COVID Crash

In January 2020 Zomato swallowed Uber Eats India in an all-stock deal worth roughly 206 million dollars, handing Uber a 9.99 percent stake. The trade absorbed a sub-5-percent rival and lifted Zomato's share of the Indian food-delivery market to roughly 52 percent — a textbook consolidation move just before COVID-19 lockdowns supercharged online ordering.

We believe that current market dynamics are due to the ever-growing percentage of capital controlled by highly-leveraged market participants who have extremely short-term objectives, and are incentivized or required to exit when certain stop loss triggers are hit due to margin and/or total-return swap leverage and/or risk limits, amplified by the reduction in float due to growing index ownership. The market increasingly appears like a casino where money is wagered over the course of a day, hours, minutes or even seconds. This mismatch between stocks, which represent perpetuity interests in businesses that are inherently long-term assets, and their temporary ‘owners,’ creates growing opportunities for the patient investor with stable capital. Because of our permanent capital structure, the increasingly volatile market dynamics will likely continue to offer us occasionally extraordinary opportunities to buy the highest quality durable growth companies in the world at bargain prices. Market Valuation Since the onset of COVID-19, equity markets have delivered strong returns. From 2020 through 2025, the S&P 500 has generated a 112% total return or 13% per annum.14 While the past five years have experienced enormous volatility due to significant geopolitical, pandemic, and inflation-related challenges, the overall result has been a strong, multi-year advance in the index. Stock market performance has been particularly robust over the last three years.

The S&P 500’s total return over this period was 26% in 2023, 25% in 2024, and 18% in 2025 including dividend reinvestment. This sustained high level of performance has naturally led some observers to question whether market valuations have become detached from fundamentals. In our view, while the stock market could decline materially from current levels for reasons that are today unknown, the stock market’s advance has been largely supported by earnings growth rather than speculative excess. Of the S&P 500’s roughly 13% average annual return from 2020 through 2025, approximately 10 percentage points were attributable to earnings-per-share growth while only about three percentage points came from P/E multiple expansion. In other words, the market has not been driven principally by investors simply paying a higher multiple for earnings, but rather by the growth in profits of the index’s components. The S&P 500’s ~10% earnings-per-share growth over the past six years compares with ~7% in the five years prior to COVID and roughly ~8% since 1990. In the last two years, earnings-per-share growth has been even higher with 13% growth in 2024 and 14% in 2025. In the next two years, stock market analysts estimate that earnings per share will continue to grow at 14%.

We really don’t know what asset class is going to do, because we think that’s very time-specific and very valuation-dependent. Rather, we see what’s available right this second. By looking bottom-up, opportunity after opportunity, I think we can paint a really clear picture. So right this second, real estate’s been in tough shape since COVID, especially commercial office. People started working from home and that hasn’t fully returned, and in certain markets especially there’s too much space. A lot of people that have been in real estate have not done that well — a lot of people got in at a wrong vintage, and a lot of properties have become structurally obsolete. So that sounds like a mess — why would you touch it? But it also means that competition is hardly looking. So we think there are opportunities right now, for example in assisted living. The population is aging. You can make a very strong case for fundamentals. Rents haven’t moved up in years, and there’s probably pent-up growth in rents to come. COVID was obviously a giant problem, because any facility tended to empty out as people pulled their relatives out to save their lives during COVID, understandably. A lot of newly built facilities from that era, from 2021, 2022, never got filled, and a lot of them have run into bankruptcy or financial distress. So it’s been an opportunity to build a position in an area with strong fundamentals.

We read again this morning that 10% or 15% of some endowments’ entire endowment is in the one name SpaceX. So they’re going to want to sell. Employees are going to want to monetize and go from being wealthy on paper to wealthy in a bank deposit. So that’s a lot of stock for sale. And we have to sell that stock while apparently Google and Facebook need more money, and OpenAI and Anthropic need more money, and utilities need more money for power, and chip companies need to build new factories in America. There’s so much demand for money. I think we’re in a vulnerable place, where ultimately supply and demand for money determines the cost of capital. That’s true in the bond market, and it’s in effect in the stock market. So we might be looking at some supply-demand excess where prices soften just because there’s so much supply of securities and the need to monetize is so great by these private companies. [58:18] BARRY RITHOLTZ: So let’s talk about another imbalance between supply and demand through history, because Baupost has been around for over four decades. You’ve traded and invested through and survived all sorts of different market regimes — inflation, disinflation, the dot-com bubble, the financial crisis, QE and ZIRP, COVID, and more recently the return to, let’s just call it, normalized interest rates. Has anything changed since 1982? Is it just the same screaming from one crisis to another? Or do things eventually sort of moderate, do we learn from these experiences?

We also do capital gifts to institutions throughout Massachusetts, in some of the harder-hit towns during COVID, or just economically depressed areas — there’s just not a lot of money there. So, kind of as a value investor, I’m seeing an opportunity to refurbish the civic center, or this library in a small town in Massachusetts. It just feels great to know that the people in Pittsfield will have as good a library as the people in Boston. [69:16] BARRY RITHOLTZ: Really interesting. So there’s a question I want to end with before we do our final wrap-up, but there’s a question I want to ask, and we’ll just move it back a couple of beats, because that’s a tough answer to follow — and it’s just Boston sports. I feel obligated to ask during the finals. So you’re a big Boston guy, and you mentioned you were a big fan of the sports pages and all the statistics. What do you think of what’s going on in sports these days? The Celtics didn’t go as far as some people thought. We’re now down two to one in the finals. How are you looking at basketball? What do you like in sports these days? [70:06] SETH KLARMAN: So my two biggest sports passions are baseball — I’m a small owner in the Red Sox — and horse racing. I’ve been fortunate to have some really high-quality thoroughbreds over the years. We won a few races Belmont Stakes weekend, not the Belmont, but a few other stakes races this past weekend. So those are my favorite sports. The Celtics season was disappointing.

These results are particularly impressive considering the lodging industry was uniquely impacted by the COVID-19 pandemic, a crisis which CEO Chris Nassetta and his team navigated with exceptional skill. Our investment returns further benefited from a significant expansion in Hilton’s valuation multiple from 23 times earnings per share at entry to 32 times at exit as investors increasingly recognized the quality of the company’s consistent and high-growth earnings algorithm. While we remain admirers of the franchise and believe strongly in its long-term growth, we exited the position earlier this year as we believed HLT’s current valuation made it unlikely that the future share price growth would meet our high returns thresholds. We continue to monitor the business and believe the company is positioned for continued success. Other Exited Equity Positions: As we previously disclosed, we completed the sale of Chipotle, Canadian Pacific, and Nike during 2025.

Pershing Square Holdings, Ltd. 29 Risk Description Mitigating Factors Service Providers Key service providers perform inadequately or expose the Company to risk. An external incident (e.g. pandemic, natural disaster, cyber attack) significantly disrupts key service providers. The Investment Manager has adopted a vendor supervision policy and performs due diligence on service providers, including information security and business continuity reviews, in accordance with its assessment of their risk to the Company. The Investment Manager’s business continuity and incident response planning includes plans for disruptions to key service providers. The Investment Manager monitors key service providers through frequent contact and reports to the Board as needed. The Board advises on the engagement of service providers as appropriate and the Management Engagement Committee reviews key service providers at least annually. Insurance The Company is liable for claims due to the failure of an insurance underwriter or inadequate insurance coverage. The Company and the Investment Manager maintain insurance policies with reputable insurance underwriters. Insurance arrangements and limits are reviewed annually by the Board to ensure they remain appropriate. Public Relations Adverse media coverage or social media of the Investment Manager or its personnel causes reputational damage to the Company.

Recognition listed by Wikipedia includes the Padma Shri in 2005 for contributions to medicine, the Padma Bhushan in 2022 for contribution in production of vaccines during COVID-19 in the field of Trade and Industry, Ernst & Young's Entrepreneur of the Year for Healthcare & Life Sciences in November 2007 and Entrepreneur of the Year for India in February 2015. The awards trace a two-decade arc that culminated with the COVID-era honor.

In 2022, Poonawalla was ranked the 4th richest person in India on the Forbes India rich list with a net worth of $24.3 billion, and was ranked number 1 on the Hurun Global Healthcare Rich List 2022. By October 2024, Forbes listed Poonawalla and his family as the ninth-wealthiest in India with a net worth of $22.1 billion. The wealth trajectory — driven by COVID-era vaccine scale — places him as one of India's richest promoters.

During the COVID-19 pandemic the company laid off 1,100 employees and shut down over three-fourths of its cloud kitchens, while also initiating doorstep alcohol delivery in Jharkhand, West Bengal and Odisha — a moment of simultaneous contraction and category-stretch that tested the founders' crisis management.

In August 2020, Swiggy launched Instamart, an instant-grocery service built on a network of dark stores; by early 2021 the company had closed Swiggy Stores and consolidated its non-food operations under the Instamart brand — a clean strategic decision to kill a struggling vertical and double down on quick commerce.

