One of the world's largest investment firms believes the financial system is overly leveraged.
"We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven't seen in my career in private equity," Joseph Baratta, The Blackstone Group's global head of private equity, said Thursday night at the Dow Jones Private Equity Analyst Conference in New York City. "The cost of a high yield bond on an absolute coupon basis is as low as it's ever been."
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Baratta said Blackstone is "bullish" on the U.S. economy, but the "valuations we have to pay relative to the growth prospects are out of whack right now."
Baratta said the U.S. still has "clear headwinds" and is "range bound" between 1 percent and 3 percent economic growth.
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Blackstone, which manages $53 billion in private equity assets and $230 billion overall, is pursuing select investment opportunities in energy, transportation infrastructure, consumer finance, housing and construction, according to Baratta.
"We're not just levering up U.S. GDP into multiples today," Baratta said. "I do expect mean reversion to happen at some point on interest rates, on credit spreads, on the cost of some investment grade corporate credit."
The high valuation of many companies today makes it harder for them to grow. "The biggest risk to returns of this vintage is that exit multiples are depressed," Baratta said.
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—By CNBC's Lawrence Delevingne. Follow him on Twitter @ldelevingne.