Oak Capital Co-CEO: Market pricing is perplexing, and fundamental risks are seriously underestimated.

Armen Panossian, co-CEO of Oaktree Capital Management, has warned that the market is digesting a series of fundamental issues too quickly, prompting his company to keep cash on hand and wait for the right moment of adjustment.

Panossian pointed out that the "extremely abundant" liquidity after the pandemic, the market's willingness to stay invested, and strong historical corporate performance have led investors to selectively ignore potential economic data. He stated that the market generally believes President Trump will not take any measures that fundamentally undermine the economy, and this belief has further reinforced the market's resilience.

Panossian said, "When you factor in the impact of the Iran war and add the pain we expect to see in the software industry over the next few years, it becomes a bit puzzling why the market remains so strong." He warned that investors are underestimating the fundamental risks facing the credit market.

Oaktree Capital is owned by Brookfield Asset Management, which reached an agreement at the end of last year to acquire the remaining shares of this distressed debt specialist. Panossian stated that both sides are "building a pipeline" to combine Oaktree's credit capabilities with Brookfield's asset management strengths in order to explore global investment opportunities.

Currently, Oaktree Capital is in a state of readiness. Panossian noted that there aren't many "fat pitches" in the market right now—meaning discounted debt or equity assets worthy of aggressive buying. The company is looking for quality enterprises with poor balance sheets but strong fundamentals, and is also trying to stock up on enough "dry powder."

Speaking about the recent wave of redemptions from business development companies (BDCs) triggered by concerns over the software industry and valuations, Panossian said he was surprised that banks have not tightened lending to private credit vehicles to a greater extent. "There has indeed been some tightening, but it's far less than I expected."

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