During COVID-19, the Azim Premji Foundation, Wipro and Wipro Enterprises together committed Rs 1,125 crore (about one hundred and forty million dollars) in April 2020 to relief, and a further Rs 1,000 crore in June 2021 to support universal vaccination — among the largest single philanthropic commitments by any Indian business family during the pandemic.

IDEXX, the veterinary diagnostic equipment business, makes its fourth appearance having resurrected its position from being a detractor last year when it was suffering from the ebbing of the Covid era mania for pet adoption. L’Oréal appears for the second time and benefitted from the recovery in the China market and outperformed the beauty category in sales performance, as usual. Microsoft enters the top five contributors for the six time. Whilst we gratefully accept this performance we remain wary of the impact of the AI hype/boom.

Ritesh Agarwal founded OYO Rooms as a teenager in 2013 and scaled it into India's most visible hospitality-tech firm, a trajectory whose early growth-at-all-cost phase was followed by a sharp contraction and re-basing of the model during and after the pandemic.

The core OYO model — leasing or franchising small hotels under a common brand-and-technology standard — traded asset-light economics for operational dependency on hotel-owner cooperation, a tension that surfaced sharply when occupancy collapsed in 2020.

The contraction — withdrawing from several international markets and reducing the asset base — was the corrective to the prior over-expansion, and the firm's eventual IPO filing reflected a re-priced, narrower but more profitable business than the peak-growth narrative had implied.

In August 2020 Future announced a Rs 24,713 crore (about $3.3 billion) deal to sell its retail, wholesale and logistics businesses to Reliance Retail Ventures, a Reliance Industries subsidiary. Amazon alleged this breached the Future Coupons agreement, which restricted Future Retail's sale to a list of named competitors including Reliance.

Ola Electric acquired Amsterdam-based crowdfunded scooter maker Etergo for 3.75 million euros in May 2020 — a distress sale that gave Ola its first product platform. The purchase compressed the build-vs-buy decision: rather than designing a scooter from scratch, Ola inherited Etergo's engineering and reworked it for Indian roads and pricing.

Ola posted its first operating profit of roughly 90 crore rupees in FY2020–21, a moment of operational break-even after a decade of cash burn. The result was overshadowed by the COVID disruption that had cut ride-hailing revenue by about 95 percent at the trough, forcing a roughly 1,400-person layoff in May 2020.

In August 2020 Future Group signed a roughly $3.4 billion agreement to sell its retail, wholesale and logistics businesses to Reliance Retail Ventures, a subsidiary of Reliance Industries. With Biyani under severe debt pressure after the pandemic hit mall footfalls, the deal looked like the only viable exit — but Amazon immediately alleged the transaction breached its contractual rights under the 2019 Future Coupons investment.

IDEXX which makes veterinary diagnostic testing equipment and supplies is suffering from a slackening in the pace of vet visits after the scramble to adopt pets during the pandemic. As the industry leader in an area with real long-term growth prospects and a stock where we would probably struggle to buy back our position if we sold it, we intend to continue holding IDEXX and to try to smile through the pain of underperformance. Nike is a stock we bought after the share price fall during the pandemic when investors seemed convinced there would be many fewer buyers of trainers. In fact, Nike had made great strides in online marketing and fulfilment. What we hadn’t realised was that the then management would parlay this success into a problem by ignoring the traditional bricks & mortar retail channel, which has recovered as the pandemic passed, and in so doing open the door literally to competition. To be fair there have been other issues such as an increasing dependence on fashion and less on traditional exercise uses. However, the good news is that there has been a change of CEO this year. We see many commentators musing about the reasons why the US economy is so successful. Perhaps one reason is a quicker finger on the trigger when top executives do not deliver. In which context we note that Unilever’s shares were up 20% in 2024. We await developments from Nike’s new management who have after all inherited what is still the dominant market share in the sector.

In January 2020 Zomato absorbed Uber Eats India through an all-stock transaction worth around 206 million dollars, leaving Uber with a 9.99 percent holding. Uber Eats India had been sub-5-percent on volume; the deal pushed Zomato's share of the domestic food-delivery market to roughly 52 percent, consolidating the duopoly that would define the next phase.

During the 2020 lockdown Zomato temporarily ran a Zomato Market grocery service across more than 80 cities and trialled alcohol delivery in West Bengal, Jharkhand and Odisha. Both experiments were discontinued — alcohol delivery in April 2021, with management citing weak unit economics and scale concerns — but the grocery pilot seeded the eventual Blinkit thesis.

Brown-Forman, one of the world’s top five drinks companies and the distiller of Jack Daniel’s Tennessee Whiskey has suffered from the fall in consumption from the pandemic highs and is probably seeing early signs of the adverse impact of weight loss drugs. We sold our Diageo stake during the year which I will cover later but retaining Brown-Forman keeps a foothold in what has long been a sector with good business characteristics and which has the potential benefits of family control, which can promote good long-term decision making, and a larger bias towards premium spirits than Diageo which may help obviate the impact of weight loss drugs (‘drink less but better quality’). It is a company which survived Prohibition so we hope there is literally something in the DNA to help with these adverse circumstances. Novo Nordisk was arguably our most surprising poor performer in 2024. It remains the market leader in weight loss drugs, which it pioneered, and the year was marked by a stream of news about other conditions which these drugs treat effectively and label expansion applications which drug regulators seem willing to approve. Yet not only did the share price fall 10% but it finished the year on a P/E ratio half that of its nearest competitor Eli Lilly.

It's the best start I've had in years, and I think a lot of wealthy people know how to manage this kind of thing. The average American cares a lot more about gasoline prices than they do about stock prices, and they are getting hurt. There was a -- there was an interview on your show earlier about -- about people being priced out of the housing market. Inflation is 20 percent -- 21 percent higher than was in 2019. To me, even politically, that's more consequential than keeping the markets up or, you know, trying to nail the soft landing and not having a recession.KERNEN: Let me ask you how this plays into to -- it's another I think issue of being, you know, things are going, well, and then we totally overspent in terms of fiscally as well in Bidenomics.DRUCKENMILLER: Bidenomics -- if I was a professor, I'd give them an F. Basically, they misdiagnosed COVID and thought it was -- we were going into a depression. The Fed did, too. I worried about it, too, in early days. The Fed eventually pivoted, better late than never. Treasury -- Treasury is still acting like we're in a depression. It's interesting because I've studied the Great Depression and you had a private sector crippled with debt, with basically no new ideas. So interventionist policies were called for and were effective. The private sector could not be more different today than it was in the Great Depression. Their balance sheets are fine. They're healthy.

Stryker, which is making its 5th appearance, is benefitting from work on the backlog of elective surgical procedures which built up during the pandemic. Given the number of repeat appearances in our top five contributors I am tempted to repeat one of our mantras which is that ‘You make money with old friends’. However, three of those old friends which have been repeat contributors were detractors this year, namely L’Oréal, IDEXX and Novo Nordisk. However, if anything I would regard this as a blip in their long-term record and we intend to (mostly) patiently await a return to form. In our view they are simply too good to sell and risk being uninvested when the tide turns. We continue to apply a simple three step investment strategy: • Buy good companies • Don’t overpay • Do nothing I will review how we are doing against each of those in turn. As usual we seek to give some insight into the first and most important of these — whether we own good companies — by giving you the following table which shows what Fundsmith Equity Fund would be like if instead of being a fund it was a company and accounted for the stakes which it owns in the portfolio on a ‘look- through’ basis, and compares this with the market, in this case the FTSE 100 and the S&P 500. This also shows you how the portfolio has evolved over time.

You know, Harlem children's own -- our motto was always, get them into college so they have a shot. These are kids that went into college and we're talking about spending hundreds of billions of dollars to put in their pockets. I assume it -- I assume it's because of the election. Even-- they're now floating ideas is for Fannie and Freddie to change the rules so you can refinance -- you can take out a second lien mortgage and you get to keep the rate on the first mortgage at whatever you did during COVID. There's one spending program or another. We don't need spending right now. We just need the government to get out of the way and let the private sector do its thing.BECKY QUICK: Stan, how -- how much of the inflationary pressures that we see are because of fiscal spending versus the Fed? I mean, it's kind of hard to break it down, but which would you think is the bigger problem?DRUCKENMILLER: I'd say it's definitely the fiscal, but the Fed's been the great enabler. And the latest thing is, we're going to apparently -- well, we've already started. We're going to shrink QT from $60 billion to $25 billion, and we're going to land apparently at $7 trillion. Somehow because of the plumbing, all of a sudden, we need a $7 trillion balance sheet just to function. If you remember in Bernanke's speech when we started QE, he said, don't worry, this is temporary. The balance sheet will be back to $800 billion. This is never going to grow again.

