Oaktree Capital's Armen Panossian, co-CEO of Oaktree Specialty Lending, warns of excessive risk-taking in private credit markets, particularly within retail-focused business development companies (BDCs). Speaking to Bloomberg Television, Panossian attributes widening performance gaps between public and non-traded private credit vehicles to software-sector weakness, liquidity concerns, and a wave of bad underwriting vintages following pandemic-era capital inflows. As rates fell, significant cash flowed into credit markets, forcing retail BDC managers to deploy capital quickly, which Panossian argues inevitably leads to excessive risk-taking over short periods.

This divide has accelerated amid unprecedented retail-investor redemptions on public BDCs, exemplified by Blue Owl Capital's recent move to cap redemptions at 5% for two funds after facing massive withdrawal requests totaling 22% and 40% of shares. While private credit funds still see gross inflows, the sector's interconnectedness with banks, which hold $1.4 trillion in lending to non-depository institutions, raises concerns. Panossian cautions that if banks become nervous about credit losses, they may reduce leverage, potentially triggering sales that impact the broader market.

This signals a critical shift in private credit dynamics with significant implications for investors and institutions reliant on these markets.