About Baupost
Around 30% of Baupost's assets under management are invested in stocks and shares. The remainder is spread between cash, credit investments and some real estate, although these are only rough figures. The general public does not have a complete picture of where the assets are invested.
Seth Klarman (Trades, Portfolio)'s hedge fund has no limits guiding where it can invest. That's why the portfolio is so diverse. The value investor is able to own virtually any asset he thinks is undervalued. That also includes private equity and private businesses.
We only have limited insight into the positions that feature in the portfolio outside of the equity section. The equity section is detailed in the hedge fund's regular 13F, which is filed with the SEC every quarter. This report is only a starting point for further research, but it does give us some interesting insights into the sort of companies the value investor is interested in.
The 13F also provides some coverage of investments that might not gain much mainstream media attention, such as SPACs and small-cap stocks. These individual positions are relatively insignificant compared to Baupost's overall asset base, but that is precisely why I find them worthwhile to look at.
Liberty Global
One of the largest positions in Baupost's portfolio is Liberty Global Inc. (LBTYK, Financial). This stock first appeared in Baupost's portfolio back in the third quarter of 2018.
Initially, the hedge fund owned just 11 million shares, at an average price of $28. However, since then, Klarman and the team have increased the position every quarter. At the end of September 2020, the firm owned just under 55 million shares in the telecom group.
Klarman has built his reputation on finding value where others cannot see it, and I think he is likely using a similar playbook with Liberty. This business, which is part of the John Malone empire, generates most of its revenues in the United Kingdom, where it owns the Virgin Media telecommunications brand. This business and a collection of other European operations provide steady free cash flow. Capital spending is relatively low by comparison. The company stated that capital intensity is below 20% of sales in its latest earnings report.
Besides being in the European telecommunications business, Liberty is also a private equity business. It has a strong track record of acquiring, developing and selling companies around Europe. The latest significant deal was selling its German operations to Vodafone (LSE:VOD, Financial). Since this deal closed, Liberty has returned 40% of the proceeds, or nearly $5 billion, to investors with share buybacks.
Another recent deal was Skillz, a mobile gaming platform. Recently acquired for $3.5 billion, Liberty earned a 10 times return on its small initial investment.
Other investments include the Formula E Race Series and EdgeConneX, which was just acquired by EQT Corp. (EQT, Financial). So, when one looks past this entity's operating business, there's a sprawling conglomerate.
Placing a value on all these different businesses and then backing that into a sum-of-the-parts calculation isn't easy. I think this is the opportunity Klarman is trying to take advantage of. The market clearly misunderstands this business, but it might appear undervalued for someone who knows the ins and outs of Liberty. Management certainly seems to think so based on the amount of stock the company has been acquiring over the past two or three years.
This is not a traditional telecommunications business. It is a telecoms business and private equity business using free cash flow from operations to reduce debt, increase shareholder returns and invest in new opportunities. There aren't many other companies on the market that offer the same kind of investment proposition.
Disclosure: The author owns no stocks mentioned.
Read more here:
- The Common Traits of Bill Gates' and Warren Buffett's Portfolios
- Seth Klarman's Longest-Held Equity Position
- What Seth Klarman's Approach to Investing in the Tech Bubble Can Teach Us
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