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Live from New York with Oaktree's Armen Panossian - "don't reach for risk to deliver the right return"

54 min episode · 2 min read
·
Oaktree's Armen Panossian

Episode

54 min

Read time

2 min

Topics

Productivity, Relationships, Investing

AI-Generated Summary

Key Takeaways

  • Market Bifurcation Strategy: Oaktree's opportunistic credit team targets the weakest 10-20% of companies for rescue lending while direct lending focuses on the best 80%, avoiding adverse selection in competitive first-lien sponsor markets where capital has become commoditized.
  • Public-Private Arbitrage: In first half 2022, Oaktree paused private credit deployment when high yield bonds dropped 10 points while direct lending pricing remained flat, buying discounted public bonds instead until private markets adjusted 250-300 basis points wider later that year.
  • Asset-Backed Finance Opportunity: Banks reduced specialty lender relationships from 1,000 to 400-500 and cut loan-to-value ratios from 85-88% down to 60%, creating a $3-4 trillion unrated below-investment-grade ABF market where managers can capture mispriced senior risk.
  • Vintage Risk Concentration: The 2018-2021 private equity LBO vintage faces elevated default risk due to weak legal protections, high valuations, and subsequent rate increases. Oaktree maintains unlevered portfolios focused on non-cyclical businesses to deploy capital when defaults spike.

What It Covers

Oaktree co-CEO Armen Panossian explains how the firm manages $215 billion across credit strategies, navigates private credit's evolution from distressed investing roots, and maintains discipline during market expansion without reaching for risk.

Key Questions Answered

  • Market Bifurcation Strategy: Oaktree's opportunistic credit team targets the weakest 10-20% of companies for rescue lending while direct lending focuses on the best 80%, avoiding adverse selection in competitive first-lien sponsor markets where capital has become commoditized.
  • Public-Private Arbitrage: In first half 2022, Oaktree paused private credit deployment when high yield bonds dropped 10 points while direct lending pricing remained flat, buying discounted public bonds instead until private markets adjusted 250-300 basis points wider later that year.
  • Asset-Backed Finance Opportunity: Banks reduced specialty lender relationships from 1,000 to 400-500 and cut loan-to-value ratios from 85-88% down to 60%, creating a $3-4 trillion unrated below-investment-grade ABF market where managers can capture mispriced senior risk.
  • Vintage Risk Concentration: The 2018-2021 private equity LBO vintage faces elevated default risk due to weak legal protections, high valuations, and subsequent rate increases. Oaktree maintains unlevered portfolios focused on non-cyclical businesses to deploy capital when defaults spike.

Notable Moment

Panossian reveals Oaktree reduced fund sizes after the global financial crisis despite strong performance, earning credibility with limited partners by prioritizing selectivity over asset gathering when competitors expanded aggressively during the recovery period.

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Episode Transcript

This episode of the Alcos Mainstream podcast is brought to you by Ultimus, a leading full service fund administrator for asset managers in private and public markets. As private markets continue to move into the mainstream, the industry requires infrastructure solutions that help funds and investors keep pace. Ultimus is a leading full service fund administrator for asset managers in both private and public markets, offering a wide range of capabilities across registered funds, private funds, and public plans, as well as outsourced middle office services. Delivering operational excellence, Ultimus helps firms manage the ever changing regulatory environment while meeting the needs of their institutional and retail investors. Ultimus provides comprehensive operational support and fund governance services to help managers successfully launch retail alternative products. Trusted by institutions, investment consultants, registered investment advisors, state governments, and fund managers, Ultimus provides solutions for nearly every investment structure in the marketplace. Visit www.ultimusfundsolutions.com to learn more about Ultimus' technology enhanced services and solutions, or contact Ultimus executive vice president of business development, Gary Harris, on email at gharris@ultimusfundsolutions.com. We thank Ultimus for their support of Alts going mainstream. Everybody gets a piece. We're going mainstream. Everybody's Welcome back to the Alco's Mainstream podcast. Today's episode was filmed live at an event during a Brookfield Oaktree Wealth Solutions RIA Council meeting. With a group of RIAs in the audience, I sat down in a Brookfield owned building with Arman Panosi, the co CEO and head of performing credit at Oaktree. Arman, who joined Oaktree in 2007, has been an integral part of scaling Oaktree to over 209,000,000,000 in AUM. Oaktree, a storied firm, particularly in distressed credit, was recently fully acquired by Brookfield, the trillion dollar AUM alternative asset manager. Arman has a wealth of experience across different areas of credit. He is the head of performing credit where his responsibilities include oversight of the firm's liquid and private credit strategies and as a portfolio manager within the global private debt and global private credit strategies. He also led the development of Oaktree CLO business. Arman and I had a fascinating and thought provoking conversation. We covered the evolution of Oaktree's business, how the acquisition by Brookfield has helped scale Oaktree's business, why private credit is more than direct lending, the nuances of asset based finance, the current state of the credit markets, how Oaktree has approached distressed credit investing, and what Armin's memo would be if he were to write a memo like his colleague Howard Marks and why his memo might be titled, this is not your grandma's private credit and don't reach for risk. Thanks, Armin, and the Brookfield Oaktree Wealth Solutions team for a fantastic night, and to Armin for sharing your wisdom and expertise with us. Hey, everyone. Good to see you all. Some familiar faces, some some new faces, but, excited to be here. I think we'll have a great conversation with Armin about the business that he's built, the credit space, working with the wealth channel, …

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