| Seth Klarman, Baupost Group (Bloomberg) |
Clarification: An earlier version of this story may have given the impression Baupost had not definitively made a decision whether to return some capital to investors this year. In fact, it did tell its investors over the summer that it definitely will not return any capital this year.
Seth Klarman’s Baupost Group occasionally returns some capital to clients at the end of the year if it feels that doing so better aligns the amount of assets it manages with availble investment opportunities. But the Boston firm has decided not to do so this year. The hedge fund firm is not one of those that regularly return money to investors. But when it does, it’s a big deal, especially given that the eclectic investor is known for identifying savvy, shrewd opportunities in a wide variety of markets, often ahead of others.
We earlier reported that Baupost returned about $4 billion to investors at the end of 2013, only the second time the firm returned money to investors. The firm returned money in 2010, the first time ever, only to quickly reverse itself and raise money in early 2011.
The Boston-based firm decided not to return money at the end of 2014. But the firm told clients in its 2014 third-quarter letter that there was a “likely possibility” that it would give back money to investors in 2015, according to people who saw the letter at the time.
However, Alpha has learned that Baupost then told investors over the summer during a webcast that it wasn’t going to return money this year after all.
In the past, Klarman has explained to clients that in general the firm decides to return capital “to better match our assets under management with the opportunity set we see.”
According to a source familiar with this decision, the market’s turbulence is actually enhancing Baupost’s current opportunity set. As a result, the firm is proceeding cautiously in deploying that capital.
Keep in mind that Baupost is known for holding a fair amount of cash and is thus prepared to pounce when it sees a good opportunity. The firm has on average held 33 percent of assets in cash, which can move up to as much as 50 percent.
The decision to not return capital has nothing to do with Baupost being down 6.6 percent for the year through the first three quarters, including a loss of 3.8 percent in September, according to a knowledgeable source.
Baupost currently manages $27 billion, down from $28.5 billion at the beginning of the year. Its assets under management have more or less remained at this level for the past few years.
Equities are never a dominant part of the firm, however. At the end of June, U.S. equities accounted for $6 billion of the portfolio, near its all-time high allocation.
However, in the past year or so, Baupost has been making bigger bets on health care stocks, especially biotechnology and drugmakers.
Last month it invested $125 million in New York–based Keryx Biopharmaceuticals in a private placement of convertible senior notes due 2020.
Baupost also bought more than 25.8 million shares of Orexigen Therapeutics, based in La Jolla, California, which works out to 17.17 percent of the biopharmaceutical company.
