Reflections on Oaktree Conference 2026 with Howard Marks

“I would say that as of a year or so, maybe two years ago, direct lending was, as you say, you used the term alpha. It was no longer special. The returns available in direct lending, I think, were adequate, but nothing more. What Oaktree and I and my colleagues wanna find are returns that are higher than is appropriate for the risk involved, so called excess returns. And I think that in the last year or so, excess returns disappeared from direct lending.”

“I moved to the bond department at Citi in 1978 to manage a convertible bond portfolio. And in August '78, I got the phone call that changed my life from the head of the bond department. He said there's some guy named Milken or something in California. He deals in something called high yield bonds. Do you think you can figure out what that means? And I was smart enough to say yes. And, of course, that was the seed for everything that Oaktree and I have done since.”

“We wanna get returns that are more than commensurate with risk. And to do that, you have to buy assets not at fair prices, but at unfair prices. We wanna buy things for less than they're worth. That sounds totally straightforward. It's understandable that that's how we do our job. There's only one catch. It requires cooperation for someone who's willing to sell something for less than its worth. And who volunteers for that job? We want to buy from sellers who are making mistakes.”

“This is a lesson I learned when I was a kid. When I joined the investment business, 1969, I was 23 years old. And the world loved the Nifty Fifty, the greatest companies in America. And they paid inordinately high prices for the Nifty Fifty because they loved them too much. And if you bought the stocks the day I got to work in '69 and you held them for five years, the greatest companies in America, you lost about 95% of your money. So you really want to avoid things that people like too much.”

“I put out a memo called leverage plus volatility equals dynamite. People like leverage because leverage magnifies financial results. And in Las Vegas, the pit boss says, the more you bet, the more you win when you win. You can't argue with that. So people only buy assets because they think they're attractive. And if they're attractive, they'll make a profit. And if there's a profit, the less of your own money you used, the higher the return on your money. That's why people use leverage. But it works the other way too. The more you bet, the more you lose when you lose.”

“And I wanna point out one thing because in my memos, I've been harping on my concerns about AI's ability to eliminate jobs. But I don't think AI can be at the very top in terms of getting the most out of the assets of a company, and I don't think that AI can pick the best managers because picking the best managers requires an intuition and a subjective feel that I would be surprised to learn that AI can be very good at.”

“Bruce Garsh and the opportunities team have done a great job of managing our funds. We used to call them distressed. Now we call them distressed, but also opportunistic. They're closed end funds. And when the client commits to the fund because you think there's an opportunity coming, they have to put up the money when we call it. And when the problem actually arises and it scares the bejeebers out of everybody, and nobody wants to put money into anything, our clients are committed to do so.”

“Buffett says it's only when the tide goes out that we find out who's been swimming naked. In the last few months, the tide has been going out, especially in areas like private credit, and we start to see which structures may have been unwise. We actually haven't had many defaults yet, so we haven't had a chance yet to see who made bad loans. That's coming too.”