Baupost Group was looking forward to major liquidations from Lehman Brothers in the second half of this year, according to a Q2 investor letter, sections of which were reviewed by ValueWalk. The hedge fund was up in the second quarter across all major assets, including real estate holdings.
Payments from Lehman debt pouring in
The hedge fund, founded by Seth Klarman, has already expanded its asset base from payments of Lehman debt obligations and was expecting much more to roll in during the third and fourth quarter. Baupost’s head of public investments, Jim Mooney, noted in the Q2 letter that some of the Lehman entities held by the hedge fund would be churning out their very first ‘substantial’ sized payments.
Lehman made up 20 percent of the firm’s assets under management until the end of 2012, which would have amounted to $5.2 billion at that time. In the first quarter shareholder letter, the fund noted that its cash balance was up by 2 percent of AUM through Lehman payments in April; this would have exceeded $500 million. Adding this to the $1.5 billion Baupost netted from Lehman settlements in 2012, the fund has received more than $2 billion in payments from Lehman debt, excluding what the fund was paid in 2H2013.
As Baupost is getting richer, it is returning some capital back to clients towards the end of this year, as we noted earlier.
Baupost’s belief in consistency and repeatable success process
Commenting on the cycles of turbulence in markets, Mooney says that Baupost sticks with a much calmer and consistent approach to investing. He says that you don’t have to spend every day thinking about where the markets are going and then make a new investment every day. Baupost’s philosophy of investing is based on collecting knowledge, being consistent and having a formula of investing that is repeatable. Mooney says that making one truly great investment can suffice for an extended period of time, adding that,
“We are deliberate and consistent in what we do. We are methodical but never ponderous, responsive but never reactive.”
The fund was expecting a taper of QE in the mid-term—of note here is that Klarman is one of the staunchest critics of Fed’s money printing schemes. Hedge fund bigwigs have sided on different sides of Bernanke, while Paul Singer and Seth Klarman are very critical of QE and virtually limitless levels of debt that the U.S. is building up. Ray Dalio and Warren Buffett are appreciative of how the Fed has handled the crisis.
Stay tuned for more coverage on Baupost Group.
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