(Bloomberg) -- Howard Marks, the dean of investing in troubled businesses, is questioning why the Federal Reserve is giving those companies so much help.
“What's the Fed's purpose in buying non-investment grade debt?” Marks, the co-founder of Oaktree Capital Group LLC, wrote in a memo to clients Tuesday. “Does it want to make sure all companies are able to borrow, regardless of their fundamentals? Does it want to protect bondholders from losses, and even mark-to-market declines?”
Marks and his cohorts make a living by snapping up debt and other assets at deeply depressed prices, in hopes of getting outsized returns if the company rebounds or gets liquidated. The Fed's plans to buy some of those same securities has sparked a rally that's cutting into those opportunities.
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The way Marks sees it, regulators have taken over the role of the free market, protecting investors and companies from the consequences of their actions when they take on too much leverage.
“Markets work best when participants have a healthy fear of loss,” he wrote. “It shouldn't be the role of the Fed or the government to eradicate it.”
Prudent Prices
Marks asked who will be making investment choices for the government, questioning any involvement by the U.S. Securities and Exchange Commission.
“Who'll do the buying for the government and make sure the purchase prices aren't too high and defaulting issuers are avoided (or doesn't anyone care)?” Marks wrote. “And why should the SEC provide relief to leveraged investment vehicles?”
Those purchases could be infringing on Oaktree's turf. The Los Angeles-based firm is one of the largest distressed-debt investors in the world, with about $20 billion committed to credit from faltering companies.
Oaktree was a “strong buyer” of corporate debt last month during the selloff brought on by the coronavirus pandemic, Marks said during an interview Monday with Bloomberg TV. At the same time, Oaktree tried to be disciplined enough to “have money left for the next day,” Marks said.
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