Despite tariff turmoil, the US remains the most liquid private credit market globally, especially in the sub-investment grade space, according to Oaktree’s latest quarterly credit report.

For an asset class like private credit, there is “limited alternative to US exposure” and “there is no market outside the US that offers comparable depth”, the alternative investment management firm said.

The depth of the US offering – characterised by strong capital markets, the world’s dominant currency and high labour productivity – allows managers to deploy capital at a larger scale.

Read more: Market volatility creates distressed debt opportunity

While in April this year credit spreads widened and new deal flow slowed, a rebound in activity was quickly recorded.

The fast recovery was largely due to private credit’s broad lender base, the proliferation of distressed debt buyers and the underlying market quality, Oaktree said.

It points, for instance, at collateralised loan obligation (CLO) issuance keeping steady despite the threat of a tariff war. The firm calculates that so far this year, the US recorded $125bn (£94bn) of new CLO issuance and Europe €40bn (£34.9bn).

The report also argues, that unlike equities, returns on credit investments are less dependent on strong US economic growth. “These companies just need to survive for investors to get their (currently elevated) contractual outcome.”

Read more: Oaktree: Leveraged buyouts could return this year

However, April’s tariff announcement injected uncertainty in the market, which means existing deals take longer to complete and the risk for a slowdown persists.

Oaktree therefore urges investors to look at diversification options where possible, taking into account asset availability and manager capability in other regions.

It notes, for instance, that Europe boosts a broad direct lending space, a strong macroeconomic backdrop, attractive hedged yields and limited default expectations.

Read more: Private credit is ‘a bigger deal in Europe than in the US’

Oaktree warns, however, that, in the current volatile economic environment, investors should prioritise managers with strong credit selection over those focused on rapid capital deployment.