The Next Stage of the Credit Cycle with Oaktree’s Poli

Joe Weisenthal (0:02)

Bloomberg Audio Studios.

Tracy Alloway (0:04)

Podcasts, radio, news. Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:23)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, it struck me that we might be at the beginning of a new cycle, a new credit cycle.

Joe Weisenthal (0:31)

Are you making a call? Are you making a market timing call?

Tracy Alloway (0:35)

I would never, never. No, I'm trying to frame this episode. But we have recently, by the time this episode comes out, had a very momentous, presumably, decision from the Federal Reserve, where they've been cutting rates, or they will have cut rates, for the first time since, I think, the summer of last year. Oh, sorry, summer of 2022? I can't remember now.

Joe Weisenthal (0:57)

Well, that's when it, yeah. It's wild. And whenever there is a turning point in the rate cycle, people are often, you know, we've had this regime. Equity markets have done really well. Credit spreads generally have been pretty tight. And so when you're in this sort of new phase of a cycle, then it's a natural time to sort of revisit where things stand. What kind of assumptions have been baked into markets? And of course, like what the risks and opportunities are. Yeah.

Tracy Alloway (1:25)

And I think the previous couple of years have certainly surprised a lot of people who are in credit. You know, people thought when rates went up, there was going to be a spike in defaults. And we haven't really seen that. We've seen an increase, but it hasn't been disastrous. We've seen spreads, as you mentioned, still at kind of multi-year lows, which is very surprising. And so it kind of begs the question of whether or not this dynamic can continue, where pockets of stress might emerge.

Joe Weisenthal (1:55)

That's right. And just to note for listeners, we are recording this Monday, September 16th. We are out in Huntington Beach, California. We are at the Future Proof Festival, I think it's called, which is probably one of the coolest, most distinct financial market conferences that I can fathom. It's literally out on the beach. It's entirely outdoors.

Tracy Alloway (2:16)

Yeah, that's a nice way of saying we're at a beach. For three days.

Joe Weisenthal (2:19)

It's very nice.

Tracy Alloway (2:19)

It's pretty sweet.

Joe Weisenthal (2:20)

I love it around here.

Tracy Alloway (2:21)

But you know, the other thing I was thinking about recently is just the other thing that's happened over the past couple of years has just been the explosion in different types of credit available to companies, right? Like if you are a company seeking some sort of funding, you basically have an option of everything from a syndicated bond or loan to maybe doing a private deal. There are just all these different types of credit that you could choose now.

Joe Weisenthal (2:48)

Everyone, if you're a company, people will find ways to give you money. There's all kinds of different opportunities.

Tracy Alloway (2:54)

So we need to talk about the credit cycle. We need to talk about the big growth in the options available to investors and also corporates. And we need to talk about what happens now, whether this is a new leg in the cycle or the beginning of a new cycle in itself.

Joe Weisenthal (3:10)

Let's do it. I can't wait. All right.

Tracy Alloway (3:11)

We have the perfect guest to discuss all of this. We are speaking with the co-portfolio manager of Oaktree's Diversified Income Fund, better known as ODIDX. Bit of a mouthful, actually. Danielle Poli. Danielle, thank you so much for coming on Odd Lots.

Danielle Poli (3:29)

Thank you so much for having me, Tracy and Joe.

Tracy Alloway (3:31)

Are you enjoying the beach as well?

Danielle Poli (3:33)

Oh, I'm having a great time. I don't think I've ever been to a conference quite like this on the beach. So many people. It's something.

Tracy Alloway (3:40)

I've said this before, but all conferences should be like this.

Joe Weisenthal (3:43)

On the beach. But you're base around here. This isn't even special for you. Like for us coming from New York when the weather is starting to turn and everything is like, oh, a few more days of amazing weather. This is just your life, huh?

Danielle Poli (3:54)

It's true. As they commute down the 405, anyone that's watched Saturday Night Live in the Californians knows, though, how perilous it can be driving on LA freeways.

Tracy Alloway (4:04)

So I mentioned your co-PM of the Diversified Income Fund, but you're also a founding member of the Investment Committee. Talk to us a little bit about what you do at Oaktree.