Profiling One Of The World Biggest Bears: Baupost's Seth Klarman

Tyler Durden's picture

Absolute Return+Alpha has put together a must read profile of Seth Klarman and his hedge fund Baupost: a formidable combination, which has quietly become the sixth largest alternative asset manager in the US: "Seth Klarman, president and portfolio manager of 28-year-old Baupost Group, is considered the dean of value investing among hedge fund pros, and such a devotee of Benjamin Graham and David Dodd that he was the lead editor to the reissue of their classic, "Security Analysis,"in 2008. With his wire-rimmed glasses, graying beard and kindly smile, the 53-year-old Klarman has a gentle, professorial air about him—and a reputation as a cautious investor who is more likely to be found sitting on a mound of cash than taking big risks in frothy markets. But if Baupost has been able to throw its weight around recently, it's not just because beaten-down markets provided tremendous opportunities for value investors. It's also because Klarman has been on such an asset-building binge that Baupost has become the sixth-largest hedge fund firm in the UnitedStates, with $21 billion under management—three times the $7.4 billion Klarman managed just three years ago."

Full article:


h/t saumilpmehta

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jkruffin's picture

$21 Billion that's all?  C'mon Tyler, Madoff stole more than that in less than a month.  When he reaches $1 Trillion PLUS like Gross, then he can talk.  Until then, Gross is the MAN!  LOL

Spitzer's picture

Ahh there is his picture, a cross between Nassim Taleb and Paul Krugman.


Nolsgrad's picture

Flip side, if all the money is flowing into bear funds is it time to get long?

See HY Corps 6 months ago. Looked pretty similar.

quintago's picture

the difference between this downturn and the last is that there is no more fat left on the bones of corporate america. cuts that could have been made, were made. if things go south this time, the cuts will be more severe.

many of those without jobs deserve to be unemployed; they frankly were and are not worth the salaries that were being doled out to them.

this is a simple realignment of value, both literally and culturally.

anony's picture

There's still more fat left in the salaries, benefits, and other emoluments for the executive saff in every major corporation and some not so major.

They could be cut at least in half, bonuses eliminated across the board. 

That's a lot of pork.

PeterSchump's picture

They will run from him as soon as the market turns up and he about 10 to 20 years.

GeoffreyT's picture

The problem for any asset manager - even value-oriented ones like Klarman - is that there comes a point where fund inflows turn your sleek speedboat into a supertanker.

It is really hard to add significant alpha if your portfolio has some (limited) forced nuffnuff behaviour: having had $14b in fund inflows in 2 years, the fund will have a bunch of newbie money which will redeem at lows, and jump in at highs. It might be slightly smarter than genuine dumbasses, but it wil still be dumb (and return-chasing) money. The fund is then forced to dump at lows (to fund redemptions) and put money to work at highs (to action new inflows)... unless the fund has massive cash overweights. The story says Klarman does, but which I think is indefensible if you claim to be an equity manager: you're given money to put into well-selected stocks AFTER investors make their asset-allocation decision: if he is only putting 45% of the value of the fund to work, why does he want the funds?

I like Klarman's worldview, but his fund will find it increasingly difficult to act true to style if it is that large: for a start, it gets to the stage where the fund has to acquire large tranches of individual companies in order to generate any meaningful 'tilt' relative to an index... which in turn means they can wind up finding it hard to liquidate without moving the market.


All that said, the US market is deeper and more liquid than most - putting $7b to work would be reasonably do-able... it would be like trying to put $700m to work in the Australian market: hard, but a good sized portfolio tilt could be done without buying more than half a day's turnover in a stock.

But $21b? MUCH MUCH harder - especially if your primary area of concentration is outside the 'most covered' stocks (which means outside the top half of the S&P500: the midcap and smallcap space can get mighty illiquid if the shit hits the fan).






Apostate's picture

He doesn't have to make much money. He just has to not lose too much. I dunno his fee structure, but that's most of the hedge fund industry in a nutshell. Raise lots of money, hold on to it, and chill out. 

Spitzer's picture

I didn't see one thought on macro economics in that whole 9 page piece. All he does is sit on cash and pretend its gold.

Greenlight or Paulson bitches

What_Me_Worry's picture

Just another hedge fund manager that will blow up at some point and will be completely unapologetic to his clients.

aldousd's picture

You should read his book. He's not just another hedge fund manager. He's risk averse. He isn't arbing spreads at warp speed, and his trades aren't so big that they will bust his whole company if they go bad. That's what the pile of cash (and other assets) is for. You haven't been paying attention.

Keith Piccirillo's picture

Some of youmay not  know where he got his start, who his mentors were and what he does that give him an edge. I had money in Mutual Qualfied decades ago and did not know he had a hand in the business at the time but Michael Price and others there taught him the merger arbitrage which he is so skilled at.

huckman's picture

Seth. Poor guy.  Hey mom, I'm going over to Seth's house to hang. 

GeoffreyT's picture

" $9 per share even though it had $17 per share in cash..."  that is typical journalistic fucktardery that makes my blood boil (irrespective as to whether the deal made money or not); if the thing had $17 in NET TANGIBLE ASSETS per share (assuming everything was carried at market) then that phrase would be sensible - but knowing the cash position tells yu FUCK ALL about the NTA/share.


I can have five hundred bucks in my wallet, but be up to my scrotum in fucking debt...

God save us all from journalists who don't understand that the asset segment of the balance sheet has stuff other than cash, and that there are such things as fucking LIABILITIES, too. I am certain that Facet's owners didn't spin off a fucking bank account as a standalone (listed) entity.


(I don't give a crap about the actual state of  Facet's balance sheet at the time -  it may well have been priced at under its NTA/share [half the battle in valuing a takeover candidate is figuring out if the carrying value of their assets is worth spit]. It's just that I get annoyed with the sloppy "cash/share versus stock price" mantra that one hears far  too often from journalists and CNBC morons.)

WileECoyote's picture

If I recall correctly Klarman felt that size would be a big benefit when things turned south and it helped them buy big chunks of mortgage debt that was being force sold.  That's why he added extra AUM. 

Second, he has said that if he feels that he can't put it to work they'll return money to clients so they have a managable portfolio. 

Re their cash stake, it works for their investing style as they are very opportunistic and need cash at the ready, he said before sometimes they only have hours to decide if they want to move on a new position as they try to capitalize on distressed sellers.

foramgusto's picture

Honestly, I can't wait to read profile of Seth Klarman and his hedge fund Baupost. It reminded me that I need to eat some honey with milk, fish oil supplements and natural pollen bee since it help me get a good night sleep (much better than sleeping pills). I hope to return here soon enough, thanks.

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