Seth Klarman’s Baupost Group has decided to
return some money to investors at year-end, but it has not yet
determined the amount, according to a person familiar with the
This would be only the second time Baupost returned money to
investors in the Boston-based investment firm’s
31-year history. The previous time was in 2010, and Baupost
subsequently raised money in early 2011.
Earlier this year we reported that Baupost told clients it
would probably return some capital to investors at year-end
unless investment opportunities dramatically increased by later
in the year. However, those opportunities have not
In a letter dated April 29, Klarman said the goal is "to
better match our assets under management with the opportunity
set we see for new investments." The decision was made, in
part, after a series of discussions with clients on the
firm’s quarterly webcasts with investors. The
firm’s goal is to keep assets under management at
$25 billion, according to the person familiar with Baupost.
At the end of 2012, Baupost had $26.7 billion under
management, making it the seventh-largest hedge fund firm in
the world, according to the most recent annual
Institutional Investor’s Alpha ranking of
the world’s 100 largest hedge fund firms.
Baupost’s returns this year across its many
partnerships range roughly between 7.75 percent and 8.50
percent through July net of fees, the latest figures available.
The firm is known for holding a fair amount of private
investments that take longer to value each month than publicly
traded securities. Its annualized return since inception is in
the high teens.
Baupost’s performance is even more impressive
given its penchant for holding large amounts of cash. It has
averaged 33 percent of assets in cash, and its cash balance can
reach as high as 50 percent. It is now in the mid-30 percent
range, up slightly from 32 percent at year-end.
In the first-quarter letter, Klarman points out that in
early April cash balances rose by 2 percent after the firm
received a substantial distribution from its position in Lehman
Brothers Holdings debt, the first of several distributions it
was expecting this year from Lehman investments.
Baupost is known as a deep-value investor. However, it is
actually an eclectic investor that seeks undervalued, ignored
assets — or those that are very complex —
mostly among distressed debt, commercial real estate, mortgages
However, the firm does not use leverage to try to boost
returns. Klarman, who is not afraid to run a concentrated
portfolio, is willing to accept short-term underperformance to
gain long-term performance that he believes exceeds that of his
peers and with less risk. Klarman stresses that patience and
discipline eventually can make you look prudent and
"Our willingness to invest amidst falling markets is the
best way we know to build positions at great prices, but this
strategy, too, can cause short-term underperformance," Klarman
explained in an investor letter earlier this year.