howard marks: investing in a low-return world

5/24/2018 Howard Marks: Investing In A Low-Return World

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oaktree conference 2012distressed opportunities

morgan stanley financials conference june 10, 2014

distressed opportunities

oaktree conference 2012


Investing In A Low-Return World

Howard Marks, ChairmanOaktree Capital Management


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The Investment Environment: A Mixed Bag

a slow, gradual, unsteady economic recovery in the u.s.

Less economic vigor and bigger problems elsewhere

The U.S. economy is clearly the best house on a bad block


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The Investment Environment: A Mixed Bag (continued)

serious long-term issues

Debt reduction vs. stimulating growth

Globalization and competitiveness

Less-than-constructive politics

Job growth

Geopolitics


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low central-bank-mandated interest rates

Free markets do a good job of allocating capital; theres no free market in money today

Borrowers are being subsidized; lenders and savers are penalized

Low-risk investments offer ultra-low returns

Therefore investors are forced up the risk curve in pursuit of return


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most assets priced on the high side of fair

Equity valuations are reasonable

Yield spreads on bonds are reasonable

But interest rates are historically lowdragging down all fixed income prospects, and other returns bycontagion


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The Cycle of Investor Behavior

as markets rise, participants become increasingly euphoric and optimistic

Thus they want to invest more, even at high prices

They compete for investments by accepting lower prospective returns, weaker structures and greater risk

The quantity of issuance rises to meet the demand

The quality of issuance declines simultaneously

This is the race to the bottom

This is a time for caution


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The Cycle of Investor Behavior (continued)

as markets fall, participants become depressed and afraid

They want to invest less, and to sell, and eventually to sell at any price

There are few buyers for the things that are for sale

Market participants reject deals, even good ones

The quantity of issuance declines and eventually can go to zero

Low-quality issues cannot be done

Asset prices are very low

This is the time for aggressiveness


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The Cycle of Investor Behavior (continued)

where are we today?


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The Temperature of Todays Markets

The economic news is good, or at least improving. There may be a positive wealth effect as 401-Ks andhome prices rise

The capital markets are accommodating, making it easy to refinance debt and feasible to do risky deals

Consequently distressed situations, defaults and bankruptcies are few

Because central banks have brought interest rates low, investors cant get the returns they want in

Treasurys, money market instruments or high grade bonds. Thus they are forced out the risk curve


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The Temperature of Todays Markets (continued)

The demand for risk assets is high; cash flow into mutual funds is strong

There are many buyers and few sellers. Theres no distress among holders, and thus no forced sellers

Bargains are few, especially in easy-to-access areas

Investors moving out the risk curve often drop their caution

Issuers and sellers are holding the cards today, not prudent investors or bargain hunters

The less prudence with which others conduct their affairs,

the greater the prudence with which we must conduct our own affairs.

Warren Buffett

Our bottom li ne: todays markets call for caution, not aggressiveness


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Disclosures

This presentation and the information contained herein are for educational and informational purposes only and do not constitute, and

should not be construed as, an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. Responses to

any inquiry that may involve the rendering of personalized investment advice or effecting or attempting to effect transactions in securities

will not be made absent compliance with applicable laws or regulations (including broker dealer, investment adviser or applicable agent or

representative registration requirements), or applicable exemptions or exclusions therefrom.

This presentation contains information and views as of the date indicated and such information and views are subject to change without

notice. Oaktree has no duty or obligation to update the information contained herein. Further, Oaktree makes no representation, and it

should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for

profit there is also the possibility of loss.

Certain information contained herein concerning economic trends and performance is based on or derived from information provided by

independent third-party sources. Oaktree believes that such information is accurate and that the sources from which it has been obtained are

reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of

such information or the assumptions on which such information is based. Moreover, independent third-party sources cited in these materials

are not making any representations or warranties regarding any information attributed to them and shall have no liability in connection with

the use of such information in these materials.

howard marks: investing in a low-return world

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