Klarman Sees Bargains, Baupost Seeks More Capital During Chaos

(Reprinted from Bloomberg, Michael McDonald, 2020-03-19)

Seth Klarman is bargain hunting.

The value investor told clients this week that Baupost Group has spent about $1.5 billion scooping up assets in recent weeks, according to a person familiar with the matter. Amid the carnage caused by the fears around the coronavirus pandemic, he’s seeking more commitments for his hedge fund for the first time since 2011, said the person, who asked not to be named because the discussions aren’t public. A spokeswoman for Baupost declined to comment.

Klarman’s bullish outlook comes even as his fund reports losses amid a broader sell-off. The firm told clients it fell as much as 8% in the first two weeks of March, and as much as 10% year to date, the person said. The S&P 500 Index dropped just over 8% in early March and is down more than 20% this year.

Baupost’s returns were preliminary, not fully reflecting the value of less-liquid assets in the portfolio, the firm told investors. Clients will have two opportunities to increase their stakes in Boston-based Baupost at the end of this month and next month, the person said.

Baupost is the kind of bargain-hunting hedge fund that could thrive as the pandemic upends markets. Klarman has been complaining to his clients for years about the lack of opportunities in overvalued markets and his fund’s returns have suffered as he’s grown more cautious, trailing even indexes that track value funds.

Baupost, which manages about $29 billion, gained more than 8% last year. Baupost’s cash position fell to 27% of its portfolio as it deployed capital this year, it told investors this week, the person said. The cash position was at 31% earlier this year.

In addition to cash, the firm had about a third of its portfolio invested in public equities and about 17% in distressed and other stressed credit opportunities, it said in an annual update to investors earlier this year. It also invests in private equities and real estate.