So that is -- I'd say it's mainly the Treasury because we just don't have room for all this, and it could get worse because we need to build the capital stock. But the Fed needs to stop helping them out, and I understand Chair Powell's statement that he wants to stay in his lane. Well, he didn't stay in his lane during COVID, and I don't blame him. He was encouraging fiscal spending and that was totally appropriate. But now, all of a sudden, oh, that's -- we don't comment on fiscal policy. Well, you commented on it when you wanted them to be more stimulative. You know, somebody's got to say something. It is interesting since -- since my last interview here in October, there do seem to be a lot more recognition by various people I see on your shows and elsewhere of the fiscal situation facing us. Everybody seems to get it but Yellen, who just keeps spending and spending. And again, I think it's done politically because it's causing inflation and it doesn't take a genius to figure out it's the average American that's getting hurt by the inflation.KERNEN: Your excitement about -- about AI sort of came into play with that discussion because you're worried that it's going to take a lot of investment and there's no savings -- we got to build up the defense, there's wars everywhere. And you -- you were early with Nvidia. You were early with AI. You pared back a little bit but are not less bullish on the prospects for it, are you?

The case frames the contraction as the necessary repricing of an asset-light hospitality model whose unit economics had been masked by growth capital, and notes that the post-contraction margins were structurally healthier than the pre-pandemic ones.

In looking at individual stock contribution to performance I prefer to start with the problems. The bottom five detractors from the Fund’s performance in 2023 were: Stock Attribution Estée Lauder -1.8% McCormick -1.1% Diageo -0.6% Mettler-Toledo -0.6% Brown Forman -0.5% Source: State Street We sold our stake in Estée Lauder whose mishandling of the demand/supply situation in China following reopening post Covid and in the travel retail market revealed serious inadequacies in its supply chain. McCormick has yet to return the profit margins in its food service business to the level they were before the pandemic. Mettler-Toledo suffered from a downturn in demand for laboratory equipment post the pandemic, demand falling in China and a tighter funding market for biotech companies.no

We are not aware of another drug company whose stated aim is the eradication of the ailment from which it derives most of its revenues. The controlling stake held by the Novo Nordisk Foundation seems to guarantee a genuine long-term approach to the business. Novo is making its fourth appearance in our top five contributors — this was a successful investment long before the words ‘weight loss’ were uttered in relation to Novo. L’Oréal is a long-term favourite whose handling of the China market contrasts sharply with that of Estée Lauder. IDEXX, the supplier of veterinary diagnostic equipment, makes its fifth appearance in our table of top five contributors despite concerns about a hangover following the upsurge in pet ownership during Covid.

Poonawalla describes the COVID business windfall starkly: before COVID in 2019 he was India's 12th richest person (world rank 76th, fortune US$9.1 billion); by end-2022 he was India's fourth-richest, fortune expanded to US$21.5 billion and climbing — US$22.4 billion at the time of the interview. He frames Serum as one of the largest competitors to Pfizer and the world's biggest vaccine producer by number produced and sold.

Poonawalla explicitly positions himself as a philanthropist throughout: 'our price is low, I've been giving vaccines at 50 cents a dose and nobody could compete with this'. Serum was pre-qualified by WHO and the UK's MHRA, on which basis the company could make three billion doses of vaccine, including substantial COVID production.

The demerger plan was first mooted in ITC's FY2019-2020 annual report, but Deveshwar succumbed to cancer on May 11, 2019 — before he could execute it. The pandemic then wrecked the hospitality industry. Sanjiv Puri put the demerger back on track as the post-pandemic hotel recovery took hold, with Q1 2023 results showing exceptional performance led by domestic travel.

Poonawalla cites recent export milestones: just that week Serum had exported six million COVID doses to Australia and three million to New Zealand, with an American-subidiary contract to supply 100 million doses to those two markets and roughly two billion doses worldwide at peak pandemic. The numbers demonstrate how a private Indian company became a top-tier global public-health supplier —.

to risk free as you can get) of close to 5%, why take the risk of investing in equities? The short answer is because equities provide a better return. For the period 1928–2023 (the earliest for which I can get reliable data), the annualised return on 10 Year US Treasury Bonds was 4.6% whereas the S&P 500 compounded at 9.8% with dividends reinvested#. This of course includes the Great Depression and World War Two as well as other more recent and lesser incidents like the 1987 Crash, the Dotcom meltdown, the Great Financial Crisis of 2008–09 and the Covid pandemic. This is unsurprising. Equities benefit from a feature which no other asset class, including bonds, can provide: a portion of the profit or cash flow which belongs to the shareholders is reinvested each year by the company. This is the retained profit which is not paid out as dividends, and its investment is the source of compounding which underpins the returns of long-term investment. In my view this is the least discussed and appreciated aspect of equity investment versus all other asset classes. So, if equities outperform bonds why are investors so keen to hold bonds at the moment? The answer of course is that whilst equities may outperform bonds over long periods of time, there is no guarantee that equities will provide this superior return in any given period, and in fact they may lose value for periods of time, as they did in 2022.cartoon:

Instamart, launched in 2020, is presented as the next-stage growth driver: it reached the same GMV in 17 months that the food-delivery platform took 40 months to achieve — a comparison that suggests the logistics and customer-acquisition infrastructure built for food was directly leveraged to compress the ramp for quick commerce.

triple A credits when they were really triple Z. You can’t improve the quality or liquidity of an asset by putting it into a structure. The other problem with the policy of easy money was that it had to end eventually, but not before it had one last hurrah. There were half-hearted attempts to reverse QE in particular by lowering central banks’ bond purchases but when the stock market unsurprisingly reacted badly in the so-called ‘taper tantrum’ in 2013, these were abandoned. Then in 2020 came the pandemic and central banks reacted to this by enacting that good old saying ‘To a man with a hammer, everything looks like a nail’. They decided that they should double down with their new toy, QE, which seemed to work so well in the Credit Crisis without any nasty side effects, well none that had yet become apparent, and apply an almighty stimulus. This was applied when there was no problem with demand or the banking system. It was just that people were locked up in their homes and unable to spend on bricks & mortar shopping, travel and entertainment and the global supply chain was malfunctioning, leaving consumers with pent-up savings waiting to be spent. What happened next may be an example of Sod’s Corollary to Murphy’s Law: • Murphy’s Law: What can go wrong will go wrong. • Sod’s Corollary: Murphy was an optimist.

Sod’s Corollary gave us the February 2022 Russian invasion of Ukraine which affected the prices of oil, gas and other minerals, such as nickel, and cereals following the central banks’ stimulus. The net result of the further stimulus and this invasion has been an upsurge in inflation and as a consequence a rapid and painful end to easy money. This final round of easy money post the pandemic led to all the usual poor investments which people make when they are led to assume that money is endlessly available and costs zero to borrow or raise. We can see the unwinding of these unwise investments, for example, in the collapse of FTX, the cryptocurrency ‘exchange’ (sic) and the meltdown in the share prices of those tech companies with no profits, cash flows or even revenues.suffering

more in the downturn than lowly rated or so-called value stocks. This effect can be seen in the bottom five detractors from the Fund’s performance in 2022: Stock Attribution Meta Platforms -3.3% PayPal -2.5% Microsoft -1.8% IDEXX -1.7% Amazon -1.5% Source: State Street Four of the five stocks are in what might loosely be termed the Technology sector (although Meta is actually in the MSCI Communication Services sector and MSCI has Amazon as a Consumer Discretionary stock) and at least two — PayPal and IDEXX — started the period with valuations which were particularly vulnerable to the effect of rising rates. In some cases these share price falls have become more pronounced because of events surrounding the business. Meta has its well-publicised problems with the regulatory and competition authorities and has announced a large spend on developing the so- called metaverse which it changed its name from Facebook to reflect. PayPal seems intent on snatching defeat from the jaws of victory. It has taken a leading position in online payments and parlayed that into a lamentable share price performance. The elements in this would appear to be a disregard for engagement with the customers newly acquired during the pandemic and no obvious attention to or control of costs. This is hardly surprising given the attention devoted to pursuing some clearly over-priced acquisitions. That is what happens when management start to conclude that investments do not need to earn an adequate return.

recently, in our portfolio are not in my view primarily technology companies but rather they use technology to deliver differing services, namely: • ADP — payroll, employee insurance and HR. • Amadeus — airline and hotel reservations and operations. • Intuit — tax and accounting services. • PayPal — payment processing. • Visa — payment processing. Moreover, commentators tend to take an all or nothing approach to reporting our holdings — as in the reference to Apple already noted — without any mention of the size of the holding, which is hardly surprising as this is only disclosed semi-annually. But to put this in context, our combined holdings of Alphabet, Amazon, Apple, Adobe and Meta amount to just 9.0% of the portfolio, compared to our holding in Microsoft of 7.6%. I would therefore suggest that the Fund’s exposure to technology is a lot more subtle and nuanced, as well as smaller and more widely spread than the headlines sometimes suggest. However, as well as the lower valuations caused by higher rates, technology stocks are facing some fundamental headwinds. A slowdown in the growth of tech spending is hardly surprising after the massive growth caused by digitalisation during the pandemic. Moreover, the cyclicality of tech spending and online advertising is probably about to become evident as the economy slows and maybe falls into recession.

is the lowest growth rate we have recorded to date in our portfolio and probably says far more about the levelling off in demand in some sectors post the pandemic surge and macro-economic conditions than it does about the long-term growth potential of the businesses. You may recall that the free cash flow for our companies surged 20% in 2021, significantly above the more normal 9% growth in 2019 and 8% in 2020. Moreover, the free cash flow of the S&P 500 fell by 4% last year. Frankly we are pleasantly surprised that there was any growth at all in our portfolio companies, and if 1% growth worries you it may be wise not to read next year’s letter. Cash conversion remains depressed for our portfolio companies but is currently based upon some unusually volatile conditions caused by the pandemic’s disruption to supply chains leading to stockouts and subsequent hoarding of stocks by some companies. Cash flow is an acid test of a business but it is also a more volatile measure than profits which are based on accrual accounting and spread some cash flows between periods. We will have to wait a year or two before something approaching normality is restored and we can gauge how well our companies are doing on this measure. The average year of foundation of our portfolio companies at the year-end was 1922. They are just over a century old collectively. The second leg of our strategy is about valuation.

