Julian Robertson: "Janet Yellen Has Created A Serious Bubble And Pain Is Coming"

Discussing the present and future of the embattled hedge fund industry, Tiger Management's Julian Robertson - one of the most prominent names in the field - said that hedge funds are facing "the most difficult time I've ever seen in the business" his investing career (observing that "there are a lot of people squeezing shorts"), and warned that the days of charging hefty fees may be over.

"“That type of business hasn’t worked lately, and it’s a tough business,” Robertson, 84, said Tuesday on Bloomberg Surveillance in New York. “It’s tougher to be a hedge fund investor than ever before.”

Incidentally, the current debacle facing the hedge fund space, is something we have been warning about since 2012, when we predicted that as a result of central banks' having taken over the role of the market's Chief Risk Officer, there is implicitly no more downside risk, and thus no need to hedge; alternatively once central banks do lose control, no extent of hedges will compensate for the rout that would occur, which coupled with counterparty failure, would mean failure to satisfy obligations made under short trades.

Sevaral years later, Julian Robertson agrees with this assessment, saying that ultra-low interest rates and swollen stock-market valuations are crimping returns for the managers, whose portfolios are designed to outperform during a downturn. The problem: with central banks injecting $2.5 trillion in liquidity each year, there is no downturn. As a result, the $2.9 trillion industry, has underperformed the S&P 500 index every year since 2008.

So what could save hedge funds? The simple answer: an end to the financial repression, bubble blowing and market manipulation that central bankers have unleashed, but it wouldn't only benefit hedge funds:

"High interest rates are going to encourage savings, and I think we desperately need savings. Take a widow: they don't know what to do with the money. There is no way they can do anything with it unless they go into stocks. I think forced equity investing creates the bubble."

When asked who do you blame for this mess, the legendary hedge fund investor had one name: Janet Yellen, who Robertson says "is unwilling to see the American public taking pain at all and because of that I think she is creating a serious bubble where serious pain is going to come."

What happens then: "If we have that bubble burst, you’re not going to make any money in the stock market unless you’re short and unless you’re in some sort of hedge fund."


The billionaire also warned young job-seekers to avoid industries that have become overly popular like hedge funds, although he admitted that seeding a newer generation of managers - which he’s done since opening his family office - is still one of his favorite things to do.  “I still think that the good people will do well,” Robertson said.

On a tangent, Robertson had a brief chat about the presidential election, and had kind words for Republican nominee Donald Trump but said he won’t be voting for him. “I know Donald and I like Donald, and I really respect the Wollman Rink, which he’s put back in Central Park,” Robertson said, referring to the New York ice-skating rink Trump renovated in the 1980s. “But I’m out of that race. I’m going to vote for the former governor of New Mexico and the former governor of Massachusetts.”

* * *

Full interview below: