A few weeks ago, I highlighted the fact that Seth Klarman (Trades, Portfolio)'s hedge fund, the Boston-based Baupost, had been building some extensive holdings in Special Purpose Acquisition Companies (SPACs) over the past year.
According to the hedge fund's latest 13F, it would appear that this trend has continued.
However, before I go on, I should point out that 13F reports only offer a guide of what hedge funds have been buying and selling. Further, they do not explain why hedge funds have been buying or selling specific positions.
So, while we know that Klarman and his team owned a diversified portfolio of SPACs at the end of 2020, we don't know why the firm held the stocks, and whether they were part of a different strategy.
Klarman's SPACs
Klarman has been an active SPAC investor for years. He knows a thing or two about these investment vehicles. After a flurry of buying activity in the last three months of 2020, Baupost owned the following SPAC stocks:
- Ajax I Units (AJAX.U, Financial)
- Reinvent Technology Partners Units (RTP.U, Financial)
- RedBall Acquisition Corp (RBAC, Financial)
- Vesper Healthcare Acquisition Corp (VSPR, Financial)
- Avanti Acquisition Corp. Units (AVAN.U, Financial)
- Horizon Acquisition Corp (HZON.U, Financial)
- Broadstone Acquisition Corp. Units (BSN.U, Financial)
- Investindustrial Acquisition Corp. Units, (IIAC.U)
- Pershing Square Tontine Holdings, (PSTH)
- Dragoneer Growth Opportunities Corp. II (DGNS)
As well as these investments, the hedge fund also owned warrants in several SPACs, giving Klarman and his team the option to buy more shares at a lower price in the future.
These investments are not particularly large compared to the overall equity portfolio. The largest (apart from Pershing Square), Ajax, was worth just $62 million at the end of 2020, giving it a 0.6% weight in the equity portfolio. In comparison, Baupost manages around $30 billion of assets overall. Including Baupost's Pershing Square Tontine holding, which was worth $350 million at the end of 2020, I calculate Klarman's SPAC portfolio was worth around $800 million at the end of the year.
Ajax raised $750 million from investors towards the end of last year. It was led by hedge-fund managers Dan Och and Glenn Fuhrman, who intend to find a software or internet related target to acquire in the consumer and fintech spaces. Its board of directors reads like a who's who of the online business world. Instagram co-founder Kevin Systrom and Square (SQ) co-founder Jim McKelvey are two of the names behind the business.
The SPAC's backers believe this unique board of directors gives the company a competitive advantage in its aim to acquire a leading tech business as they should be able to use their connections to find willing targets.
One of Klarman's other larger SPAC holdings is RedBall Acquisition. Once again, this company is backed by an experienced management team. Baseball executive Billy Beane of Moneyball fame and Nobel Prize–winning economist Richard Thaler are directors. The SPAC was set up by RedBird Capital Partners, a sports-focused private-equity firm, and it intends to acquire a target in this space.
What's notable about Baupost's selection of SPACs is that most of them are managed by teams who have already proven themselves in the business arena. More than 200 SPACs went public in 2020, raising a total of $75 billion. It seems Klarman has chosen his targets carefully.
Considering his experience and background of investing in these types of businesses, his actions might be worth paying close attention to on that basis. With more than 200 options, the value investor has picked just over ten firms.
Disclosure: The author owns no share mentioned.
Read more here:
- A Look at Prem Watsa's Largest Holding
- How Buffett and Munger Pushed the Buffalo Evening News to Success
- Seth Klarman Focuses on Core Holdings in Baupost's Latest Quarter
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