Howard Marks – Oaktree Capital Group LLC (NYSE:OAK) – Chairman remarks on the conference call today. He also took QA. Check it out below.
Thank you very much, Andrea. Good morning, everyone. I am delighted to join the call this time and I look forward to answering your questions at the end given all that we have been doing at Oaktree and all that is happening in the investment arena.
In running and growing in our businesses historically we have followed a simple standard, the logic of everything we do should be immediately obvious to our clients. And that standard has served us very well over the nearly two decades of Oaktree’s history and the three decades plus since my Oaktree cofounders and I started managing alternative assets together.
We’ve grown almost entirely through what we call step outs, movements into adjacencies of existing strategies. From our beginnings in the 1980s in US high-yield bonds and convertibles, we grew gradually to seven strategies at the time of Oaktree’s founding and to over 20 today. That organic approach to our growth has served our clients well because its evolutionary nature reduces the risk of mistake or loss.
It turns out that the primacy of risk control which of course as you know is the key tenant of our investment approach, also provides an excellent guideline of conduct of our business. The evolutionary approach has served us well as owners of Oaktree, producing sustainable growth and strong cash earnings through multiple market cycles. Of greatest pride to me, we have achieved this growth and prosperity while remaining faithful to the core principles responsible for it. And those are commitment to clients, excellence in investing and a culture dedicated to long-term success.
Thus, I’m energized today as I have ever been about Oaktree’s business and prospects and I look forward to making our next 20 years even better than the first 20.
To help make that statement a reality, we are taking another evolutionary step in adding to our senior management as many of you know. On Monday, Jay Wintrob will become Oaktree’s new Chief Executive Officer, the first in our history. But Jay is hardly new to Oaktree. He has been on our Board since 2011 from the time before we went public and he is a longtime personal and professional friend of Bruce Karsh and me. Jay is an extraordinarily accomplished business executive having built SunAmerica into AIG’s largest profit center while proving himself as a skilled operator of global financial services businesses.
For us Jay represents an ideal combination of continuity and fresh thinking in the classic Oaktree mold as we see it. Jay picks up from the base John Frank has built. Just as Jay will help lead Oaktree to the next level and beyond, John took us up multiple levels as managing principal over the past nine years. Having himself relieved Bruce of corporate administration, a major step forward to kick off Oaktree’s second decade.
Under John’s leadership, we successfully negotiated the global financial crisis and its aftermath while tripling our AUM, building a global operating platform and establishing Oaktree as an enduring publicly traded institution. Bruce and I are deeply grateful to John and delighted that he will advise Jay and continue to guide Oaktree as its Vice Chairman.
Jay’s availability to become our CEO could not have been more serendipitous. Capitalizing on abundant opportunities for growth while simultaneously tending to the myriad details of a regulated complex global business is a tall order. Jay has been there and done that. At Oaktree he inherits an organization that has never been stronger from the perspective of people, momentum, financial resources or avenues for growth.
Earlier I mentioned our requirement that the logic behind our actions should be apparent to our clients. And thus I’m pleased to assure our unitholders that the clients have reacted very positively to Jay’s appointment.
In all of my years, Oaktree services have never been more sorely or highly valued — sorely needed or highly valued. In the last month or so, spasms of anxiety returned to beset investors worldwide who want respectable returns without undue risk. And this creates an environment that is an ideal match for what we have to offer.
Speaking of the environment, since mid-2011, our investing mantra across Oaktree has been move forward but with caution. In the US, we see the economy getting stronger and asset prices getting higher although not generally in bubble territory. Economies elsewhere especially in Europe and certain emerging markets are weaker. We are respectful of the determination of central banks to stem economic weakness by keeping interest rates historically low and the appeal of riskier assets high.
More than five years into recovery as we are now, one would typically expect to see a pickup in defaults and other signs of distress. But of course nothing about this cycle has been typical so it isn’t surprising that defaults and distress remain in short supply. As we like to say at Oaktree, our crystal ball is no clearer than yours so we don’t try to time tops and bottoms. Instead we focus on providing our clients performance designed to excel over a cycle with a heavy emphasis on minimizing losses and making bargain purchases of distressed priced assets during downturns.
We stick to this approach because we feel it is the best way to manage assets especially in our more adventurous asset classes and because that is what our clients hire us to do.
That said, I’m often asked for my thoughts regarding the next downturn. One thing seems safe to predict, the timing and trigger are unpredictable. At least that has been the case for the downturns I’ve lived through. But as they approached, we have usually felt that we could add value by preparing for downturns. It is essential to understand where we are in the cycle and to adjust our actions on that basis. We adjust both the balance between offense and defense in our portfolio management and the amount of money we raise. Our global footprint benefits us as the environment isn’t always uniform worldwide. Thus we may pursue different paths given the diverging trajectories of the US and other economies.
In closing, I will add that the US economy and capital markets currently appear to be in a virtuous cycle in which the defaults are unlikely to rise in the foreseeable future. But virtuous cycles don’t go on forever. Sooner or later defaults will rise and markets will fall. We have no idea whether it will be sooner or later or what will make it happen but you and our clients can be assured that we will be ready when it does happen.
Howard, do you want to touch upon Jay and his sort of strategic initiatives? Or his (multiple speakers)
Howard Marks – Oaktree Capital Group LLC (NYSE:OAK) – Chairman
Sure, John, thanks. I don’t know if I stepped on your line there. But, Mike, just to answer a question you may or may not have asked, I don’t — I think that in general fees are not going down on these products. And in general, we will continue to get about the same kind of compensation on most of them as we have in the past