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[CC may contain inaccuracies] It's interesting, right? When you talk about I know your favorite topic is talk about risk and how to look at risk taking here when you you could argue that the US cycle is getting, I guess, towards the late part of things. Asia. In some ways it's still in the thick of it and re-emerging from this pandemic in some ways as well.
How are you looking at these diverging cycles around the world here right now? And is it a time still to be a contrarian? You know, the US had a brief period of difficulty in the second quarter of 2020. The economy rebounded very nicely in the third quarter and has been doing very well since then. Despite the fact that interest rates have not been cut.
There are people arguing for stimulus, but so far they haven't gotten it. It doesn't seem there's a need to stimulate it, given how well the economy is doing and how labor is doing. But, you know, obviously, as you say, other countries are not quite doing quite as well. There seems to be some asynchronous elements in the global monetary picture.
But, you know, I think that most things are going in the right direction. People are very happy investing in the in the United States. They like our the legal system, economic system, the corporate sector. And, you know, the only thing that that's challenging about the U.S. is that a lot of those merits are priced in.
As of what we're saying, though, that that focus on risk and you do talk about it a lot, and most recently making that analogy to chess, where do you see then the risk that either real or perhaps more modest, but where are you seeing those at the moment, those opportunities? Given that the U.S. has priced highly, a lot of the opportunities for bargains are outside the U.S.
Obviously, China is on a lot of people's own investible list that tends to depress its value. And we like to think to look at things that other people aren't interested in. So China is is one good example. But, you know, we we are not macro investors. We're not top down. We don't affect a geographic diversification for its own sake.
We go where the bargains are and we're finding lots of bargains in many places. Howard is interesting, too. I mean, can you tell us a bit more about the fund raising environment maybe in Asia here right now? I mean, you're listening to, you know, asset managers like Apollo that's pushing into insurance, into wealth here right now.
And at a time when we're seeing rates where you are in Tokyo as well as in China, are still quite low, you know, how would you describe the fund raising environment now? A fundraising environment is good. There's a lot of interested in credit. You know, our sectors were in hibernation for a long time, just two and a half years ago.
Cash yielded zero and even high yield bonds yielded only four. Today, the yield close to eight. And from there, it's onward and upward in terms of yields. So credit investing can be very rewarding today. There's a lot of interest in credit investing as a result. And, you know, we we try to be judicious about our pace of investing in our pace of fundraising.
But the desire is there on the part of clients, and we continue to make inroads. And what's been really interesting because it's been that really explosion in private credit and you've seen a lot of banks as well getting involved into it. But what's the role then, that you see private credit playing in the financing market and also the relationship with traditional lenders as well, complementary or competitors in this landscape, do you think?
I think mostly complimentary. You know, the the banks in many parts of the world have pulled back. Well, even as long ago as the global financial crisis and, you know, higher regulation, higher capital requirements and so forth. So there has been a place for non-bank lenders. There continues to be. So I would say that so far the non-bank lenders have mostly picked up the slack that the bank lenders created.
Where if the banks come back in full force and the non-bank lenders continue strongly, we could find competition to lend. And that's usually not a great thing for lenders. We don't like to see an oversupply of loan capital. And do you see any sectors or geographies that are taking more advantage of private credit growth in particular?
I know you mentioned as well there's opportunities you see in the China market. The private credit opportunities are very strong in the US and also strong in in Europe. Other than that, it's fairly spotty. The the, the onslaught of private credit has not hit Asia to anything near the same degree. And how are you mentioned about China giving you good opportunities outside the US?
In particular, I mean, I know you guys focus more on the loan side of things when it comes to your distressed strategy in China. I mean, how are you viewing distressed properties now in the mainline? Is there a sense that you're you're adding to your exposure in any way or backing away from this sector now?
Well, you know, we've been investors in NPLs for close to ten years. Non-performing loans, that is every day, every banking system generates some non-performing loans. China has set up mechanisms to to get them off the bank's books. And we've been participating for, as I say, close to ten years. The legal system has operated as it should.
