Leon Cooperman: High odds of interest rates going up make private equity risky

September 12, 2019 | Hedge Funds, Private Equity
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The legendary hedge fund manager said declining interest rates had propped up returns in PE, but this could change

Leon Cooperman was speaking at an event hosted by the New York Alternative Investment Roundtable. Initially calling private equity a scam, he later clarified his remarks. Though he was put off by the high fees and lengthy lock-ups, he said the industry wasn’t a scam.

Cooperman said low-interest rates were the main reason for high returns on leveraged buyout transactions over the last decade. The tailwinds of economic growth also benefited the industry. However, these factors could be ripe for change.

According to Cooperman, chances are pretty good that interest rates will go up over the next 5 to 10 years. Also, this could affect returns on private equity. He said there was no question that the enormous decline in interest rates had aided and abetted large deals.

He warned that the economy could be slowing even as competition for deals is intensifying among buyout firms. “The timing is wrong.” One important clue: the slowdown in the economy during the fourth quarter after a small hike in interest rates.

One could infer, therefore, that there was too much debt in the system. It’s probably only getting worse, Cooperman added.

Leon Cooperman Sees Bubble in Fixed Income, Not in Stocks

Cooperman sees an asset bubble in fixed income but not in stocks.

There is no sign of euphoria in the latter in his view.

Speaking to CNBC in July, he said stocks were in an advanced part of the cycle. He nevertheless saw a further 10 to 15% more upside.

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