Tags: Tiger | Robertson | Bond | Bubble

Tiger's Julian Robertson: Bond Bubble to End in 'Very Bad Way'

Monday, 22 September 2014 07:00 PM EDT

Julian Robertson, the billionaire founder of Tiger Management LLC, said there’s a bubble in bonds that will end “in a very bad way.”

“Bonds are at ridiculous levels,” Robertson said at the Bloomberg Markets Most Influential Summit in New York. “It’s a worldwide phenomenon that governments are buying bonds to keep their countries moving along economically.”

Robertson was joined by other billionaire money managers at the summit in expressing concern that debt markets are overheated. Omega Advisors Inc. founder Leon Cooperman called bonds “very overvalued.”

Howard Marks, the chairman of Oaktree Capital Group LLC, said on a later panel that investors are taking on more risk in their portfolios as central banks worldwide keep interest rates low and suppress yields on traditional fixed-income investments.

“If you participate in that enthusiasm then you’ll also participate in the correction,” Marks said in a Bloomberg Television interview from the summit. “As the environment becomes more enthusiastic we have to become more cautionary and try to clip the top of that cycle rather than participate in it.”

Oaktree, which Marks co-founded in 1995, is preparing for the correction as high-yield, high-risk debt is headed for its sixth positive year. The Los Angeles-based firm is seeking $10 billion for a fund with plans to sit on most of the capital until more companies enter distress, people familiar with the plans told Bloomberg News this month.

‘Unnaturally Low’

“Bonds derive their value from interest rates, and interest rates are unnaturally low today” Marks said on the panel.

The European Central Bank helped send two-year note yields below zero in eight countries in the region this month after unexpectedly announcing an interest-rate cut and saying it would buy some privately owned securities. In the U.S., Treasury yields have risen in September after the Federal Reserve boosted its forecast for how much rates will rise next year. The 10-year note is at 2.56 percent, compared with an average over the past two decades of 4.44 percent.

Investors who have bet against Treasurys since the financial crisis have lost out as the runaway inflation predicted by some academics and politicians including U.S. House Speaker John Boehner has failed to materialize. Longer-dated U.S. debt has rallied 14 percent this year through Sept. 19.

Taken Advantage

Bill Conway, the billionaire co-founder of private-equity manager Carlyle Group LP, said that while he doesn’t see a catalyst that would cause the bond market to collapse, his firm has taken advantage of the low interest-rate environment by refinancing the debt supporting many of its portfolio companies.

Almost every company in Washington-based Carlyle’s buyout funds has refinanced its terms at least once, said Conway.

“The terms have been extended and the interest rate has been reduced on so many of the credits,” he said. “We have to take advantage of it while it’s here.”

Cooperman, whose New York-based Omega manages $10.4 billion in hedge-fund assets, said he’s finding opportunities in the stock market, where “there’s no indication of euphoria priced in.”

There are still a few companies around for investors to consider in the stock market, Tiger’s Robertson said, citing Alibaba Group Holding Ltd., which went public last week in the biggest ever initial offering.

“One has to be careful,” said Robertson. “There are still some great companies. One of them just came public last week. That’s a fabulous company. So there are opportunities, no question about that.”

Tiger, Oaktree

Robertson, 82, started New York-based Tiger Management in 1980, and by mid-1998 assets had soared to about $22 billion on the back of annual returns averaging 32 percent. Losses and investor withdrawals over the following 18 months reduced Tiger’s assets to about $6 billion and in 2000, Robertson announced he would close the firm to outside investors. Since then he has transformed it into a business financing startup hedge-fund managers and he runs a charitable foundation.

Conway, 65, founded Washington-based Carlyle in 1987 with David Rubenstein and Dan D’Aniello. The firm is the second- biggest manager of investment alternatives to stocks and bonds, overseeing $203 billion in private-equity, credit, real estate and hedge-fund assets.

Cooperman, a former Goldman Sachs Group Inc. partner, formed Omega in 1991. Marks’s Oaktree, which sold shares to the public in 2012, managed $91.1 billion in assets as of June 30.

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Julian Robertson, the billionaire founder of Tiger Management LLC, said there's a bubble in bonds that will end "in a very bad way."
Tiger, Robertson, Bond, Bubble
Monday, 22 September 2014 07:00 PM
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