Howard Marks: WeWork Not A Sign Of Private Market Valuation Bubble

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The following is the unofficial transcript of an excerpt from a CNBC EXCLUSIVE interview with Oaktree Capital Management Co-Founder and Co-Chairman Howard Marks and CNBC’s Wilfred Frost which aired on CNBC’s “Closing Bell” (M-F 3PM – 5PM) today, Tuesday, December 10th. The interview took place at Goldman Sachs’ annual Financial Services Conference.  Topics included private market valuations, impeachment, Leon Cooperman, taxes and more.

WILFRED FROST: I have done, indeed, Brian. And thank you for holding down the fort in the meantime. But, one of the people I just sat down with is Oaktree’s Howard Marks, the famed investor, of course. And I began by asking him if he was fearful of a market sell-off if we did see a Presidential impeachment.

HOWARD MARKS: Well, number one, impeachment shouldn’t come as a surprise. I think it’s a foregone conclusion. And number two, given that, if we assume that the market is intelligent, then it shouldn’t have an impact. Because if it’s a foregone conclusion today, then when it’s voted in a week or two, and it doesn’t come as a surprise, and it’s in line with expectations, things that happen in line with expectations, it should not have a profound impact on the level of the market.

Howard Marks on private market valuations and politics

WILFRED FROST: But conviction is something that you would be concerned about?

HOWARD MARKS: I’m not concerned about that, because I don’t think it will happen. You know, they need 20 Republican votes to convict in the Senate and they don’t have one. And I can’t imagine what’s going to change. In particular, I think that all of the evidence is on the table. So how are you going to change 20 minds?

WILFRED FROST: That said, on the political front, the 2020 election, of course, is only a year or so away. But front of our minds, for sure.

HOWARD MARKS: Yes.

WILFRED FROST: What’s your take on the impact that might have on markets?

HOWARD MARKS: Well, you know, market wise, it all depends on whether we have a President who is considered pro or anti-business. And the market took off after Trump’s election, because he was judged to be pro-market and he has behaved pro-business. So, if he’s re-elected, people will continue to see him as pro-business. They’ll breathe a sigh of relief that he was re-elected and that will probably be healthy for the market. In this case, it’s not pre-ordained like the impeachment. I think that there is uncertainty as to the outcome. If he’s not elected, then the question is, who is? Bloomberg would be judged as pro-business. And the market would like that. Biden, moderate, probably not as strong reaction. Warren, who certainly comes out as being anti-business, anti-Wall Street, I think hold your hat.

WILFRED FROST: Lee Cooperman said 25% sell-off in that sense. Does that equate to hold your hat in your mind?

HOWARD MARKS: Well, look, a week before Donald Trump’s election, there were two things we were sure of. Hillary would win and if Trump won, the market would collapse. So, Donald won and the market went up. And that tells me we don’t know what’s going to happen. So, I try not to make forecasts. And I tend not to believe forecasts, including my own. But I do think that there would be an adverse reaction to a progressive president.

Active takeover

WILFRED FROST: When we look at your broader industry, there’s been a lot of price pressure, and traditional—not only asset management with the growth of indexes, also more recently in the broker price wars that we’ve witnessed. Do you think that kind of price pressure is coming to the credit space, to the private equity space?

HOWARD MARKS: A lot depends on how it performs. You know, basically, people switch from active to passage management in equity funds, because active wasn’t working, and it wasn’t earning its high fees. That’s why the fees have come down. I think we’re still in a rational market where things that make money for people will be compensated, things that don’t make money for people will not.

WILFRED FROST: When we consider WeWork as an example of a private market company – private market valuations – do you consider that as broadly actually representing a bubble in private market valuations, or is it more of a special situation?

HOWARD MARKS: No, I think it was a special situation, because I think that that valuation of $47 billion earlier this year was made by one buyer. And if that buyer miscalculated, I don’t think that’s typical of a broad trend. I think it’s very interesting to see that the, you know, the market — one of the roles of the market is to serve as a vigilante, and to reject or down price when it should. The fact that the public rejected the private market valuation on WeWork, I think was a very healthy development. And it shows that the market is value sensitive. That’s a plus.

WILFRED FROST: I know it is very hard to predict when the current cycle will end. But do you ever think about how big the fallout will be this time around when it does end? Do you think that the sell-off, when it comes will be bigger than ’08 or ’09? Or –

HOWARD MARKS: Well, look, if you’ve been around 20 years, you may have been around 20 years.

From private market valuations to credit markets

WILFRED FROST: I have — not always investing.

HOWARD MARKS: You’ve seen two bubbles, tech, and subprime, and two crashes. And you may tend to think, as may your viewers, that that’s it. Bubbles and crashes. But the truth is, we have ups and downs, we have bulls and bears. And they’re not all as profound as bubbles and crashes. I don’t see that we’re in a bubble this time. Certainly nothing comparable to ’07. I don’t think we’re going to have a market decline comparable. Things are evaluated, but not crazily so.

WILFRED FROST: But where we stand today, worth taking a little bit of risk off the table.

HOWARD MARKS: Well, it depends on from what. But, I mean, look, everybody has made a lot of money. The economic expansion and the bull market are old, valuations are above average, prospective returns are low, there’s a lot of uncertainty in the world, and it strikes me that one should not have as much risk as one did three years ago or six years ago. You’ve made a lot of money, take some off the table. That is not to say it’s going down. You know, if I thought it was going down, which I don’t know how I would reach that conclusion, I would say, sell it all. But I never say that. And you — it’s impossible to say that. But I think there are reasons to have less risk going forward than you have had in recent years.

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