It’s the hedge fund equivalent of Linda Evangelista’s infamous comment about supermodels not getting out of bed for less than $10,000 a day - a quip that was seen to epitomise the excesses of the late-80s.
Billionaire investor Wilbur Ross, interviewed for FT.com’s View from the Top video series, expresses his concern that with increasing amounts of debt being piled into deals, we are in the throes of a private equity bubble. “I think what’s happened is that the concept of risk-adjusted rate of return has been replaced by what I would call risk-ignored rate of return, and people are substituting yield for credit judgement.”
Later he adds: “I do believe that because of the excess liquidity and the ignoring of risk, I think default rates, while they’re more or less at the vanishing point now, down around the 1% kind of level, I think they’ll double or triple by this time next year, and then double or triple again in the following year.
“Anecdotally we syndicated a loan for one of our companies recently, and I noticed that one of the hedge funds had bought it, bought a small piece, a $10m piece, but never came to any of the due diligence meetings. So I called the fellow who runs the hedge fund, because I know him, and said: thank you for participating, but I was surprised nobody came for diligence. He said: for a $10m loan, it is not worth sending someone to a meeting.”
Excuse us.
Mr Ross also has a pop at Aim, London’s junior market, expresses his hope that the US dollar continues its descent, and makes this tongue-in-cheek (we think) prediction.
“I believe that if the current LBO phenomenon keeps growing the way that it is, at some point some LBO firm will make a bid to privatise all of the industries in some emerging country simultaneously, and in that way create a whole rounded portfolio.”
You can also read the full transcript.
