The Baupost Group's Seth Klarman is not exactly a media hound.
|| Baupost Group's Seth Klarman
One of the most widely respected value investors in the
country, Klarman rarely gives interviews or speaks at
conferences. And, you can comfortably bet a tidy sum he will
never go on CNBC to debate one of his investments with the
likes of Carl Icahn or William Ackman.
This cloak of secrecy hasn't hurt his image. Klarman's
Boston-based hedge fund firm now manages $26.3 billion largely
on the strength of performance. Klarman has compounded returns
of about 18 percent per year since he helped to launch Baupost
in 1982, despite - or because of - a penchant for holding large
wads of cash at any given time.
Many hedge fund firms either rely on outside public
relations firms or have full-time internal communications
employees to deal with media. But Baupost appeared to be one of
those fiercely private firms that felt they couldn't be
So, it was initially surprising, unnerving even, to see
Baupost discuss its public image and its relationship with the
media in its year-end letters to investors.
In a 21-page missive, Klarman says the firm's goal is to
operate below the radar, but he admits that it has become
increasingly difficult. "We prefer to invest with
near-anonymity because good ideas are scarce and not to be
advertised, while selling is best done in the absence of
energetic competition from others," he writes.
Klarman is evidently worried not only about protecting the
secret sauce and specific investment strategies. He is also
determined to protect Baupost's image and how the outside world
perceives the firm. "In contrast to the sometimes well-deserved
poor reputations of Wall Street firms and investment
businesses, we are proud of our firm's values and actions that
put clients first," he explains in the letter. "A licentious
media and sometimes fact-free blogosphere nearly guarantee
ongoing coverage of Baupost regardless of our best efforts to
stay out of the headlines."
Paul Gannon, Baupost partner and chief operating officer,
also addresses this issue in a separate year-end report to
clients. Gannon acknowledges the growing difficulty of
remaining below the radar, telling clients that late last year
the firm created a formal corporate communications position,
hiring Diana DeSocio to lead this effort.
DeSocio previously spent more than five years as senior vice
president, corporate communications at MF Global, the
derivatives broker that filed for bankruptcy in 2011. MF
Global's chairman and CEO, Jon Corzine, made a concentrated bet
on European sovereign bonds, and the firm was unable to account
for about $1.2 billion in customer assets.
Gannon explains in the letter that DeSocio's mandate
includes "monitoring our profile in the press and - to the
extent possible - keeping us out of it or, at a minimum,
influencing the accuracy of coverage."
He also says the corporate communications department will
collaborate with the firm's investment teams "to identify
potential reputational concerns early in the investment
sourcing process, helping us avoid any action or association
that is counter to our corporate culture and values, and thus
at odds with our goal of having a low profile, yet excellent
For a firm that's easily one of the least accessible to the
media, this is a meaningful step. That Klarman went to the
extent of articulating concerns in print seems to signal
Baupost's determination to manage the public perceptions of the
firm, especially under a changing regulatory environment.
Not that he has any quarrel with the media, or that he has
any skeletons in the closet to hide. Remarkably, Baupost has
kept a relatively pristine image from the start. During all the
years since Klarman earned his MBA from Harvard Business School
in 1982, his integrity has never been questioned. Nor has there
been a whiff of taint surrounding the firm, not even whispers
or suggestions of how the firm "really made its money," as one
hears about other hedge fund firms, many of them prominent
names in the industry.
Klarman, who comes across as scholarly and professorial, has
been around long enough to know that it is not only important
to deliver outstanding, noncorrelated returns to attract, and
more importantly retain, clients. He understands that, perhaps
more than ever, there is an enormous, intangible value for any
Wall Street institution to maintain a squeaky-clean
If you want to know how important this intangible is, just
ask SAC Capital Advisors's Steven Cohen. These days Cohen is
desperately trying to stem the capital flight from his New York
firm, while federal investigators continue to probe its