].

Ares Management Corp. has also drawn $3 billion from wealthy investors to buy discounted stakes in private equity funds and redeem their investments quarterly. This trend indicates a broader shift in investor sentiment towards private equity, driven by economic uncertainty and the lack of exit options [3].

Oaktree is comparing this period to the Covid-19 pandemic but notes that the economy and markets have taken blows since then, with inflation higher than it was when the virus shook markets. O’Leary said a downturn could be as serious as the dot-com bubble, with potential long-term implications for the economy and markets [2].

References:
[1] https://news.bgov.com/financial-accounting/oaktrees-oleary-says-deep-discounts-arising-in-private-credit
[2] https://www.bloomberg.com/news/articles/2025-05-02/oaktree-s-o-leary-says-deep-discounts-arising-in-private-credit
[3] https://www.bloomberg.com/news/articles/2025-05-01/ares-draws-3-billion-from-wealthy-investors-to-buy-pe-stakes