The Roundup: Top Takeaways from Oaktree’s Quarterly Letters – September 2025 Edition

Summary

• The S&P 500's 58% total return in 2023-24 was driven largely by seven stocks known as the "Magnificent Seven," which now represent one-third of the index's total market value.
• The average price-to-earnings ratio for the 493 non-Magnificent companies in the S&P 500 is 22, which is well above the historical mid-teens average and contributes to worrisome overall market valuations.
• Artificial intelligence spending accounted for roughly 0.5% of first-half 2025 GDP growth, representing one-third of total growth, with projections suggesting AI spend could comprise 40-50% of GDP growth by the end of 2026.
• BB-rated loans yield 6.9% with a spread of 257 basis points, while CCC-rated loans trade at 1,388 basis points, reflecting a bleak outlook for lower-rated borrowers.
• Median cash flow coverage for CCC-rated loans has dropped below 1x, making restructurings inevitable for many issuers unable to invest or refinance.
• The U.S. population over age 65 is projected to rise by nearly 25 million between 2020 and 2050, driving healthcare expenditure per senior citizen to 2.5 times that of working-age individuals.
• Healthcare companies account for over $270 billion in outstanding U.S. senior loans and high yield bonds, representing 18% of direct lending deals in 2025.
• Potential disruptions in the healthcare sector include Medicaid policy adjustments, tariffs, pharmaceutical affordability measures, FDA changes, and research budget cuts.
• The most recent private equity fund vintage with a median distribution to paid-in capital (DPI) above one occurred in 2016, due to a valuation gap caused by doubled financing costs compared to the 2009-21 period.
• A 2025 McKinsey survey indicates the number of limited partners ranking DPI as the most critical performance metric has more than doubled over the last three years.
• Private-label commercial mortgage-backed security (CMBS) issuance totaled over $78 billion in the first six months of 2025, a 58% increase from the prior year and the strongest first-half total since 2007.
• Nearly 60% of the first-half 2025 CMBS issuance came from single-asset, single-borrower loans, which typically feature higher quality collateral than conduit loans.
• CMBS yields remain attractive at roughly 7% despite spreads tightening over the course of the year.
• Hospitality values declined 1.9% in the second quarter of 2025, while overall commercial real estate pricing stabilized during the same period.