An interview and Q&A with billionaire debt investor and founder of Oaktree Capital Management, Howard Marks, and managing director at Oaktree, Rajath Shourie. In this interview, the gentlemen discusses investing in distressed debt and how they think about capital allocation versus time. They also talk about creating Oaktree and the current investment landscape.
Billionaire Howard Marks Investing In Distressed Debt Capital Allocation and Oaktree
1:54 Where are the opportunities in distressed debt today?
6:58 How do you think about time v capital allocation?
13:10 How do you think about liquidity?
15:23 The journey of Oaktree?
19:25 The industry?
24:11 Career advice?
25:58 Start of Q&A
26:12 Volatility and convincing investors?
29:59 Whats comes after the property market boom?
Well I just think number one there is very little distrust today what little there has been in the last year or so has mostly been in oil and gas and and mining and metals. And of course we've made some very good investments. But you can't fill up a portfolio with those two sectors and many other sectors are under under rated. This is the seventh year of below average defaults among high yield bonds which is the phenomenon that stocks are pond. And so we have to wait. Now the way we view the process is that in times when investors are eager to put money to work. Wall Street kind of piles the logs in the fireplace by issuing securities that are weak and shouldn't have been issued and then eventually some economic weakness or somebody else puts a match to that fuel and then we have a bonfire from which the distressed investor finds opportunity. We believe that the logs are being stacked and have been stacked for for several years now. But you know nobody can imagine what might cause us to experience economic weakness at lunch today. So my seatmate proposed maybe we're going to have 10 years without a recession starting today which would bring the total to 17 or 18. I said I would take the take the under on that.
But you know we get into these times like today when everybody says well I don't know the central banks are going to keep stimulating the economy hasn't had a boom. It may not have a bust. I don't see any reason why why things should stop working ever. You know and people start to think about and talk about a virtuous circle and when they do that they usually get into trouble I think. Right. I think we had we had the we had what I call a little mini panic earlier in the year and it was mostly caused by the commodity. The commodity cycle and really the root cause of that was fears of a China slowdown. So those fears of a China slowdown abated you know everything came roaring back during during the mini panic. Of course there was there were nice distressed opportunities in the commodity areas but they also did spread out albeit very briefly for a long period of time into a whole bunch of other sectors including things that were not related at all to commodities know oil gas anything. So example would be telecom ended up being one of our reasonably large sectors at the beginning of the year. And why would that be. Because you know when people have trouble and there was trouble that was coming through because of the oil patch they faced redemptions they have to sell and they sell what they can sell and what they could sell was actually you know they couldn't really sell the oil and gas stuff that was already very depressed. They could sell the telecom bonds all within the oil and gas sector.
They could sell the pipeline bonds which were you know considerably in better shape in considerably better shape than the bonds issued by oil and gas producers or exploration and production companies. Now all of that has come and of course we we love to buy that stuff we love to buy things when the baby's been thrown out with the bathwater. There isn't as much of a fundamental reason for the distress now of course all that stuff has come back. Those awful utilities were quite fleeting and they're gone. What remains is as Howard said some you know oil and gas related opportunity the continuing sales of assets out of European banks. And you know and private credit type opportunities which are sort of on the cusp of stressed and distressed not not really a lot of true distress there but there's some stress private credit opportunities. And so those are the things we're looking at and where we're going to buy that time and wait and see until the until the real next opportunity comes. Maybe just picking up on that very quickly. The tradeoff between buying time or biding time and trying to put your capital to work I mean that is obviously a tradeoff that of us that are capital allocators out here face very similar to you. How do you think about that tradeoff particularly in an environment like this where something that might seem expensive or at least not cheap still tends to rise in prices. Well I think that the most important thing is we don't have a trading mentality. We don't we don't think Hey that we think that's going to go up we have a value mentality. We try to figure out the value and buy for less.
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