We're happy to continue in that role and we're not backing away. In terms of I mean, obviously, you were kind of caught up in what happened with Evergrande as a creditor. I'm just wondering, you know, were there any lessons that were learned from from this fallout from Evergrande in this downfall and how much of the assets was able to salvage?
You know, the lesson is to be careful when a supply is created by a strong availability of capital. Capital was made available to the property development sector to so that it could contribute to GDP growth. It expanded rapidly and made use of that capital, a building that built some buildings which from time to time turned out to have supply exceeding demand.
You know, we participated. I think another important lesson is, is it's a good idea to get collateral. We got collateral on our loans to Evergreen Evergrande when many others didn't. And we think we're coming out very well. As I mentioned, the legal system is performing for us. We have got in control of the collateral and there haven't been any disappointments on that front.
So as I say, we're continuing with our involvement. Howard, I'm curious because you've made it to Tokyo, of course, and what are the kinds of conversations you're having with investors there? What's what sort of investments are you also looking at in the country? Most of our involvement in Japan is investing outside Japan for Japanese investors.
The yields are fairly low in Japan and generally speaking, not additive to our global portfolios. But, you know, Oaktree has been maintaining for over a year and a half a thesis we call SeaChange, which says that unlike the preceding 13 years, interest rates in the coming 5 to 10 will not be characterized by constantly declining rates or ultra low rates.
That's our thesis. That means that opportunities to make good money with the risk under control in credit investments is strong and will persist. That's mostly what we're talking about here. And you know, we're conducting a conference this week for our first regional conference for Asia. And I must say that the reception is very positive.
Yeah. And certainly there's been so much spotlight on Japan recently. It's interesting. I was reading your latest memo on Impact of Debt and you mentioned about a lot of these ultra durable companies in Japan where there's more than 100 that have been operating for hundreds of years. And the key thing that you notice is that, you know, they have a lot of cash and they're not sitting on a whole lot of debt right now.
Do you think this is just a symptom of just once again, overly cautious sort of corporate management or have we seen a sea change in Japan in some ways given this wave of corporate governance, or is this just a function of improving fundamentals that we're seeing among Japan now? No, I think that the that the Japanese culture is is essentially conservative in nature and other than a little burst in the eighties really never embraced aggressive financing and high use of leverage.
And as the memo said, as you say, non-use of leverage is one of the things that can allow you to survive for very long periods of time. There's a lesson in that. But I think that some leverage is good. But each person or each organization has to identify the level of leverage that's consistent with its with its circumstances and will lead to a long term survival.
How would you mentioned the need sometimes to having collateralized loans? And it makes me think about Inter Milan, of course, and Oaktree took control of that sporting club last month. What are your plans for it and are you also looking at other sports investments, given you've got a long link with those as well?
You know, as I say, we're not a strategic top down investors. We don't say, let's go out and get involved with a bunch of sports teams. Rather, we make loans when presented with the opportunity where we think we'll get repaid, where there's some question about repayment. We like to get collateral. Of course, the Milan situation Inter was was one of those.
We made a loan to a borrower who collateralized it with the team didn't pay us. We ended up as the owners. It was not our intention, but we're happy with the outcome so far. We're going to pivot once more. I mean, you talk a little bit more about Howard. A lot of the good news or maybe in in the US markets are priced in.
A lot of that has to do with what I in general. I mean, can you tell us more about this? I aware what this all means. You know, when we are in the US cycle, I mean, is there is there a bubble still? You know, of all the people you're going to have on the show today, I probably know the least about A.I..
I'm good at identifying optimism. Obviously, there's optimism surrounding A.I. today, and there is some, to some modest degree pervading the market. But I think that I will not have a profound impact on non AI companies for a good period of time. And, you know, whenever you have a new, new thing like A.I., there is usually some aggregation of optimism and and you certainly have it today.
And but, you know, whether the optimism is appropriate or excessive, you'll have to find that out from somebody else who who knows about it.
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