Note: the article seems like a subtle ad for the booming industry of private credit.<p>The author is the co-founder of Oaktree Capital, which has been raising capital for one of the largest private credit funds ever[0]<p><a href="https://www.bloomberg.com/news/articles/2023-08-10/oaktree-targets-over-18-billion-for-record-private-credit-fund?utm_source=website&utm_medium=share&utm_campaign=copy" rel="nofollow">https://www.bloomberg.com/news/articles/2023-08-10/oaktree-t...</a><p><pre><code> "Moving on to the real world, I note that following a sea change in interest rates, non-investment grade public and private debt now offer prospective returns that are competitive to those historically seen on equities. I believe investors should consider shifting capital to this area if they are (a) attracted by returns of 7 to 10 per cent or so, (b) desirous of limiting uncertainty and volatility, and (c) willing to forgo upside potential beyond today’s yields to do so. For me, that should include a lot of investors, even if not everyone."</code></pre>
I feel like I am the exact kind of person who should enjoy reading the ruminations of a private capital manager published on the FT, but like others I am really struggling to find any interesting or meaningful point in this. The points discussed in this article aren't even finance 101, they are somewhat more basic than that. I can only assume it is an advertisement for Oaktree, but even then, given their target audience of sophisticated investors I don't know who they expect to impress with this.
The fundamental accounting equation is:<p><pre><code> Equity = Assets - Liabilities
</code></pre>
Borrowing (i.e. liabilities) is a way of adding leverage to your investments. This makes higher returns possible, but correspondingly higher risk of losses.<p>In my experience, people often do not understand the latter point. They will say it is unfair that Bob made a lot of money, but discount the risk Bob took to enable those returns. Lots of investors go bankrupt.
I’m not sure what the supposed takeaway of this article is. I guess the author is pushing debt at the end of the article? Regardless, trying to look at investing through the lens of “it’s either ownership or debt” is a very narrow view of all the ways an investor can invest. I don’t find it terribly helpful
I don't think debt should be transferrable (same with intellectual property). If it is you end up with a tumor on your economy dedicated to shuffling it around in ways that prevent change and which crank out analysis like:<p>> The only two things that matter are these ones which we made up.<p>This may or may not be good advice, within its sector, but I question whether its sector is worth keeping around.
that article is suspiciously quiet on commodities (and their derivatives, in case you don't want to sign up for storage/delivery/etc etc).<p>commodity derivatives are kind of a debt of a physical operator though
I would be a lot more interested in the article if argued that debt at 1-6% and 7-10% is the same asset with the same risk spread but making that the assumption is more than lazy, it’s offensive.
> non-investment grade public and private debt now offer prospective returns that are competitive to those historically seen on equities<p>Be sure to hedge this against inflation.