Howard Marks Presentation to UCLA Anderson Student Investment FundCapturing Efficiencies in Distressed Debt
No investments are good or bad intrinsically
It all depends on the timing and the price
Fashion fads come and go
In 2010, the fad was safety
What Marks does to determine the quality of the investment is to project himself into the future
What kind of scenario would have to play out for the return to makesense?
In terms of buying Swedish gov’t bonds at .9% yield, depressionand deflation are the only outcomes that would make thedecision prudent
Investing successfully surrounds buying assets for less than they areworth
What is distressed debt?
Debt for which the markets do not believe the bonds will pay principleand interest
Generally, distressed debt investors want a creditor claim on the company
Restructuring is the event that comes about after a default
Trigger (such as restructurings) are important in investing
3 questions that Oaktree asks itself in determining whether to make an investment
What is the pie worth?
How will it be split up among claimants?
How long will it take?
If you can get all of these right you can determine the IRR with certainty