Private credit could see 'golden moment' despite tariff risks

by Eliza Ronalds-Hannon, John Gittelsohn and Sonali Basak

Some of the biggest players in private credit are anticipating profits from the chaos unleashed by President Donald Trump’s tariffs, even as the volatility exposes risks lurking in the opaque market.

“I can’t help but think that there might be actually around the corner, in the wake of some of this turmoil, a golden opportunity that’s forming to deploy larger and larger dollars given how much valuations have corrected,” Ares Management Corp. Chief Executive Officer Mike Arougheti said Tuesday in a Bloomberg Television interview.

Trump’s potential impact on the booming market for private credit is one of the hottest topics this week at the Milken Institute Global Conference in Beverly Hills, where Arougheti and others traded theories on how they may benefit as companies seek more financing — and how less vigilant investors may get burned by lower-quality loans.

Arougheti said his firm is generating rates of return of 12% to 15% across private-credit strategies. His peers at the event echoed the view that volatility creates openings for credit managers who know how to find the most valuable opportunities.

“It’s about navigating the storm,” Blue Owl Capital Inc. co-founder Marc Lipschultz said in a separate Bloomberg TV interview. “Private credit has clearly proven its mettle and proven its worth.”

TCW Group Inc. CEO Katie Koch said she expects macroeconomic stresses to continue and emphasized a distinction between disciplined and undisciplined lending. 

“We are doing it very covenant-heavy. We’re doing it very diligent-heavy. We’re saying ‘no’ a lot,” she said. “We’re deploying very deliberately and very slowly, and I think that’s going to turn out to be a very winning strategy in this market.”

Oaktree Capital Management Co-Chairman Howard Marks also said that positive outcomes come down to decision-making by money managers.

“What you can bet on is a loan to a good company,” he said in an interview, noting that returns on private credit are akin to the long-term performance of the S&P 500.  

“If you can do that well and carefully, that’s a good thing in a time of uncertainty,” Marks said. In such times, “credit investing is inherently more reliable, less uncertain than what I call ownership investing — stocks, companies and buildings.”

The Milken conference brings together most of the founders and executives of firms managing private credit, which has swollen into a $1.6 trillion asset class as banks stepped back from lending. They’re meeting as market volatility and uncertainty cloud the economic outlook, setting the stage for rising risk as well as potential rewards.

Koch, conversely, said she has seen a lot of “optimistic” lending and underwriting across the industry and sounded a warning in light of the recent upheaval: “We are now going to start to see some of the accidents in this asset class.”

Andrew Milgram, chief investment officer of Marblegate Asset Management, also predicts carnage ahead.

“The notion of uncertainty in the economy is causing businesses to not make decisions,” he said Monday during a panel discussion about direct lending. “We should expect a sharp deterioration in credit quality, which will topple over a number of companies” — and that “will obviously have consequences for investor returns,” he said.

One example of the risks of private-credit deals emerged after Fortress Investment Group bought a $1 billion portfolio of loans on office buildings in 2023 from Capital One Financial Corp. 

During a Milken panel Tuesday, Fortress Co-CEO Drew McKnight said the firm has restructured several so far, arranging discounted payoffs on some. It hasn’t foreclosed on any. Many newcomers to private credit aren’t prepared to do these kinds of workouts, he said.

“Private credit hasn’t necessarily been tested through a real default cycle,” McKnight said. “You go from having one or two calls a quarter to having two or three calls a week with a restructuring team and really going through a very laborious process.” 

After a stampede into private credit following the onset of the pandemic, and then a pullback as interest rates rose, Koch and others predicted significant variation in the performance of private credit loans issued during distinct periods within the past five years.

“If you’re sitting in a 2021 vintage private credit fund and it’s marked at par — you’re mistaken,” Oscar Fahlgren, CIO and global head of private equity at Mubadala Capital, told an audience at Milken Tuesday.

Loans issued after that ultra-hot era could offer better returns, as they’re priced more conservatively. 

“It’s going to matter a lot who you hired for private credit, in terms of the performance of this vintage and the last couple,” said TCW’s Koch. “While it shouldn’t be a vintage-sensitive asset class, these could be some of the most interesting times and best return availability for private credit.”

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