Veteran investor Howard Marks said he doesn’t see a widespread problem brewing in private credit, but warned that the sector’s rapid expansion over the past 15 years could expose weaker lenders when markets eventually turn.

“There’s not a systemic problem with private credit,” Marks, co-chairman and co-founder of Oaktree Capital, said Thursday on CNBC’s “Money Movers.”

The noted investor said that the risk stems from the pace of expansion in direct lending, which has ballooned to a market now exceeding $1 trillion from its early development around 2011.

His comments come as sentiment toward direct lenders has soured following the collapse of auto-related borrowers Tricolor and First Brands. Much of the concern has centered on loans made to software companies as investors worry that artificial intelligence could disrupt those businesses.

“There’s a saying in the banking business that the worst of loans are made in the best of times. We’ve seen 17 years of good times. When the stuff hits the fan, or as Warren Buffett would say, when the tide goes out, we will find out whose credit analysis was discerning, who made fewer software loans to the better company,” Marks said.

The pressure has already begun to show up in fund flows. Investors pulled nearly 8% from Blackstone Inc.’s flagship private credit fund in the most recent quarter, highlighting growing caution among allocators.

Marks said it’s impossible to predict when exactly the cycle will turn.

“The things that affect the investment world so profoundly are the things that were not foreseen,” Marks said. “If they could be foreseen … anticipated and adjusted to and factored into prices, they wouldn’t have that cataclysmic effect.”