Seth Klarman's Baupost Group Bets Big On Capitalsource (CSE) & News Corp (NWS-A): 13F Filing Q1 2009 ~ market folly

Monday, June 1, 2009

Seth Klarman's Baupost Group Bets Big On Capitalsource (CSE) & News Corp (NWS-A): 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up we have Baupost Group ran by Seth Klarman. Value investors will be familiar with this name as he is often one of the top names mentioned after the likes of Warren Buffett. Over the past 25 years, Baupost has seen an annual compound return of 20%. Such a pristine track record has landed Baupost in our custom Market Folly portfolio, where we have cloned a hedge fund portfolio with the Alphaclone software that is returning 17% annualized since mid-2002. Baupost's contributions to our portfolio are definitely a big reason for the solid numbers.

Klarman received his MBA from Harvard Business School and started working at Baupost at age 25. Klarman's hedge fund was recently ranked 13th in the 2009 hedge fund rankings (jumping way up from being ranked 49th in Alpha's 2008 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, 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. We have recently posted up a plethora of thoughts and tidbits from Seth Klarman and we highly recommend taking the time to read them. After all, his solid track record should be reason enough for you. We've compiled his take on both the recent market, as well as his investing principles and methodology. Here is the list of resources we have assembled:

- Klarman's question and answer session from the Graham & Dodd Breakfast Conference
- Seth Klarman's Endowment Management Seminar
- His interview with Harvard Business School
- His thoughts from Value Investor Insight

He provides great insight that he has become known for as he slowly begins to delve into some opportunities he is seeing in the market. The following were Baupost's long equity, note, and options holdings as of March 31st, 2009 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):

Some Increased Positions (A few positions they already owned but added shares to)
Capitalsource (CSE): Increased by 765%
Capitalsource (CSE) Bonds: Increased by 356%
Capitalsource (CSE) 2nd set of bonds: Increased by 96%
News Corp (NWS-A): Increased by 62%
Facet Biotech (FACT): Increased by 58%
RHI Entertainment (RHIE): Increased by 34%
Domtar (UFS): Increased by 21%

Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
GHL Acquisition (GHQ): Reduced by 91%
Linn Energy (LINE): Reduced by 50%
Borders (BGP): Reduced by 38%

Removed Positions (Positions they sold out of completely)
Atlas Pipeline (AHD)
Centerplate (CVP)
Liberty Media (LCAPA)
China Holdings Acquisition (HOL)
IAC Interactive (IACI)

Top 15 Holdings (by % of portfolio)

  1. News Corp (NWS-A): 15.4% of portfolio
  2. Theravance (THRX): 12.95% of portfolio
  3. PDL Biopharma (PDLI): 9.3% of portfolio
  4. Capitalsource (CSE) Bonds: 8.1% of portfolio
  5. Liberty Media (LMDIA): 7% of portfolio
  6. Exterran Holdings (EXH): 6.7% of portfolio
  7. Linn Energy (LINE): 5% of portfolio
  8. Breitburn Energy (BBEP): 4.7% of portfolio
  9. Facet Biotech (FACT): 3.5% of portfolio
  10. News Corp (NWS): 3.5% of portfolio
  11. Domtar (UFS): 3.25% of portfolio
  12. Capitalsource (CSE): 3.1% of portfolio
  13. Theravance (THRX) Bonds: 2.7% of portfolio
  14. Capitalsource (CSE) 2nd set of Bonds: 2.3% of portfolio
  15. Viasat (VSAT): 2.2% of portfolio

Baupost Group didn't do a whole lot of selling from Q4 2008 to Q1 2009 as assets filed per the 13F remained pretty much level at $1.1 billion. But, they were definitely out adding selectively to a few positiions. Their Capitalsource (CSE) position is the most notable, as they heavily increased their holdings in common stock and 2 different bond positions. Other than that, their Facet Biotech position is the only one they really did anything else of size in.

Long-term readers of MarketFolly will already know a lot of these Baupost transactions because we've already covered their 13D and 13G filings. Since Baupost is a value firm with an activist bent, they have been busy filing other forms with the SEC right when the transactions go through. As such, this 13F doesn't really reveal a whole lot of new information. But, nevertheless, it is still a nice snapshot into Klarman's mind. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital.

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