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Fund Icon Steinhardt: 'The End Will Not Be Pretty'

Michael Steinhardt is a hedge-fund legend: his funds reportedly returned 20% annually for 30 years. In a special "Power Lunch" interview series, the chairman of WisdomTree Investments told CNBC's Bill Griffeth about the proliferation of funds -- and why he says "the bell is starting to ring" on U.S. markets.

Joining Griffeth at The Four Seasons restaurant in New York, Steinhardt praised the relationship between hedge funds and their clients as the best example of the "pure capitalist system." With sophisticated players on both sides of the table, there is "no reason for concern" -- and the market can continue to absorb more hedge-fund investors and managers.

Steinhardt said Fortress, Blackstone and other private-equity groups that have gone public made a mistake in doing so: Hedge-fund operations are an "ephemeral business," while "public implies longevity and perpetuity" -- which "never existed" in the hedge fund model.

As for the market's future, the investment maven declared "this is a period of glorious appreciation," with "vast global liquidity" -- but warned of a "pall over the U.S.," due to a worldwide perception of fiscal mismanagement by the current presidential administration. Steinhardt says his "intuition" tells him the U.S. markets' record highs are an omen of greater speculation and wild volatility soon to come. "The bell is starting to ring," he said, "and the end will not be pretty."