| Seth Klarman, Baupost Group (Bloomberg) |
Seth Klarman’s Baupost Group is often mistaken for a classic value investor. However, the Boston-based firm could be more accurately described as an eclectic investor that seeks undervalued, ignored assets — or very complex ones — mostly in distressed debt, commercial real estate, mortgages and equities.
However, equities have typically accounted for a small portion of Baupost’s assets. In recent years the firm’s U.S. equity portfolio managed anywhere from $3 billion to $4 billion, depending on the quarter. To put this in perspective, the firm managed $26.8 billion in total at the beginning of this year, after returning $4 billion to investors at the end of last year. And a few years ago, it was not uncommon for Baupost to hold significantly less than $1 billion in equities.
So it was a little surprising to see that stocks played a larger-than-usual role at Baupost when the firm posted a 9 percent gain in the first half. In the second quarter the firm’s U.S. stock portfolio jumped 50 percent, to $6 billion, seemingly the largest it has ever gotten in well over a decade, and probably since Baupost’s launch in 1982.
Baupost told clients in its second-quarter letter that first-half gains were driven by a number of strategies, including public equities. It heavily benefited from its 53.3 million–share stake in Idenix Pharmaceuticals, which quadrupled in value in the second quarter, to more than $1.2 billion, after Merck agreed to acquire the company in June. Its largest stock holding, Micron Technology, jumped more than 40 percent in the second quarter.
The reality is that over the past few years, Baupost has been holding a wider portfolio of individual U.S. stocks, usually somewhere between 20 and 24 different issues, depending on the quarter. But Baupost is not exactly quietly changing its strategy. It will always be an eclectic investor looking for the best opportunities.
In fact, Baupost also told clients it did well in the second quarter with its investments in real estate, structured products and distressed debt. And about 14 percent of Baupost’s assets alone are in the liquidating estate of Lehman Brothers Holdings.
Still, given the recent big increase in its stock portfolio, equities have at least become a meaningful part of the firm . . . for now.
