Billionaire hedge fund manager Leon Cooperman, the founder of $5.2 Omega Advisors, said young people should perhaps look at a different industry than fund management.
“Maybe some of the young people should look into going into different industries...because I think our industry is in turmoil. It’s very ironic because you’ve got [Hillary] Clinton and [Bernie] Sanders crapping all over us and they don’t realize Wall Street is in the midst of a very serious downturn,” Cooperman, 73, said at the Benjamin Graham Conference hosted by the New York Society of Securities Analysts (NYSSA) in Midtown Manhattan on Wednesday.
Cooperman, who’s been running Omega for twenty-five years, told the crowd he recently attended a seminar on income disparity where a futurist spoke.
"Before I tell you what [the futurist] said: I’ll quote Warren Buffett who said: ‘The forecast of the future will tell you more about the forecaster than they’ll tell you about the future.’ The futurist said — his opinion was the biggest problem facing the economy in the next decade was that 45% of jobs being performed in the economy were going to be replaced by automation and there would be no alternative work for the displaced workers.”
After thinking about those comments, Cooperman realized that it has some significance for fund management.
“I recognized the potential significance for our industry. And the significance is… passive asset management turnover rate is 3% a year. Active asset management turnover is approximately 30% per year. So if more money goes passive versus active, liquidity in the market is going to diminish because there’s less trading. And the available pool of commission dollars to support Wall Street firm is going to diminish…” he said.
On the hedge fund side, Cooperman said there’s going to be ‘tremendous downside pressure on fees.’
Typically, fund managers are paid through a compensation structure commonly known as the "2 and 20," which means they charge investors 2% of total assets under management and 20% of any profits. The fees can vary from fund to fund, with some charging less and others charging more. Poor performance tends to reignite this debate.
“And I think what’s happening in my industry, you know, right now, I have this perception, maybe it’s an exaggeration, but… every investment committee in America is meeting to redeem out of hedge funds.”
Astute traders and long-term investors
Cooperman said he thinks the fund management business is splitting into two categories—high frequency algorithmic traders and long-term investors.