Billionaire investor Howard Marks believes that a significant shift is upon us. After four decades of declining interest rates, Marks argues that a "sea change" in the investment world calls for a reevaluation of portfolios and a move towards credit instruments.

In a memo released in May, Marks discusses his belief that the end of the decline in bond yields, which directly impacts borrowing costs, will come as a shock to investors. He highlights the role of accommodative monetary policy in creating an environment of easy money, but warns that those days are now behind us.

Marks acknowledges that, as of May, there was little evidence to support his prediction of a tougher environment. He attributes this to the prevailing optimism among investors, particularly in equity markets. However, he also predicts that this optimism will fade, leading to unforeseen disruptions.

The billionaire investor emphasizes the significant impact that falling interest rates have had on investment returns over the past four decades. Now that bonds can offer decent returns, the traditional approach to asset allocation needs to be reconsidered. Marks even jokingly suggested liquidating stockholdings and other investments in favor of high-yield bonds at 9% during a nonprofit board meeting in December.

In conclusion, Marks believes that the era of easy money is ending. Investors must adjust their portfolios accordingly and embrace credit instruments to navigate the changing investment landscape ahead.


In a recent statement, an experienced investor made an intriguing suggestion that sparked widespread discussion. While clarifying that it wasn't a serious proposal, he aimed to draw attention to an interesting development: due to recent changes in the financial landscape, investors now have the opportunity to achieve equity-like returns from credit investments.

Historical Perspective

To provide context, the investor highlighted the historical outperformance of the S&P 500 index, which has yielded an average annual return of just over 10% for nearly a century. This remarkable performance has delighted investors, as an investment of $1 would have grown to almost $14,000 over a hundred years.

Shifting Landscape

However, the investor pointed out that in today's market, there are attractive options in credit investments that offer enticing yields. For instance, the ICE BofA U.S. High Yield Constrained Index currently provides a yield of over 8.5%, the CS Leveraged Loan Index offers approximately 10.0%, and private loans offer even higher returns. In essence, expected pretax yields from noninvestment grade debt investments are approaching or surpassing historical equity returns.

A Case for Credit

The investor believes that this shift in favor of credit investments warrants careful consideration from capital allocators. They should ask themselves about the arguments against committing a significant portion of their capital to credit opportunities.

Importantly, the investor clarified that this suggestion doesn't rely on the expectation of interest rates returning to their high levels seen in the early 1980s. Moreover, the investor doesn't foresee a severe or prolonged recession, as many others do. While acknowledging that stock-market valuations are on the higher side, he doesn't believe a collapse is reasonably predictable.

A Strategic Reallocation

Instead of advocating for a drastic increase in defensiveness, the investor suggests a strategic reallocation of capital. He urges a shift away from ownership and leverage towards lending, viewing credit investments as an attractive alternative. This reallocation allows investors to access returns that are highly competitive compared to historical equity returns. Furthermore, these credit investments often exceed the required returns or actuarial assumptions of many investors, while being less uncertain than equity returns.


Considering the logical reasoning presented, the investor argues that a significant reallocation of capital towards credit investments is warranted. However, it is essential to evaluate the individual circumstances and ensure there are no serious flaws in the proposed strategy. Ultimately, this potential shift presents an opportunity for investors to explore new avenues and potentially maximize their returns.

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