Leon Cooperman Warns Private Equity Is a Risky Bet Fueled by Low Interest Rates

Legendary hedge fund manager Leon Cooperman took a shot at the private equity industry, saying low interest rates that have fueled its returns won’t last.

“I think it’s a scam personally,” Cooperman said Wednesday at an event hosted by the New York Alternative Investment Roundtable. With interest rates likely to rise over the next few years, the “timing is wrong.”

Cooperman said declining rates are the main reason that leveraged buyouts have generated high exit multiples in the last decade. He said private equity deals have also benefited from a growing economy that may be losing steam, while competition among buyout firms is on the rise. Later, he further elaborated on his comments, saying that while the industry isn’t an actual scam, the high fees and lengthy lock-ups don’t appeal to him.

“If you do private equity in small or mid-cap companies, not the big stuff, I can understand it, you may have a certain edge,” he said. But there’s no question, he added, that the returns on “the large deals have been aided and abetted by the enormous decline in interest rates.” The odds are very high that rates will be going up over the next five to 10 years, he said.

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