Howard Marks, co-founder and co-chairman at Oaktree Capital, discusses a $1.8 billion loan made by Apollo Global Management LLC, opportunities in distressed investing, and his take on Federal Reserve policy. He speaks with Bloomberg’s Erik Schatzker on “Bloomberg Daybreak.”
Howard Marks On Loans, Opportunities In Distressed Investing And Fed Policy
Einhorn’s FOF Re-positions Portfolio, Makes New Seed Investment In Year Marked By “Speculative Exuberance”
It has not just been rough year for David Einhorn's own fund. Einhorn's Greenlight Masters fund of hedge funds was down 3% net for the first half of 2020, matching the S&P 500's return for those six months. In his August letter to investors, which was reviewed by ValueWalk, the Greenlight Masters team noted that Read More
Thanks very much, Howard Marks is one of the world's foremost credit investors. With a track record like yours, Howard, you have to be something of a student of the credit markets, which you are. And if you're a student, you have to be making observations all the time, I want to ask you your observations about one of the most noteworthy developments in credit as of late, a gigantic massive if you like $1.8 billion loan, that Apollo firm that you compete with now and then is making to finance the purchase of the newspaper company, get this is a loan that once upon a time, in fact, not so long ago, you could only get from a bank, right now you can get it from an asset manager, what does that say?
And the bank would syndicated they wouldn't lend the money, their own money, they would they'd scoop it up from others. Well, it says that there's a lot of money that can be collected by alternative investment management firms like Apollo and an oak tree and the oak. I mean, pension funds can make the returns, they were in stocks and bonds, they accept that. And so they're looking to alternatives and money is, is flowing into alternative firms. And obviously, Apollo was able to compete and win the ability to lend 1.8 billion for that merger.
Now, when you say when I'm assuming that it's because of Apollo was willing to lend at a lower interest rate than everybody else, I assume that it was competitive. And that's how you win the auction by being willing to accept less return, ostensibly less safety.
And but, you know, I presume they know what they're doing. They're pretty smart guys over there is alone of that size, to an industry, like newspapers, something that a firm like oak tree would have the capacity or the appetite for?
Well, we're not number one, we don't concentrate our investments that extent. So I can't imagine we would ever lend a billionaire on anything if if they're retaining the whole loan. You know, we do we do funds that are billion eight, and we obviously diversify them. So we don't have that size or that appetite for concentration. And I don't know the credit well enough to know how good alone It was. It's really certainly comes with a fetching interest. Well, if you
look at the interest rate, which was 11 and a half percent in an environment in which the 10 year Treasury pays 175, you have to assume that there was a lot of risk there. And by the way, that Remember what we said before Apollo did in terms of interest rate was low, I assume compared to the competition and other people might have wanted 12 or 13. So it tells you that it's a risky loan.
Do you think the point here is just a clip a handsome coupon? Or is it to do with Apollo and for that matter Oaktree have done in the past which is effectively loan to own idol idol don't know what's on their minds.
My you don't make new car loans. You don't buy make loans at 100 cents on the dollar to own because then if you when you ended up paying a very full price, what what what we call stress for control what distress for control investors try to do is buy dead at a discount so that they get in at a at a bargain price. So I'd be I'd be surprised to learn that it's long to own but depending on how risky the proposition is, I'm sure that not getting paid, and instead and the up as an owner must factor into the picture.
I'm glad you raised distress because because oak tree excuse me is in the process of investing. Right? Right. One of its newest funds, which is one and one of the largest to date your your newest distressed fund. And I think you've allocated some one and a half billion dollars of new money out of that funded the course of the first couple of quarters of this year. How would you evaluate the distress market right now?
First of all, you say new funds, it's a new fund, but it's four years old. We raised it in 2015. On a standby basis, we raised a fund for current investing. And then this on reserve we invested the current investing fund now we're hitting the reserve fund. But and and the fact that we're roughly 30% invested after this time shows you that the going is slow in distress. First of all, the economy's too good. And not many companies are getting into trouble. Secondly, the capital markets are very generous. So if a company needs rescue finance, they can get it or you know refinancing to push off their maturities into the future. So, you know, it's this is this is not the kind of climate in which good healthy companies with healthy bad businesses get into distress. There is some Distress in areas like retail and energy.