Baupost Group, which is led by well-known value investor Seth Klarman, is being investigated by New York law firm Zamansky & Associates for its investment into a proposed mega-quarry in Ontario, Canada. Public reports indicate that in 2006, the hedge fund created Highland Companies, a corporation that purchased farmland just north of Toronto, Ontario.
The corporation continues to farm the land, when it applied to put in a limestone mega-quarry at the site. Area residents strongly opposed the application, voicing concerns about the potential for contamination of the groundwater in the area, as well as problems with food security, highway safety, pollution, and traffic congestion. Highland withdrew its application to begin that mega-quarry last week.
The investigation being conducted by Zamansky & Associates will focus on whether the activities of the corporation in connection with the mega-quarry were in breach of the duties Baupost Group owed to investors. The law firm is also looking into whether this type of venture capital development falls outside the authorization for the intended use of Baupost funds and whether the risks associated with investing in a mega-quarry were adequately disclosed.
Recently, a trend for investing in real assets has been developing in central banks all over the globe. Some industry analysts say the failure of this mega-quarry shows the real risks that are associated with those types of investments.
Baupost was founded in 1983, and it manages approximately $25 billion. The hedge fund has returned 18 percent annually since it first began, and it has maintained a solid record and reputation in the world of value investing. Highlands represents an insignificant percentage of the Baupost Group portfolio, and the fund still owns the assets. Baupost expects positive returns for 2012.