© 2021 Oaktree Capital Management, L.P. All Rights Reserved Follow us: Memo to: Oaktree Clients Only From: Howard Marks Re: 2020 in Review The opening lines of Charles Dickens’s A Tale of Two Cities offer a fitting coda to 2020: It was the best of times, it was the worst of times . . . it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair. We’re left to contemplate the jaw-dropping list of extremes compiled during this turbulent year: • The coronavirus brought on the worst global pandemic in over a century. • In the U.S., more than 340,000 people died from Covid-19 – 85% of the number who died in battle in the four years of World War II. • In the second quarter, the U.S. experienced the worst quarterly drop in real GDP in 74 years of recorded quarterly history, an annualized decline of 32.9%. • But in the third quarter, it saw the biggest annualized gain in history: 33.4%. • Initial unemployment claims jumped from 251,000 to almost 3 million in a single week in March, crested at 6.2 million two weeks later, and remained above the pre-pandemic record of 695,000 every week for the remainder of the year. • Through bond buying, the Federal Reserve grew its portfolio by $2.7 trillion, or roughly 55%, and the U.S. Treasury funded roughly $4 trillion in grants and loans. • After the S&P 500 Index reached an all-time high of 3,386 on February 19, it fell 33.9% in just 32 days to 2,237 on March 23.

NPR opens by noting the Poonawallas — Cyrus as founder and Adar as CEO of Serum Institute — run the world's largest vaccine-producing company in the world's largest vaccine-producing nation. Serum makes vaccines for measles, tetanus, diphtheria, hepatitis and many other diseases, specializes in generic versions, exports to 170 countries, and estimates that two-thirds of the world's children are inoculated with its vaccines.

In May 2021 Druckenmiller delivered a recorded keynote to the Student Investment Fund's annual meeting, posted on Vimeo, in which he discussed the macro consequences of the pandemic and the policy response that followed. He told the student audience that the COVID crash of March 2020 and the subsequent rebound had been unlike anything in his prior four decades of trading, both in the speed of the drawdown and in the aggression of the central bank response. He described watching the dollar funding squeeze spread across global markets and recognising that the Federal Reserve's swap lines had been the single decision that arrested the cascade. The keynote is rare footage of him addressing a university audience directly and is one of the few long-form talks he gave in 2021. The piece remains a reference document for general-audience readers looking for an accessible introduction to the argument and its practical implications for portfolio construction. He spent much of the keynote on what he called the asymmetry of post-COVID policy. With fiscal deficits running at multi-decade highs and the Federal Reserve still buying bonds, he argued that the inflation risk was materially understated and that the market's pricing of rate normalisation was far too complacent. He told the students that the macro setup reminded him of the late 1960s, when an accommodative Federal Reserve and an expansive fiscal stance together produced an inflation that nobody on the Federal Open Market Committee had anticipated. He cautioned that the unwinding of the 2020 to 2021 mix would be volatile, that liquidity would contract in ways investors had forgotten was possible, and that the era of free optionality in equity positioning was probably ending. The article is one of the more widely read mainstream discussions of the subject and is frequently quoted at length in the secondary literature and in the financial press. The most-cited section of the talk was his advice to students on how to build an edge. He argued that the most underpriced skill in finance is the willingness to change one's mind quickly, and that academic training often penalises exactly the kind of fast updating that markets reward. He told them to read history before reading the news, to track central bank balance sheets before tracking earnings, and to never confuse a forecast with a position. He closed by saying that he had outlived many of his own mentors and that the only durable lesson he could pass on was to protect capital aggressively during drawdowns and to be unusually aggressive when the setup is right. The recording remains a teaching reference for student-led investment funds. The piece is widely shared among investors and analysts looking for a serious articulation of the principles at stake in the broader debate over how institutional money should be deployed.

• But from that low, the index regained the previous high in less than five months on August 18 (an increase of 51.5%). It ended 2020 up 67.9% from the low and up 18.4% overall for the year. • Unlike the credit crunches that accompanied many past crises, capital flowed like water. High yield bond issuance for the year was $450 billion, up 57% from 2019 and well above the prior record set in 2013. Investment grade debt issuance totaled $1.9 trillion, up a similar 58% from 2019 and also ahead of the previous record, set in 2017. • After the Fed cut its federal funds rate target to between zero and 0.25%, bond prices rose as bond yields fell in parallel. At year-end, the average A-rated bond yielded just 1.52%, and the average yield on high yield bonds (ex. energy) was just below 4%. So we had a health emergency, an ailing economy, the most generous capital market of all time, and strong stock and bond markets. The seemingly anomalous relationship between the pandemic and recession on one hand and the strong capital and stock markets on the other can be explained by the Fed’s and the U.S. Treasury’s aggressive actions. As suggested by the above catalog of events, the buying opportunity in 2020 turned out to be very brief, especially with regard to public securities and companies with the ability to access the capital markets.

Adar Poonawalla told NPR he decided to invest tens of millions of dollars in glass vials alone and to produce four different COVID-19 vaccines — including the Oxford-AstraZeneca one — before any clinical trials proved them effective. If the vaccines worked, Serum would have hundreds of millions of doses stockpiled; if they failed, Serum would have useless vaccines and hundreds of millions of dollars in losses.

Inside Serum's sprawling Pune factory, NPR describes filled vaccine vials whizzing off conveyor belts at around 5,000 per minute. Scientists in goggles and gloves steered microscopes over a chimpanzee virus spiked with coronavirus protein. Human embryonic kidney cells fermented in floor-to-ceiling stainless steel vats imported from Europe that cost upward of $4 million each.

© 2021 Oaktree Capital Management, L.P. All Rights Reserved Follow us: • investors grew confident about the inevitability of an economic recovery; • optimism developed regarding the outlook for a Covid-19 vaccine; • the near-zero fed funds rate brought down prospective returns all along the capital market line; • risk tolerance returned, and fear of missing out took over from fear of losing money; • asset prices rose, and the markets bounced back; and • the exceptional buying opportunity came to what for our purposes was a premature end. Oaktree Performance Last year’s extreme, rapid-fire developments – and especially their origin in an exogenous and unforeseeable event, the virus outbreak – created great challenges for investors. To have taken maximum advantage, one would have had to have gone into late February prepared for a significant shock and then turned bullish a month later. Obviously, few investors did both. While we never radically shift our portfolios, I think Oaktree did a very good job under these circumstances. For years we had been leery of the markets, because of our view that they were characterized by a great deal of uncertainty, full-to-high asset prices, the lowest prospective returns in history, and pro-risk behavior on the part of investors trying for high returns in a low-return world.

Li moved to Singapore and became a naturalized citizen in 2018; during the COVID-19 pandemic, his net worth was estimated to have grown substantially, per Wikipedia (specific dollar figures were truncated in the fetched content and not independently confirmed in this pass).

The 2018-20 drawdown was further aggravated by the Covid lockdowns. Our performance from April 2020 onwards has been robust. All three funds 1 The only exceptions being PIF2 and PIF4 underperforming the erratic Nasdaq over 10 years.

NPR notes Serum has partnered with the Bill & Melinda Gates Foundation and several United Nations agencies including UNICEF and the World Health Organization. By the time of the report, the company said it would ramp Oxford-AstraZeneca vaccine production to 100 million doses per month by April 2021.

The manufacturing partnership with Oxford-AstraZeneca began, NPR explains, when a tiny 1-milliliter vial arrived by courier from Oxford in May 2020 containing the components of a viral vector vaccine. Oxford supplied a weakened adenovirus that causes the common cold in chimpanzees, into which they had inserted a coronavirus protein; they also supplied cell substrate to grow the vaccine, plus technology transfer from AstraZeneca.

