Hedge Fund Manager Leon Cooperman Calls Private Equity A Scam

Legendary hedge-fund manager Leon Cooperman wasn't pulling any punches as he sat for an interview in front of about 100 members of the hedge fund industry.

First he lambasted the Securities and Exchange Commission (SEC), calling it abusive and mean. Then someone asked what he thought of private equity.

"I think private equity is a scam," said Cooperman. "They're getting very fancy fees for sitting on your money.

The founder of the Omega Advisors hedge fund spoke before the New York Alternative Investment Roundtable at New York's Penn Club Wednesday. He said private equity's high returns "have been aided and abetted by lower interest rates." He added that low interest rates were the main reason leveraged buyouts have been able to charge high fees in a fairly valued market. He also pointed out that it's going to get a lot harder for the private equity industry as this is no longer an under-discovered concept, there's much more competition, and that rising interest rates would hurt new deals.

Cooperman spent the first 25 years of his career at Goldman Sachs, becoming a general partner after nine years. Attributing his success to intuition and hard work, he said in 1972 he took over Goldman's unrated research department and turned it into Wall Street's number one house in equity and credit research. He also served as chief executive of Goldman's $1 trillion asset management division and chief investment officer of its equity product line.

In 1991, he went out on his own to start Omega Advisors. One of Omega’s funds, Omega Overseas Partners, posted 12.6% annualized net returns since January 1992, according to The Wall Street Journal. That beat the 9.6% annualized rise in the S&P 500 during the same period.

His consistently high returns put him on Forbes magazine's list of the “40 Highest-Earning Hedge Fund Managers” and its "Top 10 Overall Hedge Fund Managers” list.

In 2016, the SEC charged the hedge fund and Cooperman with inside trading. Instead of settling and accepting a ban from the financial services industry, he fought the charges to save his reputation. The next year, he settled the case without admitting wrongdoing or agreeing to any industry ban. He was forced to pay a fine, but Omega was allowed to stay in business, which many considered a victory for Cooperman.

Unfortunately, he lost a lot of investors, and by 2018, Cooperman decided to close shop and turn the hedge fund into a family office. He told the audience the Kenny Rogers line, "you have to know when to hold them, and when to fold them." He added he didn't want to spend his remaining years chasing the S&P 500 Index for other people.

Asked about other trends in the financial industry, Cooperman said, "I think negative interest rates are the dumbest thing I've seen. It makes no sense."

On the value of index funds versus hedge funds, he said, "In 2008, if you told me it was better to be in relative return vehicles (index funds) rather than absolute return vehicles (hedge funds), I would have said you were crazy."

But over the last decade index funds have far outperformed hedge funds.

He said index funds have much more liquidity and a smaller fee structure than hedge funds and that if hedge funds can't present a value opportunity their businesses will shrink.

Asked whether index funds were in a bubble, Cooperman replied that there were much fewer stabilizers in the market than when he started.

"One of the biggest problems we are all facing now, and it scares the hell out of me, is market structure. There are no stabilizing structures. The market structure is totally different than anything we were brought up with in the past," he said.

He pointed to the Volker rule, which prohibits banks from using their own accounts for short-term propriety trading of securities and derivatives.

Instead of specialists or banks making bids that could slow down the trading, "there are no stabilizers left in the market," he said.

Cooperman said he sees the market as fairly valued and not a good place for a value investor.

"I believe in any stock at the right price," he said. "Not the right stock at any price."

However, he doesn't think the market is in a bubble because he said he sees very few signs of euphoria.

"The bubble is in fixed income, not equities," he said.

Leadership

Accelerating Progress: A Phased Approach To Greater Sustainability In Metals And Mining

Ian Sanders

Brand Contributor

Deloitte

BRANDVOICE| Paid Program

Aug 20, 2024,10:46am EDT

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The transition to net-zero emissions will require an estimated US$850 billion in investments by the metals and mining industry through 2030. Converting lithium, cobalt and copper stores—to name just a few—into commercially viable reserves, while ensuring supply and reducing emissions, will be challenging given materials concentration, long project development timelines, declining grade quality, and historic negative environmental impacts. Nevertheless, the time is right to innovate and scale sustainable operations to support the global energy transition.

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A tri-phased strategy could improve sustainable operations in the metals and mining industry.

Phase one: Building a foundation for sustainability

Efficiency could be enhanced and the environmental impact of existing mines reduced with new approaches including:

• Improving the efficiency of production processes. Advanced planning techniques such as linear programming and integrated planning systems, supported by technologies such as digital twins, drones, and machine learning, can enhance precision mining and reduce bottlenecks. One example: a hyperspectral sensor enabled the discovery of US$25 million of additional resources at a west Australian iron ore mine.

