Howard Marks: The Biggest Bargains Are Behind Us

NEW YORK (Reuters) – Even as more investors swoop in on distressed assets flooding the market, the very best bargains may already be in the rear-view mirror, Oaktree Capital Management Chairman Howard Marks told Reuters.

In the aftermath of Wall Street’s collapse last fall, investment banks and money managers looked forward to snapping up debt selling at super-cheap prices. Markets remain shaky and corporate defaults have surged, yet the veteran investor said prices for these assets already bottomed out.

“Since prices have strengthened considerably, these are not exactly golden days for making money,” said Marks, whose 14-year-old firm manages more than $60 billion in bonds, loans, real estate and other assets. “The fourth quarter were the golden days, when there were incredible bargains for sale.”

Marks’ comments may come as a disappointment to the many money managers scrambling to raise money to pick through the companies and assets trading well below their face value.

“Let’s put it another way: anybody who had a fund and didn’t spend their money in the fourth quarter missed a big opportunity,” he said in a wide-ranging telephone interview from his offices in Los Angeles.

Marks’ firm did make investments during the fourth quarter, a painful period when the U.S. government was bailing out the banking system and shoring up markets shaken by Lehman Brothers’ collapse. Hedge funds, which suffered record redemptions, and banks raced to shed assets and hoard cash.

Meanwhile, declining market values, combined with falling revenue, pushed many companies into distressed territory — where the face value of their debts exceed their market value.


Oaktree ranks among the world’s biggest alternative asset managers and over the years has compiled an enviable investment record.

Oaktree’s Senior Loan Fund posted first-half gains of more than 19 percent after fees, according to an investor letter reviewed by Reuters. Leveraged loan prices continued to rise as investors regained their risk appetite. The lowest quality loans rose 36 percent during the second quarter, Oaktree said.

Even as the market’s mood has brightened since March, driving stocks higher, economic weakness combined with tight credit continued to squeeze more companies.

“There are things in the market that can be changed merely by psychology, and those are prices,” Marks said. “What psychology can’t change all by itself is the macro economy or, more importantly in this case, whether a company can service its debt. That’s a matter of financial reality.”

Marks cautioned that the economy is still on shaky ground, which means the distressed investing boom will linger. The sources of weakness may be easing, he said, but the new drivers of economic growth are not yet apparent.

“The bottom line is that restructuring and distressed transactions will go on for a long, long time,” he said. “There are a lot of companies or assets that were bought at too high a price with too much debt.”


Looking back at the years leading up to the crisis, Marks said investors were more concerned about missing out on gains and less fearful. Funds poured into illiquid assets, lured by the promise of higher returns, but the surge of demand pushed down the premium for accepting more risk.

“There was a shortage of skepticism, one of the most important elements you need as an investor,” he said.

Fast-forward to today and the situation has been flipped: there is too little money chasing these assets, he said. Investment managers and banks have said these bargains represent a rare opportunity and quickly solicited new funds.

Oaktree is one of nine investor groups tapped by the U.S. Treasury to create funds under the Public-Private Investment Plan, which intends to soak up toxic debt from troubled banks.

Marks declined to talk about PPIP, but he acknowledged that investors stung by the market’s breakdown last year so far have been leery of investing in illiquid assets.

“The opportunities are well-perceived by investment managers,” he said, “but managers are finding it somewhat challenging to raise funds that make illiquid investments.”

(Reporting by Joseph A. Giannone, editing by Matthew Lewis)