© 2021 Oaktree Capital Management, L.P. All Rights Reserved Follow us: Given our insistence on risk control, Oaktree’s open-end strategies don’t always keep up with their benchmarks in highly bullish times. The fourth quarter of 2020 presented a potential challenge in that regard, as the market rally (and the low interest rates) encouraged risk-taking and caused the riskiest assets to soar. Thus, we’re happy to report that 10 of the 14 strategies exceeded their benchmarks in the fourth quarter, allowing 9 of them to do so for the full year (all references to returns are before fees). Further, the ups and downs of our quarterly returns suggest we earned our returns with less volatility than the benchmarks. Overall, we’re quite pleased with Oaktree’s investment performance for the year. To reiterate what you already know, none of this was predicated on forecasts. We never tried to predict when the markets would begin to recover from their Covid-19-induced declines. We didn’t know better than anyone else that the new signs of life in the markets in late March were the beginnings of a rally that would take them to all-time highs. We simply favored defensiveness when we considered the markets vulnerable and then turned aggressive when price declines rendered defensiveness no longer appropriate.

NPR records that by December 2020, when governments worldwide began granting emergency authorization, Serum already had hundreds of millions of doses ready to ship. The company promised half its production to the Indian government, which donated and sold supplies to about 70 countries. Serum was producing 60-70 million Oxford-AstraZeneca doses — branded as COVISHIELD —.

NPR notes a January 2021 electrical fire at Serum's Pune complex killed five people, though vaccine production was not affected. The image of black smoke billowing from the complex where Indians' best hope for COVID salvation was being produced was frightening for a watching nation. The episode illustrates how, at peak scale, operational risk at a single facility can become a national-public-health concern.

While Indian manufacturers like Serum partner with global pharmaceutical companies, NPR notes the Indian government simultaneously led a confrontation at the WTO, petitioning with South Africa to temporarily waive intellectual property protections for COVID-19 vaccines. The idea was to lift 20-year patents and let companies like Serum manufacture generic versions quickly and cheaply.

Their leases with multinationals are typically in Euros with the usual 2-3% annual escalators. The leases in Turkish Lira are indexed to inflation in Turkey. Reysas’ borrowing currencies were not properly matched with their leases when we invested. This was one of the reasons the stock was under pressure. By mid-2020 they had refinanced across the board at significantly lower rates and perfectly matched their lease currencies. The warehouses have become a nice, recurring revenue business. I spent an afternoon kicking the tires and visited a number of Reysas warehouses in the pre-pandemic July of 2019. Needless to say, I was impressed. Over the years Reysas has spawned a number of new businesses that mostly tend to have strong recurring revenues – and it very quickly becomes the #1 player. It is the largest private rail freight operator in Turkey. All the trains are run by the government. Reysas rents the track, locomotives and drivers from the government and runs its own railcars. It owns three rail terminals and its trains carry freight between Turkey and Europe. Reysas still has a large trucking business, but is now allocating a lot more capital to rail versus trucks due to superior economics. New Tailwinds The Bosphorus strait separates the European sliver of Turkey from the Asian part. Until recently freight trains from Turkey’s Asian hinterlands were not allowed to use the Marmaray Tunnel under the Bosphorus strait.

In anticipation of a pronounced increase in the supply of candidates for investment, Opps XI became, we believe, the largest distressed debt fund ever formed, with capital commitments of $14.5 billion thus far. In addition to Opps XI, in 2020, we went out for incremental capital for several of our strategies, including ongoing open-end and evergreen efforts and closed-end funds already in the market. The response was very favorable, permitting us to raise a total of $29.4 billion in 2020, the best year for total fundraising in Oaktree’s history, as well as the best for strategies other than Opps. That lifted Oaktree’s year-end AUM to $121 billion ex. DoubleLine ($148 billion overall). Importantly, we’re confident this total – spread over more than two dozen strategies – allows us to remain selective and flexible. Operations During the Pandemic – My first indication of the severity of the coronavirus came on February 26, when I was at the airport waiting to fly to see a state pension fund client. I received a call telling me that the client had to cancel my appointment, as they had established a no-visitors policy (along with a no-travel policy for their staff). That decision – which soon became so common – seemed jarringly serious at the time. (However, it permitted me to curtail my trip and attend Grandparents Day at Rosie’s school – a real silver lining.)

Thus cargo from trains had to be unloaded in the Asian part of Istanbul, transported by truck across the strait and then reloaded onto trains on the European side of Istanbul. All that was changed in May 2020 and now freight trains are allowed to use the tunnel. Reysas’ rail freight business has gone parabolic. The company recently placed orders for 185 new rail wagon containers from the Netherlands, which are a huge fraction of its existing stock. Rail revenues grew over 40% in 2020 and similar growth continues into 2021. Their weekly freight train frequency to Europe is now one trip every two days. Covid has been a huge tailwind for many of Reysas’ customers. I have many fond memories of watching the sun set as we dined at one of many fine seafood restaurants on the banks of the Bosphorus. I am hoping that tradition can be restarted in the summer of 2021. It’s a tough job, but someone’s gotta do it.

On March 5, we made the decision to cancel the in-person version of Oaktree’s biennial LP conference, scheduled for the 11th, and to livestream it instead. Nancy and I flew from New York to Los Angeles for the session, little knowing that we would be there for several months. I left the Beverly Hilton after the livestreaming sessions and, like many of you, haven’t been back to the office since. As those who’ve read my memo Something of Value know, my son Andrew and his family moved in with us on March 13 for a period of months, and investment discussions with him added greatly to my productivity in 2020. Oaktree employees soon reported our first two cases of Covid-19, and to date we’ve had 40+ cases among our roughly 1,000 staff members around the world. Fortunately, everyone recovered nicely. We closed all of our offices in early March, and the attendance picture since then has varied from office to office. We thank both those who’ve been coming in and those who’ve worked from home. Oaktree’s people made great efforts in 2020 and were extremely effective. And clearly, we’re pleased with the results. Our systems operated without a hitch, and our people worked under difficult © 2021 OAKTREE CAPITAL MANAGEMENT, L.P.RESERVED

Page 11 $1.2 billion. The REIT stock alone inside Reysas Logistics had a market value of $26 million. In addition Reysas Logistics owned various other rail, trucking, forklift leasing and the vehicle inspections business. “The stock market is designed to transfer money from the active to the patient.” - Warren Buffett Both businesses were ridiculously undervalued. I obviously preferred buying Logistics. But given the tiny market caps, I didn’t think we could get much stock before the price moved. So, I decided to buy as much as possible of both businesses. Turkey is a dream market for long term value investors to practice their art. Let’s consider the example of Reysas Logistics. There are 119 million shares outstanding. We now own over 39 million shares of Reysas Logistics. The founders and other long- term holders own another 44 million shares. Thus free float is 36 million shares. The daily volume is typically 2-7 million shares. The holding period of the free float shares is just a few days. I suspect most of them are held for just a few hours. When we bought our stake in Reysas Logistics and Reysas REIT in 2019, we ended up with 13.4 million shares of Logistics and 27.1 million shares of the REIT. When the price moved up dramatically in Q1 2020, we exited our Reysas REIT position and held on to the Logistics shares. We received $22.4 million in USD for our REIT shares. Later in the year, as Covid spread across the globe, we reinvested the $22.

Most macro forecasting consists of extrapolating current levels and recent trends with minor tinkering. While predictions of “no change” are often right – as continuation is the general rule – they give rise to little in terms of profit. Only forecasts of major deviation from trend can be highly profitable. But to be so, they also must be correct, and they rarely are. That’s why profitable macro forecasts (and successful forecasters) are few and far between. This negative view on forecasting is a major theme running through Oaktree’s culture and the reason we don’t base our investments on macro forecasts. Most investors felt that the beginning of 2020 was a time of clarity: the economy and the stock market were both expected to continue advancing. While everyone knew they wouldn’t do so forever, nothing seemed poised to make them stop. And then came the strongest exogenous shock we’ve ever seen – the novel coronavirus – proving once again that we never know what’s going to happen (and that even though we can’t predict, we should prepare – more on this later). Today’s environment, in contrast, seems to be characterized by a lack of clarity. Experts are expressing highly divergent opinions regarding the outlook for U.S. markets, with strong arguments both bullish and bearish.

