“Please note,” the hedge fund firm’s website warns, “the Baupost partnerships are generally closed to new capital and do not actively solicit or market to prospective investors.”
But right now, Seth Klarman’s firm is making an exception, along with a number of other superstar managers who are typically impossible to invest with. The massive drop in asset prices catalyzed by the novel coronavirus pandemic has some elite hedge funds quietly shopping for extra capital to invest, sources say.
In addition to Baupost, which managed $29 billion at the end of last year, The Children’s Investment Fund (TCI) has selectively reopened to additional money.
TCI founder Chris Hohn is telling investors that equities are cheap and that he’s putting money to work in the depressed stock markets, according to a knowledgeable source. TCI, as with all others contacted for this article, declined to comment on the record.
Hohn’s clients had the chance to pull money from the London-based firm last year, when the firm relaxed normal redemption rules for up to 5 percent of each investor’s stake. Almost none of them took TCI up on the offer. TCI went on to deliver a stunning 40.6 percent return in 2019, its best year since 2013.
This year is not shaping up to be a highlight for TCI, a private memo suggests. But the fact that so few clients cashed out, despite even small initial investments growing to outsized prominence in their portfolios, indicates that fundraising won’t be struggle for TCI.
Baupost clients got word last week that the firm spied opportunity. For the first time in nearly a decade, Klarman invited existing investors to add to their positions, a source said, and it’s weighing the addition of new clients.
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Institutions and the ultra-wealthy may have a greater chance of getting access for the first time to these sought-after funds — but it still won’t be easy or guaranteed.
If Baupost allows in first-timers — and that’s by no means certain — pension systems, funds-of-funds, and non-U.S. based allocators still won’t be among them. This is a longstanding policy at the firm, whose track record buys the freedom to pick and choose its investors. Baupost is “looking for those with a similar long-term mindset,” a knowledgeable source says.
And those unwilling to pay management fees on cash holdings need not apply. Baupost keeps a tremendous amount of capital uninvested, which irks some allocators but is core to the firm’s value-oriented strategy. In the last two and a half months alone, Baupost has put $1.5 billion to work, diminishing its cash stash from 31 percent to 27 percent, per a source.
Tiger Cub Lone Pine Capital reopened its long-only vehicle in January, independent of the crisis, but the hedge fund remains shut to new assets, according to an investor. Likewise, Viking Global Investors began taking in new money for its hybrid Viking Global Opportunities vehicle well before the market crashed, and otherwise remains closed.
Many superstar managers are holding fast to their hard-closes, even as portfolios shrink and asset prices look cheap for the first time in years. Investors wanting in to Marshall Wace’s Eureka fund, Element Capital Management, or DE Shaw’s Valence and Oculus funds, for example, are out of luck, sources said.
—II’s Stephen Taub contributed to this reporting.