It may be a good idea to be a bit risk-averse, Oaktree Capital Group Co-Founder Howard Marks said in a wide-ranging conversation with Michael Milken on Thursday.

When investors think about how to balance risk versus return, they need to think about whether they’ll want to change their current allocations based on what’s going on in the world — and if so, whether it should be done immediately, Marks said at the Milken Institute Asia Summit in Singapore.

“I would emphasize avoiding losing money over avoiding missing opportunities," he said. “But I’m a bond guy, and that’s just me.”

Marks reflected on a career in which he has benefited enormously from investing in “the worst companies in America,” noting that when he started decades ago at Citigroup, many people would buy blue-chip American stocks with solid balance sheets at basically any price, but many of those stocks fared poorly in subsequent years. The advent of high-yield credit meant that risk and return could be balanced according to the investor’s needs, he said.

Marks said the debt culture in Asia is still developing. In times of prosperity countries sometimes say they don’t need such things, he said, but then they lose a little money “and then they say, maybe international diversification and some of the products you’re talking about are a good thing.”

And he defended capitalism, saying that the greatest economic progress has been achieved in countries using that system, and reiterating concerns about populism. Taking money away from the people who created wealth isn’t the way to govern, he said.

“The way to benefit the world is to grow the pie,” he said. “The capitalist system is really a meritocracy. It’s a meritocracy of the people who work hardest and best, and a meritocracy of ideas.”

However, like Ray Dalio, billionaire founder of the world’s biggest hedge fund, Marks was worried about income inequality in the U.S. Wages for middle class in the U.S. have not increased over the long term when they are adjusted for inflation, he said.

The Bridgewater Associates co-chairman said in April that capitalism must be reformed because it’s not producing enough opportunities for most Americans, creating an income gap that threatens to spark conflict.

Marks, whose Oaktree agreed in March for Brookfield Asset Management to buy a 62-per-cent stake for about US$4.7 billion, did say that since capitalism creates winners and losers, an “enlightened” government should “support successes and cushion failures.”

He also offered qualified praise of activist investors, noting that they are trying to make company managements more responsive.

“The challenge you get into is that the activists can sometimes profit in the short run by getting companies to do things that aren’t good for them in the long run,” he said. “Governments can shape things with the proper incentives.“

With assistance from William Horobin