Howard Marks' "2010 In Review"

Tyler Durden's picture

Oaktree's Howard Marks has just released his "year in review" letter, which like any letter by Marks is a must read, as the Oaktree manager has proven his presence in the pantheon of asset managers is well-deserved. Not surprising, and as we had repeatedly highlighted, when we pointed out the near record implied correlation between all asset classes, 2010 was a year of "correlations" which we believe may be just as appropriate a word to describe last year's market as "austerity" (which has so far completely missed the US). Quote Marks: "The word for 2010 was “correlation,” meaning macro trends dominated performance within asset classes. Thus most securities performed in line with their market benchmarks and the returns to security selection were limited. It wasn’t easy to outperform benchmarks."All this and much more on the firm's performance below.

Marks' delineation of the key macro events that shaped 2010:

  • The first four months of the year saw uninterrupted continuation of the optimism – and thus the security price gains – of 2009.
  • In May and June, starting with Greece, people awoke to the realization that countries can’t perpetually grow their deficits and national debts faster than their GDP without consequences. That led to worry about Portugal, Ireland and Spain and about the impact on the European Union of the cost of supporting them. These concerns brought the bull market to a halt, producing substantial declines in equities and turning their year-to-date results negative.
  • Then in the third quarter, as they do from time to time, stock markets switched to an attitude of “well, never mind,” producing dramatic rebounds and taking YTD returns back to positive territory.
  • Given that bonds produced superior performance in the first decade of the current century – and that bond holdings had become so small in the last quarter of the twentieth century – investors rushed there for protection from the uncertainty they felt. Thus bonds saw strong demand despite their ultralow yields. As usual, this trend was carried too far, such that by the end of September, Treasurys and high grade bonds represented an inferior risk/return proposition, especially relative to equities.
  • Correction of the imbalance described above contributed to weakness in high grade bonds and strength in equities over the remainder of the year.
  • Demand for stocks, real estate and other assets in the emerging markets was reinforced by doubt about the economic prognosis for the developed nations, especially when compared against the apparently bright future for China, Asia in general, and countries such as Brazil and Australia that sell commodities to Asia.
  • Worry reappeared concerning Ireland and Portugal in November, again raising questions about the future of the EU.
  • November and December were marked by unhappiness over the lower interest rates, inflation, weaker dollar and offshore asset bubbles that the second round of quantitative easing was expected to produce. Investors concluded that the U.S. was a poor place to store wealth, and that its debt should provide higher returns. As a result, the yield on the U.S. 10-year note jumped by 100 basis points in a very short time, and a preference for gold over dollars drove the metal to a new high.

Some other performance observations on Oaktree:

  • "We had inflows of $2.9 billion and outflows of $4.2 billion, for a net outflow of $1.3 billion."
  • "In 2010 raised a total of $8.5 billion of commitments for Principal Fund V, Opps VIII/VIIIb, Mezzanine Fund III, Power Fund III, European Principal Fund III, Real Estate Fund V, and our Public/Private Investment Partnership with the U.S. Treasury."
  • "With our collective investment gain (appreciation plus income) of $8.6 billion, total AUM increased $9.5 billion in 2010, from $72.9 billion to $82.4 billion."
  • "This overall increase in AUM was the third greatest in Oaktree’s 16-year history, behind only 2009’s $23.6 billion, swollen by the recovery from the crisis lows, and 2007’s $16.6 billion, which reflected the timely formation of Opps VIIb at $10.9 billion."
  • US high yield bond performance: "Our composite returned a very respectable absolute return of 12.3% before fees (11.8% after)"
  • European high yield bond performance: "our composite gained 16.7% before fees (16.1% after)"
  • "The aggregate gain on our Opportunities Funds in 2010 was 19.4% before fees (15.0% after)"
  • "Our composite of U.S. senior loan accounts returned 8.9% before fees (8.3% after)"
  • "Our European fund for these loans rose 10.1% before fees in euro (9.3% after)"
  • "Our composite of U.S. convertibles accounts (we called them domestic convertibles until going global taught us that the word “domestic” has different meanings depending on where one sits) returned 19.4% before fees (18.8% after)"
  • "Global Principal Funds rose 12.1% before fees in aggregate (9.1% after); the two European Principal Opportunities Funds gained between 19.2% and 22.5% before fees, albeit one was in dollars and the other in euros (both were up 15.5% after fees); and the Asia Principal Opportunities Fund gained 29.6% before fees (24.0% after)."
  • "Our high income convertibles (or “busted” convertibles) were again our top performing marketable securities strategy, a few basis points ahead of the other U.S. convert portfolios. The high income composite returned 19.4% before fees (18.9% after)"
  • "The aggregate gain of our Real Estate Opportunities Funds was 19.0% before fees (15.0% after)."
  • "Our Power Opportunities Funds continue to achieve excellent results. Their aggregate return in 2010 was 105.8% before fees (104.7% after; this looks odd, but it’s correct, and too complicated to explain here)."
  • "The aggregate return on our Mezzanine Funds was 15.3% before fees (11.6% after)."

