The most significant change was the sale of its position in Fox Corp. (FOXA, Financial) (FOX, Financial). The hedge fund previously owned a position in both Fox's Class A and B shares, a position worth about 2.8% of the equity portfolio at the end of the first quarter.
I should point out that Baupost’s equity portfolio only accounts for around a third of the group’s assets under management. The rest of the fund’s assets are invested in a basket of other holdings, including credit investments, property, private businesses and cash.
As such, the holdings detailed on its quarterly 13F report only provide a snapshot of the overall equity portfolio. Further, 13Fs only tell us which equities the fund owns. They do not detail why they were acquired or even if they were still in the portfolio at the time of the 13F's publication (45 days after the end of the calendar quarter). Put simply, the reports should not be used to make trading decisions.
Media sector trade
Klarman’s Fox trade was a long-term bet that produced substantial returns. The value investor started buying the stock (the A shares) in the third quarter of 2015.
Between the first buy and fourth quarter of 2018, Baupost’s position went from 4 million shares to 52 million. Klarman was buying at prices between $24 per share and $46. At its largest, the holding had a 22% portfolio weight in the equity portfolio. When the merger between Walt Disney Co. (DIS, Financial) and Fox was announced in the first quarter of 2019, Klarman began to sell. He has been steadily selling the position since, realizing gains of over 100% on his initial purchases.
Elsewhere in the equity portfolio, Klarman sold off 19% of his holding in eBay Inc. (EBAY, Financial). This position was also once one of the largest in the equity portfolio, rising to a 21.1% portfolio weight in the second quarter of 2020 at a price of around $52. The stock traded between $55 and $70 during the second quarter of 2021, and it looks as if the fund manager took the opportunity to divest some of his shares to reinvest elsewhere.
The largest reinvestments were Micron Technology Inc. (MU, Financial) and Facebook Inc. (FB, Financial). Klarman added to his holdings in Micron by around 2 million shares (32%) and Facebook by 200,000 shares (20%). These two tech holdings now make up 5% and 4.4% of the equity portfolio, respectively.
Struggling for ideas
Another notable trade was the sale of 20% of Baupost’s holdings of Pershing Square Tontine Holdings Ltd. (PSTH, Financial). Klarman reduced his holding in this company by around 21% during the quarter. It used to have a 2.3% portfolio weight. It is now down to 1.9%.
The value fund manager has acquired a basket of special purpose acquisition companies over the past few quarters. Pershing Square’s offering was the largest holding in the portfolio, which seemed to signal Klarman’s backing of the company’s founder, Bill Ackman (Trades, Portfolio).
However, Ackman has encountered issues with his plans to buy a stake in Universal Music via Pershing Square Tontine. Not only have shareholders balked at the deal, but so has the Securities and Exchange Commission. With headwinds growing, I would not be surprised to see a further reduction in Klarman’s position in the next quarter.
Finally, I should note the composition of Baupost’s equity portfolio has changed in the last few quarters. The firm used to run a concentrated portfolio, with some holdings accounting for more than 20% of the equity portfolio. That is no longer the case. The largest holding, Liberty Global PLC (LBTYK, Financial), makes up only 11.9% of the portfolio. What’s more, there are over 30 holdings that account for less than 1%. I think this implies Klarman is struggling to find high-conviction opportunities in the current market.