"Half-price" clearance sale! American private credit investors accelerate asset sales.

Facing concerns about further economic deterioration, private credit investors in the United States have begun to sell assets at significant discounts, with the lowest transaction prices even as low as half of the face value of the assets. Discounted transactions emerge, investors "anticipate and plan ahead" Robert O'Leary, Co-CEO of Oaktree Capital, revealed in a media interview that private credit market investors are selling fund shares at significant discounts. Currently, the discount rate for transactions is quite significant, starting at 10% and even dropping to the "50% range". He specifically pointed out that the current wave of selling off is more of an active risk aversion behavior by investors to "get out before the (market) declines", rather than being driven by large-scale forced liquidations or severe liquidity crises. "So far, we have not seen forced selling," O'Leary said. It is worth noting that O'Leary believes that the current discounted sell-offs have not been accompanied by a noticeable deterioration in credit quality. But as the economic outlook darkens further, these discounts may widen: "So far, there hasn't been any forced selling in the market, but in the future, investor anxiety will increase, and the sell-off discounts will further expand." Credit quality concerns In recent years, the private credit market in the United States has rapidly expanded to a market size of $1.6 trillion, and its rapid growth, in a relatively loose regulatory environment, has raised widespread concerns among investors about the asset quality during an economic downturn. O'Leary stated that there is a widespread problem of "careless underwriting" in private credit loans, and if the economy continues to deteriorate, the default rate on high-yield debt could reach double digits, and the default rate in private credit could even reach double digits. In recent years, debt levels in the private credit sector have skyrocketed, but compared to the public market, asset write-downs in the private credit market occur at a slower pace. O'Leary said that some heavily indebted companies are barely keeping their operations afloat, but in the long run, it will lead to losses for both borrowers and lenders. He added that while asset restructuring may be painful for investors who have long held overvalued assets, it is a necessary "good thing" for cleaning up balance sheets and achieving a healthy market clearing. More severe than during the pandemic, Oaktree Capital seizes the opportunity O'Leary believes that the current situation may be more severe than during the COVID-19 pandemic in 2020, mainly because inflation pressures are much higher now, which could amplify the economic and market impact. Oaktree Capital's Co-Chairman Howard Marks has also warned that trade tariffs could help drive inflation. O'Leary even likened the potential economic downturn to the bursting of the dot-com bubble, suggesting that the impact could be similarly "severe." However, unlike the relatively quick recovery at that time, O'Leary warns that the current hurdles such as high inflation and geopolitical factors may lead to a more turbulent and complex path to recovery: "While that recession rebounded quickly, this time it might cause more lasting damage due to market participants' reaction mechanisms and hindrances." In the face of potential market turmoil, Oaktree Capital is being cautious in its positioning. O'Leary said that the company has started to enter into more liquid credit markets, but is holding onto a significant amount of funds to act quickly when bigger opportunities arise, "seizing larger investment opportunities." This article is from "Wall Street Seen", author: Gao Zhimou; GMTEight editor: Liu Xuan.