Most important on the positive side of the ledger, we seem highly likely to have a healthy economy for a good while, and the Fed has telegraphed its plan for years of accommodative monetary policy to keep it that way. The economy continues to reopen and recover from the pandemic, and this process should speed up as the vaccine rollout accelerates. President Biden’s administration wants to provide unprecedented levels of financial support and stimulus, and the Democrats probably have enough control of the two houses of Congress to do so. I’m particularly impressed by the potential for well above average consumer spending. Think about all the things you didn’t spend money on in the last 12 months, such as vacations, dinners out, concerts and shows, and clothing for special occasions, and about the millions of Americans of whom the same is true. Now consider the households that made more money last year than they did the year before – starting with those who received support checks but didn’t suffer job losses. This caused real personal income to grow at the fastest rate in 20 years. Harvard economist Jason Furman estimates that the combination of above-trend income and below-trend spending has created roughly $1.8 trillion of extra disposable personal income since the beginning of the pandemic. Finally, add in the very positive wealth effect from last year’s multi-trillion dollar appreciation on stocks and still more on homes. © 2021 OAKTREE CAPITAL MANAGEMENT, L.P.RESERVED

Finally among the positives, I believe U.S. political uncertainty has declined somewhat, truncating the extreme tails of the distribution of possible events. With a center-left president and tiny Democratic majorities in both houses of Congress, I believe radical legislation is unlikely to be enacted. Arrayed against the optimistic outlook regarding the two most important things, the economy and the fight against the pandemic, are a number of concerns. The shortest-term risk is the possibility of unimpressive first quarter GDP data. The latest severe wave of the virus, which took daily cases in the U.S. to record levels, may have slowed current economic activity (so far, the economic data are very mixed). But everyone knows this, and investors have been willing to “look across the valley” for the past eleven months and are unlikely to stop now, when strong growth is right around the corner. The biggest risk of all is the possibility of rising interest rates. Rates have declined quite steadily for the last 40 years. This has been a huge tailwind for investors, since a declining-rate environment lowers the demanded returns on assets, making for higher asset prices. The linkage between falling interest rates and rising asset valuations is a good part of the reason why p/e ratios on stocks are above average and bond yields are the lowest we’ve ever seen (which is the same as saying bond prices are the highest).

This has become a mantra now, here at Hillhouse: “Spend quality time with quality people.” I think this is perhaps the most important lesson there is about investing, and David knew it by heart. David called mission-driven firms “organizations with a soul.” One of the last times I saw David was in New Haven, a few months before the pandemic put the world on hold. David was on a new course of cancer therapies, which had caused his legs and feet to swell. I imag- ine it must have been quite pain- ful for him to walk. Despite this, and our strenuous expres- sions of concern for his comfort, David insisted on giving my family his famous Yale Tour; the sun- shine and fresh air would be good for him, he said. David accompanied us for nearly two hours, criss-crossing Old Campus and Cross Campus. Yale’s buildings are replete with gargoyles and other statues that are tucked into its many nooks and crannies. David took us into the Sterling Memorial Library to show my family his favorite statue. “Here it is!” He pointed gleefully to a small statue of a student bent over a book, into which the architect, James Gamble Rogers, had carved “U.R.A. JOKE.” My young son started laughing, and David joined him, letting out one of his distinctive guffaws. David’s presence in a meeting raised the level of discourse.

© 2021 Oaktree Capital Management, L.P. All Rights Reserved Follow us: The price of goods may not rise in dollar terms, but reduced respect for the dollar (or increased quantities of dollars in circulation) could cause it to depreciate relative to the price of goods: same result. On TV on February 7, Treasury Secretary Janet Yellen responded to a question about inflation risk posed by the proposed Covid-19 relief package with a long discourse on the importance of delivering relief to Americans who are suffering. Few would argue with that premise. She also made clear that she believes it’s better to provide too much relief than too little. True as well. But that doesn’t mean (a) the more relief the better or (b) there aren’t risks attached. Experts from both sides of the political aisle have questioned whether the $1.9 trillion relief package under discussion is too much and/or misdirected; Larry Summers, a progressive economist, wrote to that effect in The Washington Post on February 4: . . . a comparison of the 2009 stimulus and what is now being proposed is instructive. In 2009, the gap between actual and estimated potential output was about $80 billion a month and increasing. The 2009 stimulus measures provided an incremental $30 billion to $40 billion a month during 2009 — an amount equal to about half the output shortfall.

In contrast, recent Congressional Budget Office estimates suggest that with the already enacted $900 billion package — but without any new stimulus — the gap between actual and potential output will decline from about $50 billion a month at the beginning of the year to $20 billion a month at its end. The proposed stimulus will total in the neighborhood of $150 billion a month, even before consideration of any follow-on measures. That is at least three times the size of the output shortfall. In other words, whereas the Obama stimulus was about half as large as the output shortfall, the proposed Biden stimulus is three times as large as the projected shortfall. Relative to the size of the gap being addressed, it is six times as large. . . . Another [way of assessing the scale of a fiscal program] is to look at family income losses and compare them to benefit increases and tax credits. Wage and salary incomes are now running about $30 billion a month below pre-Covid-19 forecasts, and this gap will likely decline during 2021. Yet increased benefit payments and tax credits in 2021 with proposed stimulus measures would total about $150 billion — a ratio of 5 to 1. The ratio is likely even greater for low-income individuals and families, given the targeting of stimulus measures. . . . . . .

© 2021 Oaktree Capital Management, L.P. All Rights Reserved Follow us: • Optimism regarding the economy is based on positive assumptions about vaccines being efficacious, getting into arms, and holding up over time and against new variants. My own guess is that the U.S. will reach herd immunity in the third quarter, with life thereafter moving back in the direction of pre-pandemic norms. Disappointment regarding the speed or efficacy of vaccinations could delay and complicate the rekindling of economic growth. • The actions of the Fed and U.S. Treasury may be leading investors to aggressively pursue high returns in today’s low-return world, replacing risk aversion with risk tolerance. Signs that in the past indicated excessive optimism and complacency in stock and bond markets are present today: o the strong performance of speculative securities and “meme” stocks; o heavy retail buying of stocks, options buying, and buying on margin; o heated bidding for bond deals, low bond yields and weak contractual protections; o the Buffett Indicator (the ratio of total equity market capitalization to GDP) far above its previous high; and o large numbers of IPOs, including IPOs by unprofitable companies, and first-day share price jumps of tens or hundreds of percent.

• Since many investors have concluded over the last 20 years that they can’t achieve the returns they want or need in traditional stocks and bonds, capital has flooded into alternative assets, complicating life for investors there, too. • The unemployment rate may not soon fall to pre-Covid-19 levels, and the secular growth of the economy could remain unimpressive. • U.S. relations with China are likely to continue to be thorny, flaring up from time to time, and globalization – with its economic benefits for the world overall – may be weaker than in the past. • America’s social and political divides are unlikely to close anytime soon, and the country may not easily resolve questions of unequal opportunity and treatment. The above list omits two long-term worries that may seem theoretical and far off but I think are potentially significant: • Can the Fed really increase its balance sheet by trillions of dollars and the U.S. run annual deficits in the trillions – in 2020 and in coming years – without negative consequences, like a decline in the dollar’s value? If the dollar performs poorly, will it remain the world’s reserve currency and leave unchanged the U.S.’s ability to borrow unlimited amounts of money to cover deficits? And what happens if the answer to that last question proves to be “no”? • How will we find jobs for all the people who are displaced by technology and automation and lack the skills required to participate in the information economy?

In many ways, we’re back to the investment environment we faced in the years immediately prior to 2020: an uncertain world, offering the lowest prospective returns we’ve ever seen, with asset prices that are at least full to high, and with people engaging in pro-risk behavior in search of better returns. This suggests we should return to Oaktree’s pre-Covid-19 mantra: move forward, but with caution. But a year or two ago, we were in an economic recovery that was a decade old – the longest in history. Instead, it now appears we’re at the beginning of an economic up-cycle that’s likely to run for years. Over the course of my career, there have been a handful of times when I felt the logic for calling a top (or bottom) was compelling and the probability of success was high. This isn’t one of them. There’s increasing mention of a possible bubble based on concerns about valuations, federal government spending, inflation and interest rates, but I see too many positives for the answer to be black-or-white. In the interest of moving toward a conclusion, I’m going to briefly recap the pros, cons and counter- arguments: • The economic outlook is positive, although Chairman Powell warns that the recovery remains “uneven and far from complete,” with inadequate job creation. • Thus he says the Fed will keep interest rates low for years. But with fiscal and monetary policy extremely accommodative, rates are already on the move up and vulnerable to increased inflation.

The Economic Club of New York ______________________________________ Stanley Druckenmiller Chairman and Chief Executive Officer Duquesne Family Office, LLC ______________________________________ Impact of COVID-19 on Board Governance and Litigation Webinar May 12, 2020 Moderator: Scott Bessent Founder and CIO Key Square Capital Management, LLC

Munger used the 2020 meeting, with markets still in panic from the COVID crash, to restate his views on what works in a crisis. He had been through many of them. The way he operated in any crisis, he said, was the way he operated out of one: underspend your income, invest the difference patiently, do not panic, and stay in the few things you genuinely understand. He was telling the room not to confuse activity with courage. The heroic move in a crash is rarely to swing; it is usually to refuse to swing badly. He was unsentimental about the price of panic. He told the audience that the people who sold into the crash were going to be the people who paid the tax of being wrong about timing forever. The investor who held great businesses through the decline, who refused to mark his mental portfolio to the panic price, was the investor who kept his options open. He pointedly did not recommend buying the dip aggressively, because that, too, was a form of panic - just panic in the other direction. The discipline was to keep the steady habits when the tape was screaming at you. He closed the COVID thought with a Costco callback. The right thing in a crash, in Munger's view, was to have already chosen your Costco's before the crash arrived, so that when the world fell apart you did not have to make new decisions under pressure. The work was done in the calm years; the harvest was reaped in the violent ones. That was the actual content of patience, not the popular image of patient suffering but the engineering reality of pre-positioning.

