Billionaire hedge fund manager Klarman issues dire warning on global economy

Key Points
  • Seth Klarman, a hedge fund billionaire some call the next Warren Buffett, wrote a sobering letter warning his investors of global tensions, rising debt levels and political divides.
  • The letter caused buzz during the annual World Economic Forum meeting in Davos, Switzerland.
VIDEO3:2003:20
Hedge fund billionaire Seth Klarman warns of next financial crisis — Here's how business leaders at Davos responded

Seth Klarman, a hedge fund billionaire some call the next Warren Buffett, wrote a sobering letter warning his investors of the economic impact of global tension, rising debt and the pervasive political divide.

"It can't be business as usual amid constant protests, riots, shutdowns and escalating social tensions," Klarman wrote in the annual letter to investors, according to a New York Times column filed by CNBC "Squawk Box " co-anchor Andrew Ross Sorkin.

The letter caused buzz during the annual World Economic Forum in Davos, Switzerland. CNBC has confirmed its contents.

Seth Klarman, chief executive officer of The Baupost Group LLC, listens during an interview in New York, June 8, 2018.
Jeenah Moon | Bloomberg | Getty Images

In the letter, Klarman expressed confusion at investors' reaction to the U.S. retreat from international leadership and President Donald Trump's Twitter outbursts. Trump scrapped plans to attend Davos due to the government shutdown, which is in its 32nd day with no clear end in sight.

"As the post-World War II international order continued to erode, the markets ignored the longer-term implications of a more isolated America, a world increasingly adrift and global leadership up for grabs," he wrote.

Klarman also warned about growing debt levels, pointing out that total U.S. government debt now exceeds GDP, a level that other countries like Canada, France, Britain and Spain are approaching.

"The seeds of the next major financial crisis (or the one after that) may well be found in today's sovereign debt levels," he said.

Klarman runs Baupost Group, which manages $27 billion and counts some of the world's wealthiest families as investors, according to the Times.

Read the full report in The New York Times.

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Key Points
  • Thousands of business, political and cultural leaders are scheduled to return to the Swiss Alpine town of Davos on Monday.
  • But, this year's five-day event is without its main attraction of 2018, after Trump abruptly scrapped plans to join other world leaders at the forum.
  • "The absence of a U.S. delegation at Davos is an accurate reflection of global affairs over the last year," Cailin Birch, global economist at the Economist Intelligence Unit, told CNBC via email.