• Optimizing the resources used. Material production often occurs in high water-stress regions, while mining trucks gobble diesel and generate emissions. Both represent significant decarbonization potential. Optimizing usage and expanding certifications that establish premium pricing for sustainably produced minerals can also help. More than US$5 million of Fairmined Premium has been paid to organizations since 2014 for reinvesting into communities.

• Incorporating technology to improve yields with lower emissions. Leveraging direct lithium extraction may double the yield and reduce the production time from months to days while producing lower emissions than traditional extraction.

Phase two: Building efficiency and resilience across the value chain

More resilient supply chains that incorporate global and local partnerships can help ensure supply reliability and fair pricing. Companies such as General Motors are shoring up supply chains by concluding long-term fixed-price contracts with mining companies. Similarly, companies in Ghana are collaborating with local manufacturers to create vital mining equipment, reducing operational expenses while boosting employment.

Collaborations with battery manufacturers could lead to new material chemistries, such as iron-phosphorus-based lithium iron phosphate batteries and sodium-ion alternatives, reducing the need for critical minerals.

Phase three: Using an ecosystem approach to manage environmental impact

Many mining operations overlap with Indigenous lands, requiring active collaboration to gain acceptance. The partnership between Cameco and the Pinehouse Lake community in Canada shows how production can move forward while creating jobs and opportunities to strengthen the local economy.

Elevating recycling also builds industrywide synergies. Improving recycling efficiency for critical minerals could create a secondary supply that could help meet 10% to 20% of mineral demand by 2030. Companies such as Sibanye-Stillwater are “forward integrating” by acquiring recycling firms.

Tipping points: Important factors shaping sustainability in metals and mining

Achieving sustainability in metals and mining is also contingent upon four critical enablers: finance, technology, business models, and talent.

Finance

Meeting net-zero emissions targets requires bridging a significant investment gap. Some actions to consider:

• Establish ownership integration. Engage downstream consumers for direct investments in mining, refining, and precursor materials. General Motors and Tesla’s acquisition of lithium assets and the US Department of Defense’s agreement to secure graphite for large-capacity battery production represent such an approach.

• Capitalize on government incentives for project security. Tax incentives, early-mover grants, and critical mineral agreements minimize risks. For example, the US Department of Energy funded 16 projects across 12 states to increase production and processing capacity of critical minerals for the clean energy transition.

• Unlock sustainable financing. Sustainability-linked bonds or loans can reduce capital costs. For instance, Teck Resources utilized a US$4 billion sustainability-linked credit facility with key performance indicators related to emissions, safety, and diversity.

Technology

Expedited digitalization can support sustainability and some companies are already seeing positive returns. Asset modeling and simulations can also enhance performance. A multinational mining company compared theoretical truck and operator performance to actual in-field performance, leading to a 23% reduction in haul cycle times. Finally, companies can improve their exploration process with technologies such as hyperspectral imaging, artificial intelligence, and machine learning to analyze geological data to increase accuracy.

Business models

Companies have modified their business models to improve agility and resilience. Innovations include multi-user infrastructure models that pool expertise and resources. Integrated partnership models such as the joint venture between BMW and Mangrove Lithium and minority investments can also protect the value chain and mitigate supply and pricing risks. Similarly, mining-as-a-service models like that employed by Inspire Resources Inc. shift companies to operator roles, allowing community control and more scalable operations.

Talent

Meeting the net-zero target will likely require 700,000 new workers in the critical minerals extraction industry by 2030, as well as backfilling millions of open mining-related jobs. To close these gaps, companies could deploy new talent management strategies starting with early cultivation.

Companies could also tap global resources by supporting industry collaboration, automation, standardization of skills and certifications, industry-specific benefits, and new ways of working, including remote work and project-based assignments.

Architects of change: How policymakers, companies, and consumers can drive metals and mining sustainability

Simultaneous efforts by all stakeholders—policymakers, companies, and consumers—are important for sustainable development. The aggregate impact of streamlining permitting processes as Canada announced earlier this year, coupled with better, earlier community engagement can reduce the timeline for new projects dramatically. Internally, companies can use digitalization across the value chain to improve decision-making and institutionalize and scale more sustainable practices.

The metals and mining industry can play a unique role in meeting net-zero targets. Innovation and collaboration among stakeholders to meet interim and long-term sustainability goals are showing impact across the globe.