The Private Equity/Hedge Fund Fortress

Although Robert Gendelman, manager of Legg Mason Partners Capital and Income Fund, once worked at a hedge fund, he seems a bit skeptical about the alternative asset universe these days.

At a Legg Mason event in New York on Tuesday, he noted that Fortress Investment Group, which went public in February, has a price-earnings ratio in the mid 20s. Meanwhile, Goldman Sachs recently closed a $20 billion private equity fund, yet Goldman Sachs is trading at 11 times next year’s earnings. “One of those (price-earnings ratios) is wrong,” Gendelman says.

Gendelman is a fan of large-cap stocks right now, a place that few hedge funds can be found sniffing around: “Hedge funds don’t play in the large-cap space because they can’t wait…they need to show returns sooner.” He’s thrilled to be picking up “former untouchable growth companies” at value prices. His shopping list includes Cisco, AIG, Microsoft, United Technologies, and General Electric.

“These are some of the best companies in the world, and many of them are doing significant business outside the U.S.,” Gendelman says. “But they are not getting the respect they deserve.”