Seth Klarman's Baupost Group 13F Filing: Q4 2008 ~ market folly

Tuesday, March 3, 2009

Seth Klarman's Baupost Group 13F Filing: Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up is Baupost Group ran by Seth Klarman. Klarman received his MBA from Harvard Business School and started working at Baupost at age 25. Over the past 25 years, Baupost has seen an annual compound return of 20% and is ranked 49th in Alpha's hedge fund rankings. Klarman has always considered himself a value investor and has been patient through the market turmoil. The past few years they have had nearly half their $14 billion in assets in cash. But, with turmoil comes opportunity. And, as such, Baupost's cash has been gradually deployed by Klarman and Baupost's 100 employees, leaving them with around a fourth of assets left in cash. Klarman's investment process is detailed in his book Margin of Safety. In it, he lays out a "how-to" on risk-averse value investing. The book is no longer actively printed and is very hard to find. His take on recent market action can be viewed in his recent interview with Harvard Business School. Baupost was very active in filing numerous 13Gs in January, and again in February. They've also been buying more RHIE (RHI Entertainment).

The following were their long equity, note, and options holdings as of December 31st, 2008 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated in the last quarter):
Facet Biotech (FACTV)
Theravance (THRX) Bond
Capital Source (CSE) Bond
IStar Financial (SFI-PG) Preferred G Bond
Liberty Media (LCAPA)
Capital Source (CSE)

Some Increased Positions (A few positions they already owned but added shares to)
News Corp (NWS): Increased position by 237%
Capital Source (CSE) Bond: Increased position by 144%
Exterran Holdings (EXH): Increased position by 70%
Domtar (UFS): Increased position by 50%
Theravance (THRX): Increased position by 44%
Breitburn Energy Partners (BBEP): Increased position by 32%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Prepaid Legal (PPD): Reduced position by 75%
Atlas Pipeline Holdings (AHD): Reduced position by 40%
IAC Interactive (IACI): Reduced position by 22%
Linn Energy (LINE): Reduced position by 20%
Liberty Media (LMDIA): Reduced position by 13%
Horizon Lines (HRZ): Reduced position by 6%

Removed Positions (Positions they sold out of completely)
Wellpoint (WLP)
Acusphere (ACUS)
NRDC Acquisition (NAQ)
Claimsnet (CLA)
Triplecrown (TCW)
Prospect Acquisition (PAX)
Enterprise GP (EPE)
SP Acquisition Holdings (DSP)
Unitedhealth (UNH)
Atlas Pipeline Partners (APL)
Sapphire Industrials (FYR)

Top 20 Holdings (by % of portfolio)

  1. News Corp (NWS-A): 12.95% of portfolio
  2. Linn Energy (LINE): 10% of portfolio
  3. Theravance (THRX): 9.4% of portfolio
  4. Exterran Holdings (EXH): 8.8% of portfolio
  5. PDL Biopharma (PDLI): 7.5% of portfolio
  6. Liberty Media (LMDIA): 6.1% of portfolio
  7. Breitburn Energy (BBEP): 4.8% of portfolio
  8. Domtar (UFS): 4.7% of portfolio
  9. News Corp (NWS): 4.3% of portfolio
  10. IAC Interactive (IACI): 3.6% of portfolio
  11. RHI Entertainment (RHIE): 2.5% of portfolio
  12. Viasat (VSAT): 2.5% of portfolio
  13. Facet Biotech (FACTV): 2.2% of portfolio
  14. Syneron Medical (ELOS): 2.2% of portfolio
  15. Theravance (THRX) Bond: 2.1% of portfolio
  16. CapitalSource (CSE) Bond: 1.8% of portfolio
  17. GHL Acquisition (GHQ): 1.7% of portfolio
  18. IStar Financial (SFI-PG) Preferred G Bond: 1.5% of portfolio
  19. Alliance One International (AOI): 1.5% of portfolio
  20. Liberty Media (LCAPA): 1.4% of portfolio

As you can tell, Baupost has a fondness for News Corp and Liberty Media. Additionally, it was interesting to see them add a range of bond holdings. Assets from the collective long US equity, options, and note holdings above were $1.1 billion this quarter. For more information about Klarman, check out his most recent thoughts on the market, as well as his hedge fund manager interview. This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered Paulson & Co (John Paulson), Carl Icahn, Warren Buffett, Stephen Mandel's Lone Pine Capital, George Soros, Bill Ackman's Pershing Square, Andreas Halvorsen's Viking Global, Timothy Barakett's Atticus Capital, and David Einhorn's Greenlight Capital. Look for our updates as we will be covering a new fund each day.

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