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 sells:
No. 1: Domtar Corp. (UFS), Reduce: -4.01% of the portfolio - Total: 800,000 Shares
Domtar is a major North American manufacturer of pulp and forest products, fine papers and packaging that fosters sustainable development through the rigorous application of its integrated forest management policy. Domtar Corp. has a market cap of $3.29 billion; its shares were traded at around $78.4 with a P/E ratio of 7.9 and P/S ratio of 0.6. The dividend yield of Domtar Corp. stocks is 1.4%. Domtar Corp. had an annual average earning growth of 34.7% over the past 5 years.
No. 2: BreitBurn Energy Partners (BBEP), Reduce: -1.25% of the portfolio - Total: 7,160,500 Shares
BreitBurn Energy Partners L.P. is an independent oil and gas limited partnership, recently formed by a subsidiary of Provident Energy Trust, focused on the acquisition, exploitation and development of oil and gas properties. Breitburn Energy Partners, L.p. - Common Units Rep has a market cap of $1.08 billion; its shares were traded at around $20.28 with a P/E ratio of 14.9 and P/S ratio of 5.2. The dividend yield of Breitburn Energy Partners, L.p. - Common Units Rep stocks is 7.7%.
No. 3: Solar Capital Ltd. (SLRC), Reduce: -0.32% of the portfolio - Total: 1,766,300 Shares
Solar Capital Ltd. is a closed-end investment company that invests primarily in leveraged companies, including middle market companies, in the form of senior secured loans, mezzanine loans, and equity securities. Solar Capital Ltd. has a market cap of $780.5 million; its shares were traded at around $23.51 with a P/E ratio of 11.7 and P/S ratio of 7.1. The dividend yield of Solar Capital Ltd. stocks is 10.2%.
No. 4: ADC Telecommunications Inc. (ADCT), Sell: 3.15% of the portfolio - Total: 0 Shares
ADC Telecommunications is a global supplier of broadband network equipment, fiber optics, software and systems integration services that enable communications service providers to deliver high-speed Internet, data, video and voice services to consumers and businesses worldwide. Adc Telecommunications Inc. has a market cap of $1.23 billion; its shares were traded at around $12.71 with and P/S ratio of 0.8.
Check out Klarman’s other recent trading activities by clicking on Seth Klarman.