(Bloomberg) -- Oaktree Capital Management co-founder Howard Marks warned that higher interest rates and slower economic growth will test the boom in private credit, the Financial Times reported.

Warren “Buffett says it’s only when the tide goes out that you discover who has been swimming naked,” he said. “The tide has not gone out yet on private lending, meaning the portfolios haven’t been tested.”

Big asset managers competed aggressively to lend to private equity in 2020 and 2021, raising questions over due diligence, he said.

“Did the managers make good credit decisions, ensuring an adequate margin of safety, or did they invest fast because they could accumulate more capital? We’ll see,” Marks told the FT in an interview.

With banks concerned about lending after the collapse of some regional lenders, Marks sees an opportunity for Oaktree and others to step in and provide financing, he said. 

“Now you have some meaningful interest rates and some scarcity of capital as banks are restrained,” Marks said. “This is a good climate . . . you can get equity returns from debt now, and when you invest in debt you have a much higher level of certainty of return relative to equity ownership.”

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