Howard Marks’ Crystal Ball Proved Accurate


Great article via Barron’s below is a short excerpt.

Howard Marks’ Crystal Ball Proved Accurate by Barron’s

Ten years ago, veteran investor and writer Howard Marks sent a contrarian — and prescient — memo to clients of his firm, Oaktree Capital Management, assessing the state of the hedge fund industry. Last week, Barron’s checked in with Marks to get his thoughts on the industry today.

Though aimed at clients, Marks’ missives are widely read on Wall Street and beyond. Marks, 68, earned his stripes as a manager focused on credit, high-yield, and distressed debt, in particular. Marks co-founded Oaktree in 1995 after spending 10 years at TCW. Oaktree oversees $91 billion in assets, specializing in alternative strategies and, again, emphasizing credit. A prolific memo writer, Marks pulled a lot of his thoughts together into a 2011 book titled The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

“Hedge Funds: A Case for Caution,” dated October 2004, came at a heady time for hedge funds, which were launching at a rapid pace and gathering billions of dollars from investors eager to join the alternative investing trend.

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Marks’ memo contrasted sharply with the breathless marketing of the time, especially among absolute-return funds supposedly managed by elite professionals with skills far superior to lowly mutual fund managers.

Marks did not bash hedge funds, but his tone was very cautious. “Hedge funds are just like any other investment tool,” he wrote near the end of the 14-page memo. “They are neither a good idea nor a bad idea. They have both plusses and minuses. They’re subject to market forces capable of altering their attractiveness. And like any other investment that’s in vogue, they should be handled with great care, with eyes wide open.”

Just how well do his observations hold up a decade later?

Very well indeed.

One of Marks’ biggest concerns 10 years ago was whether there was enough top talent to manage the burgeoning number of hedge funds. That concern remains.

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