Leverage on leverage is big danger for investors and their lenders

US-based private-equity owned companies are on course to borrow nearly US$90bil (RM382bil) to fund dividend payouts this year, the most since Bloomberg started collecting this data in 2013. All of this is a danger for stock markets and investors, but also for banks, which provide the leverage in the first place.

THERE’S already too much money chasing too few assets and yet even the most sober investors seem ready to add to the problem.

Calpers, the US$495bil (RM2.1 trillion) California public-employee pension fund, is planning to put more money into chasing returns by taking on debt worth up to 5% of its fund value – or roughly US$25bil (RM106bil) – to plow into financial assets. It is doing this because it can’t see another way of hitting its long-term return target of 6.8% to meet its promised payouts.