Private credit firm Oaktree Capital co-CEOs Bob O'Leary and Armen Panossian said in a podcast entitled, The Insight, that while the U.S. economy appears healthy, it is largely driven by artificial intelligence spending, which could cause "a lot of disruption" in the market.

"You really have this battle within the consumer sector as to which is going to win out. The deciding factor in all of this has been generative AI spending, which has really carried the day as far as the economy goes,” O'Leary said. “That's like having an entirely new consumer sector in terms of the amount of spending that we're talking about. And that has meant the difference for the economy.”

He continued to say that the market is "very keenly focused" on what's going to happen with generative AI spending in 2026.

"That is really where things could either stay strong, or if people get disappointed with the returns on their AI spending, you might see deterioration start to build in, and I think that will feed through to the economy and maybe make for a more volatile picture," he added.

Panossian stated 75% of the total gain in the S&P since ChatGPT was launched is related to AI-related stocks. 

"A lot of individuals, wealthy individuals in particular, that own the S&P or stocks in general feel really good about life because their trading accounts are far more valuable today than they were three or four or five years ago. But double clicking on that, they really should appreciate that the bet they have made and that the bet that they will continue to make, if they remain in equities, is really an AI bet," Panossian said.

Direct Lending Will Become A Selection Game 

The direct lending market has reached a more selective stage. What was once a strategy defined by deal origination and access to borrowers has evolved into one where success is driven by disciplined selection.

"Today, there are, at least, 10 direct lenders, maybe more, that could write a several hundred million dollar check in a single transaction and so the scarcity of that capital in 2021 is no longer the case. Today there is an abundance of capital … over the last two or three years it feels like there's too much capital chasing too many deals," Panossian said.

The CEO noted that it's important to remain disciplined and to invest in businesses that are non-cyclical and capitalized appropriately. 

"That discipline in underwriting and analysis is super critical in avoiding some of the landmines that we think could present themselves in the next few years," he added.

Building products, chemicals, packaging and automotive are all getting hit "very hard," O'Leary mentioned. He predicts the overall economy will stay intact, and yet recessions will start to spike due to the "very poorly" underwritten class of leveraged buyouts (LBOs) from 2019 to 2022.

"We've been waiting for LBOs to really pick up for a while, but there's a ton of dry powder out there and that should create opportunities for financing," podcast moderator Harry Whitelaw said.

As interest rates have gone up, private equity firms have held onto their investments longer. As a result, the market has seen an increase in the number of continuation vehicles and secondary transactions, which are often alternatives to restructuring a private equity deal without a traditional exit.

As the market adjusts to higher rates and valuation uncertainty, firms, like Oaktree, have become more selective, focusing on quality deals that offer an opportunistic lens and access to pockets of dislocation, Panossian noted.

Europe And Asia Will See More Deal Flow In 2026

Europe and Asia are viewed as promising markets for lending opportunities, Panossian explained. 

In Europe, loans offer favorable pricing and lower leverage because banks are less aggressive and market volatility has kept terms disciplined.

"We're seeing a lot of deal flow. And with some of the volatility with the U.S. in terms of this administration, a lot of investors, a lot of institutional partners of ours are more interested in the marginal dollar diverting their attention outside of the U.S., to Europe and to Asia," Panossian said.

Asia's banking sector is quite strong, private equity firms are seeking "stable and quick" financing solutions to new transactions and LBOs, as there is a desire to grow the direct lending market.

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