Klarman's firm, Baupost gained an average of 17 percent annually in the 10 years ended in December 2009, a period in which the Standard & Poor’s 500 Index fell 1 percent a year. The hedge fund has returned 19 percent a year since it was started, even as it held more than 40 percent of its assets in cash at times.
Recently, Seth Klarman is reported to be returning money to investors because of lack of investment opportunities, according to a report at businessinsider.com. The report quoted people who read the Klarman’s letter to investors of November 8, 2010, and said that Baupost Group will return 5% of its capital to investors at the end of the year.
"Today, Baupost's opportunity set is smaller than it has been in some years," Klarman wrote, "while our cash balances have grown..."While it is unusual for an investment manager who makes fees off the asset under management to return money to investors, Klarman’s move is hardly a surprise to people who follow him. And, when times are good, Klarman does not mind opening door to new investors. For instance, in February 2008, when Baupost accepted new investors after being closed for eight years. With the money raised, Klarman bought distressed corporate and mortgage debt. His fund lost 12 percent that year, its second annual decline since inception, because it bought some of the debt too early – Nobody is perfect. Then, less than two years later, Baupost has generated a monstrous $6.5 billion in net investment profits from January 1, 2009 to September 2010 ("net" of an estimated $2 billion of performance and management fees).
This growth has propelled the firm to an enormous $23 billion in assets. Klarman considers this size too large for the current market environment, in which he finds opportunities scarce.
Klarman has been half-hearted towards the equity market for some time now. GuruFocus tracks his long equity positions. Of the $23 billion asset mentioned above, as of September 30, 2010, only 1.61 billion are invested in US listed stock, up from $1.33 billion as of June 30, 2010. In a Businessweek article in June, Klarman was quoted to have predicted that stocks would provide poor returns for the next 10 years:
“We are perennially on the bearish side of things. We are not against owning stocks,” Klarman said in the interview. The problem, he said, is that except for a brief time in March 2009, “stocks haven’t been at bargain prices for most of the last two decades.” U.S. stocks reached a 12-year low in March 2009.
At GuruFocus we focus on the stock holdings of Guru Investors. His 3Q10 portfolio information is available, and here are his top purchases:
No. 1: Alere Inc. (NYSE:ALR), Buy: 2.81% of the portfolio - Total: 1,500,000 Shares
Alere Inc., formerly known as Inverness Medical Innovations, Inc. Alere Inc. has a market cap of $2.68 billion; its shares were traded at around $31.63 with a P/E ratio of 13.8 and P/S ratio of 1.4.
No. 2: LSTZA (LSTZA), Add: 2.27% of the portfolio - Total: 1,000,000 Shares
Liberty Starz Group is a significant operating subsidiary and also a principal reportable segment of Liberty Media Corporation which focuses primarily on video programming, communications businesses, and the direct-to-home satellite distribution business. Lstza has a market cap of $3.06 billion; its shares were traded at around $62.07 with a P/E ratio of 18.2 and P/S ratio of 2.6.
No. 3: Regeneron Pharmaceuticals Inc. (NASDAQ:REGN), Buy: 1.66% of the portfolio - Total: 1,000,000 Shares
Regeneron Pharmaceuticals Inc. is a biopharmaceutical company that discovers, develops, and intends to commercialize therapeutic drugs for thetreatment of serious medical conditions. Regeneron Pharmaceuticals Inc. has a market cap of $2.42 billion; its shares were traded at around $29.37 with and P/S ratio of 6.4.
No. 4: ViaSat Inc. (VSAT), Add: 0.2% of the portfolio - Total: 10,051,492 Shares
ViaSat Inc. designs, produces and markets advanced digital satellitetelecommunications and other networking and signal processing equipment. Viasat Inc. has a market cap of $1.7 billion; its shares were traded at around $41.94 with a P/E ratio of 38.2 and P/S ratio of 2.4. Viasat Inc. had an annual average earning growth of 7.1% over the past 5 years.
No. 5: Enzon Inc. (ENZN), Add: 0.14% of the portfolio - Total: 10,382,698 Shares
Enzon Pharmaceuticals, Inc. is a biopharmaceutical company dedicated to the development and commercialization of therapeutics to treat patients with cancer and adjacent diseases. Enzon Inc. has a market cap of $677.7 million; its shares were traded at around $11.19 with and P/S ratio of 3.7.
There must be some super talent in small but promising drug companies in Klarman’s shop and he must have a very favorable view towards them -- several of his top purchases are in that sector.
Check out Klarman’s other holdings by clicking on Seth Klarman.