Time to Sell? Rubenstein Puts Leon Black on the Spot Over 2013 Call

(Bloomberg) -- Almost six years ago, Leon Black famously warned it was time to sell “everything that’s not nailed down” after stock markets had more than doubled from their lows and prices for leveraged buyouts jumped.

On Wednesday, the co-founder of Apollo Global Management LLC was reminded of his call when fellow private equity investor David Rubenstein asked him whether that was indeed the right time to sell. In hindsight, Black conceded, he might have made a little more money by holding on longer.

Their exchange at a conference in Berlin highlighted just how much the industry has been lifted by a decade-long rally, which many investors viewed with unease because it was driven almost entirely by the world’s central banks. Yet that cheap financing made private equity investors some of the biggest winners of the post-crisis era, by driving up asset prices and allowing firms to juice returns with borrowed money at little cost.

Now, with record amounts of investor cash flooding firms such as Apollo, Carlyle Group LP and Blackstone Group LP, executives say there’s no end in sight to the good times -- as long as interest rates don’t shoot up.

The world economy is in “generally a pretty good place right now,” Bruce Flatt, who runs Brookfield Asset Management, said in an interview with Jason Kelly at the conference, SuperReturn International. While Brookfield may invest less and sell more than last year, the firm is still raising some $50 billion in new money across its strategies. Even short-term shocks like Brexit are unlikely to upend the investing outlook in the long run, Flatt said.

‘The One Thing’

“The one thing in the world that could upset what’s going on today” are significantly higher interest rates, a prospect that’s unlikely, he said.

Joseph Baratta, head of global private equity at Blackstone, said his firm has kept buying new assets to put money to work, while selling holdings “in equal amounts” since 2013. Blackstone raised more than $100 billion last year alone, and aims for $1 trillion in assets under management by 2026, a number that would have been inconceivable for a private funds manager a decade ago.

“It could be a black swan event if long-term rates really spike up,” Baratta said in an interview Thursday. “But I do not think that will happen.”

Baratta said he doesn’t see any signs of a recession in the short term, and brushed aside concerns that years of low interest rates had created a bubble in the debt that many firms rely on to acquire companies and leverage returns.

No Misgivings

“I think leveraged loans and high yield bonds are mispriced,” he said at the conference. The debt proved resilient during the last crisis and is currently the most attractive asset class from a risk perspective, he said.

Black, a value investor, said he had no misgivings about selling in 2013, because it allowed the company to reduce risk and make money. Shortly after Black’s call in 2013, concern about an end of the cheap money led to a bout of selling that became known as taper tantrum, highlighting just how dependent markets had become on the support of central banks.

In “hindsight my guess is we could have gotten more by waiting,” Black said, adding that the fund at the time returned three times investors’ money. “If we waited longer we could have done 3.5” times.

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