Hedge Fund Legend Warns On Equity Markets

by Carla Johnson, Investors Offshore, London

20 May 2002

In the world of hedge funds, the name of Leon Cooperman is almost as well known as those of George Soros and Julian Robertson, so when he speaks out, it's time to listen. And addressing a conference in New York on Friday, Mr Cooperman was pessimistic about the current investment environment: "I am not looking for the so-called rising tide that lifts all ships," he said. "I think (September 11) has brought us into some kind of war environment."

Leon G. Cooperman formed New York-based hedge fund group, Omega Advisors Inc., Omega 10 years ago, after retiring from Goldman Sachs, where for the better part of the 25 years, he headed up research and also ran Goldman’s asset management arm. He was Wall Street’s top-ranked portfolio strategist for years on end, and when he left to form Omega, billions of dollars followed him. By 2001 his fund had returned 345% after fees since inception. Omega largely invests in equities but also takes macroeconomic positions. So far this year the fund's performance is understood to be slightly down.

In his speech, Mr Cooperman noted that over the last year the US has swung from having a substantial budget surplus to a deficit. He also observed that the value of the dollar may have peaked and the currency's decline could have important consequences for financing the US's massive trade deficit through foreign investment in US securities.

Mr Cooperman also pointed out that the US was shifting away from a free-trade environment, with recent tariffs on steel imports and Canadian lumber. "I find the market's value in the aggregate very unappealing," he said, concluding: "We have just been through one of the most speculative orgies known to man."

Interestingly, though, Mr Cooperman is bullish on Tyco, the Bermuda-based conglomerate, which saw its share price more than halved after botching a break-up announcement earlier in the year. Investing in Tyco was "my biggest risk management mistake in 38 years", said Mr Cooperman, who nevertheless argued that at these levels, Tyco is a buy.

Speaking about his investment strategies last year, Mr Cooperman explained: "We’ve had consistent profitability in domestic equities, with no exceptions in all the years we’ve been in business. We’ve only had two upsets: We overstayed our welcome in non-dollar bonds in ’94, and suffered a negative return year (after a big win in ’93). Then, in 1998, we had a four-person emerging markets portfolio management group that got Russia all wrong—and it killed us. But we’ve exited that business. 95% of what I do is basically undervalued equities, long, and overvalued equities, short. Our macro stuff is de minimus."

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