During the CFA’s Distinguished Speaker Series 2023, Howard Marks explained why when the tide goes out we’ll find out who made good credit decisions. Here’s an excerpt from the interview:
Marks: The private lending business came into existence sometime around 2011, ’07 I think there was about a quarter of a trillion of private loans outstanding and today it’s a trillion and a half, so in 15 years I think we’re up six times. It has really blossomed.
The question will be… Buffett says, only when the tide goes out do we find out who’s swimming naked.
One of these days we’ll have a recession, and these things haven’t been tested, we haven’t had much of a recession since 2011. One of these days they’ll be tested, and one of these days we’ll find out who made good credit decisions and who made bad ones.
And the people whose managers made good credit decisions will get the yields that were promised and the others will not. We’ll see.
In this business the two most valuable words are, we’ll see.
You know there was so much money available to private lenders for AUM, that when that’s the case there’s always an incentive to take money too fast and too much, and put it out so fast so that you can raise more. I think that tends to lead to worse decisions, we’ll see.
You can watch the entire discussion here:
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