Full note:


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Mercury's picture other news:

ZH gets a backhanded compliment from TIME.

tickhound's picture

Fresh wave of zombie incoming.

redpill's picture

Federal Government posts biggest monthly deficit ever in February

Take that, zombies!

tickhound's picture

They are tough to kill.  You gotta shoot those bitchez right between the right/left paradigm.

asdasmos's picture

Realty Mogul, Sam Zell, Talks Inflation - says we're not seeing inflation because the CPI is distorted. (Mar. 3 2011)

aheady's picture

Zombies? ...CNN's top story is all about exorcisms! Awesome!

AN0NYM0US's picture

I am not sure I would consider being mentioned in the same breath as Business Insider a compliment let alone Krugman, Ritholtz and Salmon - Now if ZH were at the top of that list and singled out as 'the' most influential that would be another story


Fact is ZH in terms of traffic blows them all out of the water with the exception of BI and they are falling fast as people learn of their HuffPooian ancestry.

10kby2k's picture

and Larry Kudlow just suggested an interest rate hike and/or ending QE2 as a solution to rising oil/commodity prices...advocating a stronger dollar.

Jeremy Roenick's picture

"In May and June, starting with Greece, people awoke to the realization that countries can’t perpetually grow their deficits and national debts faster than their GDP without consequences."


People may have awoke.  Too bad the administration and Bernanke didn't.

Grand Supercycle's picture

I’m sticking to my call on Feb 22 that the DOW topped @ 12,391 on Feb 18 2011 and thus signals the end of the rally.

oldmanofthesee's picture

Yeah, but does the topcallingtroll concur?

IQ 145's picture

 Me too. The shorts have all the money since then.

TraderMark's picture

Not sure if Tyler posted this in the past so apologies if he did but cover story in Time Magazine by Fareed Zakaria is fantasic.  Are America's Best Days Behind Us?

Must read if you have not.

kaiserhoff's picture

Yada, yada..., rigged markets are boring.

Why not just say it's easy for big, capital intensive companies to make money with zero interest rates, when you can also hammer your labor costs every quarter.  Now when demand falls off a cliff...?

Oh regional Indian's picture

Market top is behind us. Real/Nominal, however.
What is currently transpiring is act one of a quick (12-month) 9 act play, ending with Order out of Chao they sowed.

Thankfully, that possible future might and should be interrupted by his Grace, the Most mighty Sol, old man, getting ready for a deep breath from Galactic Center. huff and puff, will turn this house around (poles and all).

Yee haw!

Sofa King's picture

I would love to see nothing more than that but raising rates unexpectedly will collapse the futures market as well as all those decoupled economies.  Both raising rates and stopping QE2 will cause pension funds and 401k's to evaporate overnight and we can't have that.

Let me repeat this point one last time.  There is too much oil out of the ground, there isn't enough room to store it, and demand is far lower than the pundits claim.  The delivery point in NY has expanded it's capacity, and is adding more capacity  and I don't even want to get into what's happening in Oklahoma.  Moreover, all those refineries that have been shut down on the east coast are still operational, they're being used for storage...because there's no where else to put all the God Damn Oil.  The retards that claim that the oil can't get where it needs to go are full of shit and all I needed to hear from those assclowns we call Statesmen to push for opening the SPR...fucking dolts.

Anyone buying into this horseshit is a, sorry, stream of consciousness blackout.  Yeah gold and silver, woo-hoo go oil, we're running out.  Quick buy cotton, there's no more fucking cotton in the world.  Yeah, futures that's where the money


kaiserhoff's picture

You're not drinking enough Kool-aid, but I feel your pain.

Where do people think synthetic oil comes from, naugehide trees?  Oil is just liquid hydrocarbons.  I survived organic chem with a B, but the real chemists must be laughing their heads off.  Saying we're running out of oil is essentially saying we're running out of crab grass, corn stalks, and trash, but that doesn't fit the "sky is falling motiff."    Happy Trading;)

snowball777's picture

People actually give this choad money to manage for them?!

Did he invoice them for the monkeys' time and the darts?

disabledvet's picture

Oak tree.  Quality.  Surprising.  Surprising that it's being observed here.  Needless to say "they can liquidate as well."

HedgeFundLIVE's picture

love the part about missing great bargains. i think shorting right now will prove to be a great bargain:

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long-shorty's picture

Awesome! "Big discounts sale! If you do the wholesale or want to buy more than 5 pieces, please tell us in time." ZH got spammed by a Russian (or is it Chinese) wedding dress manufacturer. LOL.

Now THAT is a backhanded compliment. Enough wedding dress buyers here to warrant spam.