Build the Ark Before the Flood
Prepare capital before fear makes crisis fundraising impossible
- Difficulty
- Expert
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 98%
Crisis opportunities create a timing mismatch: the best time to invest is often the worst time to ask frightened investors for money. Marks's answer is to build the ark before the flood. Long before a dislocation, establish performance, relationships, and credibility through prior cycles. Show why the strategy complements portfolios designed for prosperity and point to observable flaws that could create distress. Raise the vehicle before terrible news closes investors' willingness to commit, then keep the capital ready until the opportunity arrives. The discipline continues after success: if appreciation has reduced future bargains, make the next fund smaller rather than exploiting the previous fund's results to maximize assets. That alignment signals that opportunity, not fees, drives sizing.
Origin
Marks explains how Oaktree raised an $11 billion distressed-debt fund before the global financial crisis and had it ready when Lehman failed.
Core principles
- 01Crisis capital must be raised before the crisis
- 02A track record creates a reservoir of goodwill
- 03Strategies should complement prosperity-heavy portfolios
- 04Fund size should follow opportunity, not fundraising momentum
- 05Speaking against self-interest builds credibility
How to run it
- 1
Earn trust early
Build relationships and a record through multiple market environments before asking for crisis capital.
Pro tip Treat past clients' good outcomes as a reservoir of goodwill, not an entitlement.
Watch out A crisis pitch cannot manufacture a missing track record.
- 2
Take the temperature
Identify financing excesses, weak market discipline, and other conditions that could create distress.
Watch out Do not claim an exact crisis date from broad environmental flaws.
- 3
Explain the hedge
Show how the crisis strategy can complement investments that depend on continuing prosperity.
Watch out A label is not enough; use prior crisis results and a clear mechanism.
- 4
Raise before fear peaks
Secure committed capital while investors can still consider the thesis without crisis-level panic.
Pro tip Keep deployment contingent on the opportunity actually arriving.
Watch out Waiting for certainty usually means waiting until fundraising is impossible.
- 5
Deploy into dislocation
Use the prepared capital when distress produces quantitatively attractive bargains.
Watch out Fear remains rational; preparation does not remove risk.
- 6
Resize honestly
Make subsequent funds smaller when successful deployment has reduced the opportunity set.
Watch out Scaling simply because the prior fund sold well erodes alignment and credibility.
In the wild
After two decades of results and several strong crisis performances, Oaktree raised a record distressed-debt vehicle in 2007 and 2008. It argued that clients owned many prosperity-dependent assets and could hedge them with a strategy designed to perform when distress arrived. The capital remained ready until Lehman's failure created the anticipated environment.
→ Oaktree could buy through the panic instead of trying to raise money amid terrible news.
Common mistakes
Raising during the flood
The news that creates bargains also makes investors least willing to commit fresh money.
Selling only upside
Marks grounded the case in prior relationships, crisis performance, portfolio fit, and environmental flaws.
Always making the next fund bigger
Past gains can mean assets have appreciated and the next opportunity is smaller.
Is it for you?
Best for
Experienced managers preparing a crisis-oriented strategy before markets dislocate.
Not ideal for
Managers without a credible track record, a defined crisis strategy, or discipline to leave capital undeployed.
From the transcript
“The best time to invest is in a crisis. You can't raise money during the crisis because the news is so terrible.”
“You gotta build the ark before the flood.”
“But we make it smaller because we think those results mean that things have appreciated and are not so attractive.”
From the episode
Howard Marks: how I make money while you worry about a market crash
Howard Marks