The Insight by Oaktree Capital
Off The Beaten Path
Apr 8, 2025
In this discussion, Matt Wilson, Co-Portfolio Manager in Special Situations, Christina Lee, Co-Portfolio Manager for U.S. Private Debt, and Jennifer Marques, Head of Strategy and Structuring in Asset-Backed Finance, dive into the impact of rising interest rates on private equity and the growing demand for junior capital. They explore innovative strategies in structured equity and the evolving dynamics of capital markets. The conversation highlights the importance of understanding asset-backed finance risks and the changing landscape for private lenders.
29:26
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Quick takeaways
- Elevated interest rates pose challenges for private equity due to increased debt burdens but also create attractive investment opportunities in financially distressed companies.
- The growing demand for junior capital solutions highlights a shift in private equity strategies as firms navigate high purchase prices and decreased senior financing availability.
Deep dives
Impact of Higher Interest Rates on Private Equity
Higher interest rates are currently presenting challenges and opportunities for private equity investments. Elevated debt burdens due to previous leveraged buyouts (LBOs) made during periods of low interest rates are identified as a major concern, but they also create attractive buying opportunities for investors. Many companies acquired in the 2018 to early 2022 period assumed continued low rates, leading to substantial leverage that is now unsustainable. The current environment allows for potential investments in fundamentally strong companies that now have weakened balance sheets, making them ripe for turnaround strategies.
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