Oaktree Memos •
Ruminating on Asset Allocation
by Howard Marks, Co-Chairman, Oaktree Capital Management
READ THE ORIGINAL
Published in full and free by Oaktree Capital Management. This page indexes its arguments; it is not a copy.
THE ARGUMENT
His Australian epiphany, offered as a unified theory rather than new ideas. There are only two asset classes at bottom, ownership and debt, differing in kind rather than degree; the rest of allocation is implementation. The decision that matters is the risk posture, and with credit yields far above their 2009-21 level he thinks many investors should shift toward it.
What it actually claims
Strip everything back and two asset classes remain, ownership and debt, which he says have nothing in common.
Owners are promised nothing and take what is left; lenders get a contractual return he would rather call fixed outcome.
One decision sets all the others — the offense-defense balance — which can be held constant or shifted as the market swings.
Offense is usually played through ownership and defense through debt; not either/or, he stresses, but a question of the right mix.
- no one should buy an 8% bond expecting to make more than 8% a year over the long term
What changed is the level, not the shapes: debt’s expected return was far below equities from 2009 to 2021 and is now closer.
The textbook risk-return line misleads by its linearity; his version widens the range of outcomes and deepens the bad tail.
Markets are not efficient in the sense of being right, so skill can pay — but many believed to have alpha turn out not to.
His recommendation is a partial step, not a switch: research it, set up a program, begin — better entry points may come again.
- prospective returns starting at roughly 7% on public credit and 10% on private credit
Figures are the author's own, as cited in the memo.