Howard Marks Presentation

oaktree conference 2012
distressed opportunities
morgan stanley financials conference june 10, 2014
oaktree conference 2012 morgan stanley financials conference june 10, 2014
Investing In A Low-Return World

Howard Marks, Chairman
Oaktree Capital Management
The Investment Environment: A Mixed Bag
a slow, gradual, unsteady economic recovery in the u.s.
Less economic vigor and bigger problems elsewhere
The U.S. economy is clearly the best house on a bad block
The Investment Environment: A Mixed Bag (continued)
serious long-term issues
Debt reduction vs. stimulating growth
Globalization and competitiveness
Less-than-constructive politics
Job growth
Geopolitics
low central-bank-mandated interest rates
Free markets do a good job of allocating capital; theres no free market in money today
Borrowers are being subsidized; lenders and savers are penalized
Low-risk investments offer ultra-low returns
Therefore investors are forced up the risk curve in pursuit of return
most assets priced on the high side of fair
Equity valuations are reasonable
Yield spreads on bonds are reasonable
But interest rates are historically low dragging down all fixed income prospects, and other returns by
contagion

The Cycle of Investor Behavior
as markets rise, participants become increasingly euphoric and optimistic
Thus they want to invest more, even at high prices
They compete for investments by accepting lower prospective returns, weaker structures and greater risk
The quantity of issuance rises to meet the demand
The quality of issuance declines simultaneously
This is the race to the bottom
This is a time for caution
The Cycle of Investor Behavior (continued)
as markets fall, participants become depressed and afraid
They want to invest less, and to sell, and eventually to sell at any price
There are few buyers for the things that are for sale
Market participants reject deals, even good ones
The quantity of issuance declines and eventually can go to zero
Low-quality issues cannot be done
Asset prices are very low
This is the time for aggressiveness
The Cycle of Investor Behavior (continued)
where are we today?
The Temperature of Todays Markets
The economic news is good, or at least improving. There may be a positive wealth effect as 401-Ks and
home prices rise
The capital markets are accommodating, making it easy to refinance debt and feasible to do risky deals
Consequently distressed situations, defaults and bankruptcies are few
Because central banks have brought interest rates low, investors cant get the returns they want in
Treasurys, money market instruments or high grade bonds. Thus they are forced out the risk curve
The Temperature of Todays Markets (continued)
The demand for risk assets is high; cash flow into mutual funds is strong
There are many buyers and few sellers. Theres no distress among holders, and thus no forced sellers
Bargains are few, especially in easy-to-access areas
Investors moving out the risk curve often drop their caution
Issuers and sellers are holding the cards today, not prudent investors or bargain hunters

The less prudence with which others conduct their affairs,
the greater the prudence with which we must conduct our own affairs.
Warren Buffett

Our bottom line: todays markets call for caution, not aggressiveness
Disclosures
This presentation and the information contained herein are for educational and informational purposes only and do not constitute, and
should not be construed as, an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. Responses to
any inquiry that may involve the rendering of personalized investment advice or effecting or attempting to effect transactions in securities
will not be made absent compliance with applicable laws or regulations (including broker dealer, investment adviser or applicable agent or
representative registration requirements), or applicable exemptions or exclusions therefrom.

This presentation contains information and views as of the date indicated and such information and views are subject to change without
notice. Oaktree has no duty or obligation to update the information contained herein. Further, Oaktree makes no representation, and it
should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for
profit there is also the possibility of loss.

Certain information contained herein concerning economic trends and performance is based on or derived from information provided by
independent third-party sources. Oaktree believes that such information is accurate and that the sources from which it has been obtained are
reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of
such information or the assumptions on which such information is based. Moreover, independent third-party sources cited in these materials
are not making any representations or warranties regarding any information attributed to them and shall have no liability in connection with
the use of such information in these materials.

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What are the main points about the current investment environment?

What factors influence investor behavior over market cycles?

oaktree conference 2012

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