On August 12, Oaktree Capital Management’s Armen Panossian shared his thoughts on AI during an interview with Sonali Basak, the primary Wall Street correspondent for Bloomberg Television.
Armen Panossian is the co-Chief Executive Officer of Oaktree Capital Management, where he plays a central role in overseeing the organization and performance of the firm’s investment teams. In addition to his CEO responsibilities, he serves as the Head of Performing Credit, managing the firm’s liquid and private credit strategies. He is also a portfolio manager within Oaktree’s Global Private Debt and Global Credit strategies. Panossian has been with Oaktree since 2007, initially joining the Global Opportunities group. He later took on co-portfolio management duties for the U.S. Senior Loans team in 2014 and led the development of Oaktree’s CLO (Collateralized Loan Obligation) business. In 2019, he was appointed as the head of all performing credit at the firm. Before joining Oaktree, Panossian worked at Pequot Capital Management on their distressed debt strategy.
In today’s interview on Bloomberg TV, Panossian acknowledges the immense economic gains that AI promises. From revenue increases to cost efficiencies, the technology offers a tantalizing future for investors. The excitement surrounding AI is palpable, with markets heavily supporting AI-related ventures. Companies like NVIDIA, which plays a crucial role in AI infrastructure, have seen their market capitalization skyrocket, reflecting the collective optimism of investors.
However, this enthusiasm is not without its dangers. Panossian draws a parallel between the current AI boom and the late 1990s internet frenzy, where the promise of rapid revenue growth led to inflated valuations and, eventually, a market correction. The timing of AI’s benefits remains uncertain, and if these gains take longer to materialize than expected, it could lead to a violent resetting of valuations, with significant losses for those heavily invested.
Beyond the financial markets, Panossian emphasizes a more pressing concern: the societal impact of AI. He says that as AI technologies advance, many traditional jobs could become obsolete. For instance, the rise of autonomous systems may eliminate millions of jobs in sectors like retail and transportation, where roles such as cashiers and drivers are at risk.
The real challenge, Panossian warns, lies in the retraining of these displaced workers. He warns that without proactive measures to equip people with new skills suited for an AI-driven economy, society could face severe social unrest. He goes on to say that the displacement of jobs on a massive scale could deepen the divide between the wealthy and those living paycheck to paycheck, exacerbating existing social inequalities.
AI’s potential extends beyond economic and societal impacts; it also has significant geopolitical implications. Panossian points out that AI is not confined by borders, and nations, even those adversarial to the United States, could leverage AI to develop technologies and skills that could pose strategic threats. The race for AI supremacy could thus become a critical factor in global power dynamics, influencing everything from economic competition to national security.
According to Panossian, the current investor sentiment towards AI is one of intoxication. He points out that the sheer scale of investment pouring into AI-related infrastructure is staggering, with billions being spent on building data centers, procuring semiconductors, and establishing the digital backbone required to support AI technologies. He believes that this fervor has led investors to focus primarily on the opportunity rather than the risks.
Panossian highlights the example of NVIDIA, whose market cap has surged to astronomical levels based on future growth expectations. He mentions that investors who entered the AI market early have seen significant returns, fueling further investment and driving up valuations even more.He is concerned that this focus on potential gains often overshadows the risks, leading to an environment where caution is thrown to the wind in the pursuit of profit.
Despite the overwhelming enthusiasm, Panossian advocates for a more measured approach to AI investment. At Oaktree Capital Management, the strategy involves being selective about where and how to allocate capital in the AI sector. While there is participation in the AI growth story, there is also a conscious effort to avoid overexposure and concentration in AI investments.
Drawing on lessons from past technological booms, such as the fiber optic surge, Panossian stresses the importance of maintaining a balanced perspective. Should there be a market correction or a reassessment of AI-related valuations, Oaktree is positioned to take advantage of distressed investment opportunities, leveraging its expertise in opportunistic investing.
Looking ahead, Panossian underscores the urgency of addressing the societal risks posed by AI. According to him, if society fails to retrain and prepare workers for the post-AI employment landscape, the consequences could be dire. He says the growing divide between the “haves” and “have-nots” could lead to significant social unrest or the need for an expanded welfare state to support those left behind by the AI revolution.
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