presentation Wealth Insights | presentation Announcements | July 15, 2025

In Conversation with Howard Marks Part II

Written by Communications at MASECO

Josh Matthews, Co-Founder and Managing Partner of MASECO Private Wealth, recently had the opportunity to hear from Howard Marks, the renowned founder of Oaktree Capital, as he shared his thoughts on a range of important investment topics. The last time Josh engaged with Howard was in 2022, during a press conference in London.

Oaktree was founded in April 1995 by a team that had previously worked together at TCW Group. The firm now manages more than $203 billion, primarily in private credit. When establishing the company, Howard outlined a number of core investment and business principles that closely align with MASECO’s values. These include clear and honest communication, a flat organisational structure, a thoughtful process for introducing new products, a responsibility to consider broader societal impact beyond financial returns, and a strong emphasis on avoiding conflicts of interest while prioritising client outcomes.

When asked to describe what it is like to invest with Oaktree, Howard replied, “Always good. Sometimes great. Never terrible.” The philosophy hinges on keeping risk under control. This means the firm may not lead the market in good times, but it aims to outperform during challenging periods. Over time, this approach can generate superior long-term performance. Although Brookfield Asset Management has acquired a large ownership stake in Oaktree, Howard and his co-founder Brad continue to lead the firm independently.

Below are some reflections from Josh on the eight key investment themes discussed during the session:

Market Cycles

Howard emphasised the importance of understanding the goals and risk tolerance of each investor in order to structure an appropriate asset allocation. The key decision is determining the right mix between aggressive and defensive investments. While there may be times when it is tempting to adjust risk exposure, consistently timing the market is extremely difficult.

Over the past fifty years, Howard/Oaktree has made only five major timing decisions. These were taken only when the market was at extreme levels and the probability of success was unusually high. Even then, timing is challenging. Investors can attempt to understand where we are in the cycle by looking at both quantitative data and investor behaviour. At certain moments, sentiment swings to extremes of either pessimism or optimism.

Risk and Return

Howard referenced several key intellectuals on the subject of risk. Warren Buffett advises that the less prudent others are, the more prudent you should be. Elroy Dimson of the London Business School notes that more things can happen than will happen, a reminder that risk exists because the future is uncertain. Without risk, there would be no risk premium.

Peter Bernstein once said, “We walk into the unknown every day.” Howard believes that the relationship between risk and return is not a straight line. While higher risk can lead to higher expected returns, it also increases the range of potential outcomes. Therefore, risk should not be oversimplified as a guarantee of return and the riskier the investment, the higher the variability of return outcomes.

Source: The Most Important Thing by Howard Marks | Summary Notes

Noise

Howard addressed the tendency of investors to focus too much on short-term variables such as interest rates, inflation, and market forecasts. In a memo titled What Really Matters, he argued that these factors tend to have limited long-term relevance. If you knew interest rates would rise or fall in a given month, would it really change your long-term investment strategy? What ultimately matters is whether you are investing in companies that are likely to grow faster than expected and lending to those that will reliably repay their debts.

Active and Passive Investing

The case for passive investing became widely accepted in the late 1960s, as evidence showed that most active managers underperform broad market indices. Vanguard launched its first major index fund in 1974, helping investors avoid the emotional decision making that often leads to poor results.

Howard believes that while some active managers can add value, it is very difficult to identify them in advance. Artificial Intelligence may eventually replace underperforming managers, particularly in large and efficient markets.

Artificial Intelligence

In his 2016 memo titled Investing Without People, Howard made the case that Artificial Intelligence is unlikely to predict the future because it relies on historical data. As such, it may not be able to identify the next major market winner in advance. That said, it may still play a role in eliminating active managers who do not consistently add value.

Investment Management Structure

Howard outlined three levels of investment management. The first is setting the appropriate risk posture and overall asset allocation. The second is selecting investment managers and strategies. The third is choosing individual securities.

Oaktree focuses on bottom-up investment analysis, while MASECO typically takes a top-down approach that starts with strategic asset allocation.

More on Market Cycles

In his book Mastering the Market Cycle, Howard explores why markets do not deliver smooth and consistent returns over time. Instead of returning eight to ten percent in any given year, markets tend to swing between periods of exuberance and despair. These emotional extremes drive asset prices far above or below intrinsic value.

At market tops, optimism, confidence, greed, and fear of missing out push prices above intrinsic value, lowering future return expectations. At market bottoms, fear and pessimism push prices below intrinsic value, increasing the likelihood of stronger future returns.

Howard believes that markets are currently in the fair value range, with prices slightly above intrinsic value. He sees more optimism than pessimism today, which suggests that future returns may be somewhat below average.

Ruminations on Asset Allocation

Howard explained that investments generally fall into two categories: ownership and lending. Ownership investments, such as equities, tend to be more volatile but offer higher expected returns. Lending investments, such as bonds and loans, offer more predictable, contractual returns and carry less volatility.

With interest rates higher than they were three to five years ago, Howard believes this is a particularly attractive time to be a lender. Equities currently face a wider range of outcomes due to increased uncertainty, making fixed income more compelling on a relative basis.

Howard also noted that the illiquidity premium in private credit has decreased. This reflects a lower risk premium being demanded today.

Perspective on the United States

Howard described the United States as possessing a unique combination of strengths, including a dynamic economy, a strong entrepreneurial culture, a respected legal system, top-tier universities, and deep capital markets. However, he also expressed concern that the United States appears less dependable today than it was six months ago and may remain that way for the next several years. Other parts of the world may be less exceptional but offer better valuations and the potential for similar or even superior returns.

Closing Thoughts

Howard Marks continues to offer thoughtful and well-informed perspectives that align closely with the principles we follow at MASECO. His emphasis on disciplined risk management, thoughtful asset allocation, and understanding investor psychology reflects a long-term mindset that we believe is essential to successful investing. Like Howard, MASECO aims to help clients navigate market cycles with a steady hand, avoiding short-term noise and focusing on enduring fundamentals. His memos remain a valuable resource for investors seeking clarity and perspective, and we look forward to shining a light on more of his insights in the future.

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