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 1 Introduction President Barbara Van Allen Welcome everyone. This is Barbara Van Allen, President of The Economic Club. Thank you for joining us. We’re going to get started in approximately a minute and a half. Thank you. Chairman Marie-Josée Kravis: Good afternoon everyone. I’m Marie-Josée Kravis, the Chair of The Economic Club of New York and a Senior Fellow at The Hudson Institute. And I’m happy to welcome all of you here this afternoon. We feel at the Economic Club that we have a special responsibility in this time of crisis to try to bring to you as much relevant information – and I say information, not noise – on the social, political, economic implications of the coronavirus. And I’m very happy to welcome members of The Economic Clubs of Chicago and Washington who are joining us today as well as those from the New York Women’s Forum. Thank you all. I hope you’re safe and well and so are your families. And before we begin, I really want to thank all of the front-line workers who are making all of our lives so much better, safer, and easier – the healthcare workers, other front- line workers, people working in grocery stores, truckers, in various public positions that really do make our lives much easier. And I want to thank you and hope that you are all

increased quantities of household cleaning products, personal cleaning products and OTC medicines. We felt that in both cases the ratings achieved did not reflect the pedestrian nature of these businesses in more normal circumstances or the issues they face which may come back into focus if or when the COVID related boost fades. Moreover, at the same time as these two stocks were enjoying an unusually good performance, Starbucks, which we admire, saw share price falls of over 40% at the height of the panic over COVID. They are probably familiar to you as the world’s leading coffee shop brand. Starbucks has high returns on capital and a good growth rate — two characteristics which we seek. Whilst it is easy to see the challenge to the lockdowns for Starbucks’s urban outlets which partly rely on seating and coffee collected on the way to the office, this is far from their only format. The sometimes spectacular queues and resulting traffic jams at Starbucks drive-through outlets both illustrate another format and testify to the continued loyalty to the brand as does the rise in loyalty club members in 2020. During this period Starbucks’s main competitor in its second largest market — Luckin Coffee in China — was exposed as a fraud in yet another illustration of the rule that it is only when the tide goes out that you find out who has been swimming naked. After the COVID lockdowns we also purchased a stake in Colgate- Palmolive, Procter & Gamble and Zoetis.

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 3 Just to remind everyone, the conversation is on the record and there are, I’m sure, some media connected to this webinar. We will end promptly at 4:45. And any questions that were sent to the Club from members have been shared with Scott in advance. So with no further ado, Scott, I turn it to you. Conversation with Stanley Druckenmiller SCOTT BESSENT: Marie-Josée, thank you very much. And I want to really congratulate you and Barbara for the programming during this time. Of all the organizations I’m part of, it’s been the most nourishing and you’ve adapted the quickest, so well done. CHAIRMAN MARIE-JOSÉE KRAVIS: Thank you. SCOTT BESSENT: So, Stan, looking at the stock markets, you wouldn’t know that much has happened since we were at The Economic Club of New York 11 months ago. The S&P is 6 ½% higher. Nasdaq-100 is 33% higher. Gold is 28% higher. The dollar is 3% higher. Now, in fixed income it tells a different story. Fed funds are down 225 basis points and ten-year yields are down 135. But with all the coronavirus, the news that’s happened since January, how can this be?

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 5 225 basis points on the short end to zero. And more importantly, the Fed has increased their balance sheet from $4 trillion to $8 trillion. QE1 was bullish for stocks. QE2 was bullish for stocks. QE3 was bullish for stocks. And QT, the day it started, stocks from that point on dropped 20% in four months. The gold is obviously consistent, when the Fed increases their balance sheet that much and you have the kind of government intervention you’ve had. The Nasdaq at first looked strange but it’s not strange by hindsight. The Nasdaq at the time was the leading group because we had Fang and some other companies that looked like they were impervious – we talked about them last year – to low nominal growth and would continue to go on. And by some sort of weird coincidence or happy circumstance if you were in that leadership group, they either are not bothered by the coronavirus because most of their earnings are from remote stuff anyway or (b) they’re a beneficiary of it. So their earnings expectation – while the S&P has gone from $175 to $125 this year – are not down and they’re being judged against a much lower interest rate structure with a lot more liquidity expansion. So, I know it sounds weird on the surface but if you look underneath it’s actually quite a logical response of the markets in hindsight.the

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The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 9 The wild card is the Fed can always step up their purchases relative to what they’re saying they’re going to do now, but I don’t really know why they would have tapered from $500,000, a billion a week, to $7 billion a day if they were ready to ratchet right back up again. So at 2900 I don’t see them doing that. SCOTT BESSENT: Well, maybe someone from the Fed is watching the interview today and you saved the market. Could you give me your take on the Fed response since mid-March and on the fiscal response? STANLEY DRUCKENMILLER: Since mid-March or when they started their response in mid-March, I will give them an A++. But I’m going to cheat a little and say it’s not fair to start in mid-March because the Fed did what they had to do in March. But had the Fed normalized rates when the economy was booming and had they not cut rates last fall with unemployment at 3.5% on the theory that 1.7% inflation versus 2% is some kind of economic catastrophe, they would have had (a) more bullets to fire here on the conventional side and (b) more importantly, we would not have had – in my opinion – the massive leveraging we had on the government side. It’s unbelievable. We went into this, into Covid with a $1.4 trillion government deficit with full unemployment – we’d never seen anything like it – and corporations took their borrowing from $6 trillion to $10 trillion.to

which we will try to demonstrate through some of the positive impacts FSEF companies have had on society in response to the COVID-19 pandemic. Initially as the pandemic began, the companies in FSEF were quick to preserve cash by delaying dividends, cutting non-essential expenses and arranging additional debt facilities from banks. They were also quick to make their offices and factories safe for workers, while supporting those who were now working from home. Post the initial outbreak, numerous companies in FSEF contributed positively in the fight against COVID-19 in more ways that just donating money and equipment, although many also did that. There were numerous initiatives to support FSEF company employees, local communities and businesses. Other FSEF companies had the expertise and resources to directly help the fight with innovation or R&D. Overall, FSEF portfolio companies donated over $150m to support their local communities and employees through these difficult times. FSEF companies also provided support for local businesses, both big and small, which were affected by the crisis. Overall, FSEF portfolio companies offered over $900m in grants to small businesses. Some FSEF companies had the expertise and resources to directly support the fight against the COVID-19 pandemic. At Fundsmith, we find the idea that one could reduce the wide variety of positive impacts made by FSEF portfolio companies in response to the pandemic to a single rating number fallacious.

It overly simplifies something to the point that its meaning is lost. There is no way for anyone to quantify how much “better” it is for society for Johnson & Johnson to actually be producing a COVID vaccine compared to PayPal helping small businesses reopen faster. This is why we report the good and the bad which FSEF portfolio companies do each month in the commentary on our FSEF ESG factsheet so that you and we can assess particular instances. Over time we find that these tend to give us a clear picture of a company’s stance on sustainability, but it is one based upon informed judgment rather than box ticking or spurious precision. We also, rather than relying on external rating providers, perform our own analysis of both the positive and negative impacts our portfolio companies have in the widest possible sense, accepting that in many cases the impact isn’t going to be tangible. In contrast, the majority of the asset management industry rely on external rating providers to simplify their assessment of what they can and can’t invest in.

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 11 basically a combination of (a) transfer payments to individuals, basically paying them more not to work than to work. And in addition to that, it was a bunch of payments to zombie companies to keep them alive. One of the things, there’s an economist, Torsten Slok – who probably most know I read – a few weeks ago, it was quite interesting, 1,600 companies in America go under every week when things are fine. Now, most of them are one to five employees. But that’s how creative destruction works and that’s how capitalism works. Those companies, I’m sure a lot of them are in the package and they would have gone under anyway but they’re being kept alive. But more importantly, you have companies like airlines that, because of the free money I talked about, they spent 97% of their free cash flow on corporate buybacks. It was common all over America – financial engineering. And, yes, it wasn’t their fault that coronavirus happened, but I’ve actually been saying for years, none of these companies are going to be able to survive in a recession given the borrowing they’re doing and it’s reckless. And finally I would say instead of the fiscal going to that and doing supply side kind of reforms that the Bush administration did in 2001 and 2002, we could have been doing that kind of thing and spending the money on R&D, 5G, improving our healthcare

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 16 that this thing happened because they were working on a coronavirus in a lab. So I’m not optimistic on the vaccine anytime in the near term, but again you could talk to my dog and get as much information. I’m just telling you what I’ve had to work with. In terms of the viral drug remedies, like remdesivir or the other ones, I don’t know why the economy and the market jumped so much when they’re optimistic about it. It’s like, oh, I have an 8% chance of dying instead of 11%, or I’m going to get sick and be on an IV so now I’m going to go out and party without a mask. I don’t see why anybody would change their behavior because there’s a viral drug out there. But again, the big wildcard here is the wildcard I’ve seen from the beginning and that is the government reaction. And other places have shown how poorly (a) this thing has been managed from the beginning and, in my opinion, how poorly it’s been managed going forward. So, as I’m sure most of you – if not all of you know – Hong Kong...I’m sorry, Taiwan has 25 million people, they’ve had six deaths. Hong Kong has 7.5 million people; they’ve had four deaths. They’re both right on the border of China. It’s hard for me to believe our biggest ally in the Far East, which is Taiwan, didn’t tell the Trump administration their theory despite what President Xi was saying, about human to human transmission in late December.

