Seth Klarman’s Baupost Group is performing roughly in line with most hedge funds that somewhat resemble what it does.
The Boston-based manager’s partnerships were down between 0.25 percent and 0.60 percent in June. As a result, they are up 2.25 percent to 2. 75 percent for the year to date.
Not too shabby given the very conservative nature of the funds.
The super-secretive hedge fund manager, who at year-end was the eleventh largest in the world with $23.4 billion under management, is said to be 30 percent in cash. Although this sounds like a lot, keep in mind that Klarman stresses preservation of capital first, then returns. On average he has 30 percent of his assets in cash, and from time to time has put as much as 40 percent or 50 percent in cash, as was the case in 2006 and 2007 before the global markets imploded.
Given the virtually non-existent returns on cash these days, Klarman’s performance is even more impressive this year. And he has outperformed the S&P 500 virtually every year in the past decade, his oldest partnership racking up a roughly 19 percent annualized return since inception in 1983.
In fact, it is a little encouraging that Klarman has “just” 30 percent of his assets in cash. It suggests he has been buying lately, although sources are in the dark about specific investments.
Klarman is known as a global value sleuth, deftly exploiting virtually any undervalued market, including domestic and foreign stocks and bonds; emerging market securities; distressed securities and trade claims; performing and non-performing bank loans; real estate-related debt and equity; privately negotiated investments; and other illiquid investments.
He earned a BA in economics from Cornell University in 1979, graduating magna cum laude. He was first exposed to value investing principles working during the summer of his junior year at New York’s Mutual Shares, the legendary value-driven mutual fund firm founded in 1949 by Max Heine, and also headed by Michael Price, who in his 20s had become a Heine protégé.
Upon graduation, Klarman returned to Mutual Shares and after 18 months Klarman left the firm for Harvard Business School , where he earned his MBA and was named a Baker Scholar. He fatefully took a real estate course with professor Bill Poorvu, who asked Klarman to help him and his friends invest their considerable sums of money. Baupost was born.
“To require full investment all the time is to remove an important tool from investors’ toolkits: the ability to wait patiently for compelling opportunities that may arise in the future,” he once told clients in a letter.
It is hard to figure out what drives Baupost’s performance. U.S. equities have only accounted for $1.7 billion or just 7 percent or so of capital for the past year.
Earlier this month, he did report owning a little more than 11 percent of Syneron Medical Ltd., a maker of medical products with a $400 million market cap. But, this is a puny position given Baupost’s size.
According to Reuters, Baupost recently took a position in Highland Cos, a Canadian company that has bought up a large amount of potato fields outside Toronto with the plan to create one of North America’s largest quarries. The goal is to produce crushed limestone, which is used in concrete, and take advantage of what is believed to be a coming shortage of “aggregate,” a certain type of construction material, according to the report.