It is impossible for me to report on 2020 without mentioning COVID. I hope you agree that our portfolio performed well, both in terms of the share price performance and the fundamental performance of the companies, which is just as important. It is also important to note that our operations were not impaired by the lockdowns and travel restrictions. Whilst the performance of the fund is important, it is also important that if you wish to contact us you can and are dealt with promptly and efficiently. You should be able to get any information you reasonably require which should be accurate and up to date. Perhaps most importantly, if you wish to deal — including redeeming your investment — we can execute for you. All of these vital functions continued seamlessly throughout the depths of the lockdowns. We have long been managing the dealing, operations, portfolio management and research across a number of widespread geographies, much to the amazement of some people who felt this could only be accomplished in a few London postcodes. So the need to Work From Home and an inability to travel were not major obstacles for us. One of the mantras which has been regularly trotted out by commentators is that the events of 2020 are unprecedented. Whilst that is literally true, as Mark Twain observed, history doesn’t repeat itself but it often rhymes.

It is certainly true that most of us have never experienced anything like it, yet it may not be strictly true that the events of 2020 are without precedent. There have been six identifiable pandemics over the past 130 years: Recent Pandemics Estimated Deaths Russian Flu (1889–90) 1m Third Plague (1894–1922) 12m Spanish Flu (1918–19) 50m Asian Flu (1957–58) 2–5m Hong Kong Flu (1968–69) 1–4m Swine Flu (2009–10) 0.5m We might be able to draw some parallels from these past pandemics as a guide for what may happen as a result of COVID. One of the conclusions that you might draw from the economic effects of pandemics is that they do not so much cause new trends but rather they accelerate some existing trends. The most obvious comparator — and one which people have most frequently alighted upon — is the Spanish Flu pandemic of 1918–19.mass

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 20 SCOTT BESSENT: You made a very interesting remark to me the other day. You know Amazon is much maligned but you were talking about them pushing all the other retailers into deliberating. STANLEY DRUCKENMILLER: Yes, I have a bit of a thing for Amazon. I gave this speech at The Manhattan Institute four years ago on capitalism and thought how ridiculous it was that the President of the United States – I was talking about Rule of Law – had attacked the son of an immigrant who had built just this fantastic company and was trying to do things with the post office and other things. But it’s just amazing to me, then you see the AOC thing. Here we have this unbelievable company. It’s made all our lives better. They’ve been unbelievable in this crisis. They’ve hired 100,000 people or whatever it is. If you listen to their earnings call, they spent $4 billion giving raises and transitioning their product to the less profitable stuff that were essential needs. They didn’t raise their prices on anything. We should just get down on our knees and thank the Lord that this company existed in this pandemic. And then it’s interesting because, being the shy person I was, I was on this rant with Ken Langone a week ago and he said, well, you know, they made us a much better company and the reason we’re so good online now is because we had to compete with them.

production. The assembly line was not invented as a result of the Spanish Flu pandemic — the Model T Ford was put on an assembly line in 1913 — but it accelerated its adoption. The increase in productivity this delivered helped to fuel an economic boom as the cost of production of items such as cars and household electrical appliances were reduced as the volume of production rose so that they became affordable by the middle classes for the first time. This helped to fuel the economic and stock market boom of the Roaring Twenties. Might something similar happen as a result of COVID? Obviously, I do not know, and fortunately my predictive capability is not the basis of our investment strategy. However, there are some clear signs that existing trends have been accelerated by COVID. For example: • E-commerce • Online working from remote locations using the cloud or distributed computing • Home cooking and food delivery • Online schooling and medicine • Social media and communications • Pets — which have become more important in isolation and when their owners are at home more • Automation and AI The result is that many people have become more productive. Salespeople can visit many more clients if video conferencing is acceptable and at virtually no incremental cost. We receive reports of factories which we are told are operating with 50% staffing due to social distancing rules but which have more or less maintained production. I wonder what conclusion that leads to.

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 21 SCOTT BESSENT: That’s Home Depot? STANLEY DRUCKENMILLER: Yes, I’m sorry, Home Depot, but there’s 20 or 30 companies out there. Look, as horrible as this thing is and it is horrible, imagine if it had happened four years ago, before Zoom, before Amazon, and before Amazon drove all these other companies, like Walmart, Target. All of them have an online presence. So, yes, I think it’s an amazing company. I get a little emotional as you can hear when politicians attack it. But I also think it’s, the whole phenomenon has been amazing in our country of all these companies and all the creation they’ve done and how it made this pandemic – as horrible as it is – a lot less horrible for the average citizen. SCOTT BESSENT: So coming back to your point on the President versus Bezos, you’ve been, one of the things you’ve talked about a long time is your concern for the attack on capitalism in the U.S. What are your thoughts now? And are market-based solutions going to be dead for the next ten years? STANLEY DRUCKENMILLER: Well, in that speech the thing that I found the most disturbing is that the government had rigged the most important price in the world. After learning in Economics-1 that wage and price controls don’t work, we decided to put price controls on the most important price in the world, which was the price of long-term interest rates, the price of money. And you can only imagine what I think now.

Of course not all businesses benefit from these developments. The airline industry, hospitality, bricks & mortar retailing and office property may all have some very difficult problems to face, just as you wouldn’t have wanted to have been a saddler when Henry Ford and his competitors hit their stride. I became increasingly bemused listening to or reading various commentators predict that the economic recovery from the COVID lockdowns would be V shaped, or shaped like a U, an L, a W, a bathtub or like the Nike swoosh (I’m not making this up). But just when I was bored of this entire meaningless alphabet soup of predictions, I came across one that I thought might be correct and help to explain what may happen. It was that the recovery may be shaped like a K.economy

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 22 So we’ve been in this slowly declining trend. You’ve had one corporate executive after another talk about how capitalism was broken the last couple of years which I found not a good comment because we weren’t doing capitalism. We were doing sort of this weird bastardized version. And now, to me, Covid has just sent us off the cliff and I think we’ve crossed the Rubicon. I don’t think we’re going back. It’s very obvious the way the Democrats acted in these so-called stimulus negotiations that this is just going to be another move. If the Democrats win, it’s a great chance for them to move things further to the left and further against capitalism. So I’m very worried and I’m sort of working under the assumption, again I’m flexible and I hope I’m wrong, but that American exceptionalism, which is the invisible hand, it is the embracement of a meritocracy, is as challenged as I’ve ever seen it in my lifetime going forward. SCOTT BESSENT: So, under those assumptions, what should allocation for an endowment, a foundation, a pension fund or family look like over the next three to five years? STANLEY DRUCKENMILLER: Well, thanks for that one. I don’t know. I think the most important message with regard to endowment is to make sure the management of whoever they’re endowing understands that the 7% and 8% assumptions on returns in terms of running their business are going to be extremely challenged.my

emerge from a downturn with sharply differing trajectories — like the arms of the Roman letter K. Imagine if you had been told this time last year that there would be a pandemic and that the measures taken to contain it would so affect the world economy that US GDP would fall by 9% in the second quarter of the year and the hospitality and travel sectors would be devastated by the measures as would large segments of traditional retail activity. Considering this would you have predicted that the MSCI World Index would deliver a return of 12.3%, slightly above its ten year average? Hopefully this illustrates the dangers of forecasting and market timing even when you know what major events will occur. I will leave you with this thought: What are the similarities between a forecaster and a one-eyed javelin thrower? Answer: Neither is likely to be very accurate but they are typically good at keeping the attention of the audience. Finally, may I wish you a happy New Year, a COVID free 2021 and thank you for your continued support for our Fund. Yours sincerely, Terry Smith CEO Fundsmith LLP Disclaimer: A Key Investor Information Document and an English language prospectus for the Fundsmith Sustainable Equity Fund are available via the Fundsmith website or on request and investors should consult these documents before purchasing shares in the fund. Past performance is not necessarily a guide to future performance.

The Economic Club of New York – Stanley Druckenmiller – May 12, 2020 Page 25 I know that our members are looking forward, would have loved hearing more from you, but unfortunately, I have to interrupt this conversation. Thank you, Stan, for being as candid as always and so insightful. And thank you, Scott, for leading a really informative conversation. Thanks again to all our members for being here. Going forward, events such these will continue to be scheduled. There’s an event that’s scheduled next week with Marty Lipton where we’ll discuss governance in this era of Covid-19 and also ESG- related regulations. And just please keep monitoring our website and we’ll continue to communicate with you also by email. So thank you. Stay safe, stay tuned, and hope to have you all soon with us.