It has been a tough year for hedge funds, with all the closures, redemptions and underperforming returns. Despite of a bad year overall, some stars of the industry still managed to do exceptionally well. It appears Seth Klarman and David Tepper have too much money these days, so they are distributing it back to investors. The news of both hedge funds’ returning some capital to clients is however not a surprise, as it was expected in both cases.
Klarman’s Baupost returns $4 billion
II Alpha’s Stephen Taub confirms that Klarman’s Baupost Group will be returning $4 billion to its clients by the end of this year. Klarman initially revealed his intention to return investor money back in April this year, when he said that the opportunity set that was available did not appear very attractive. The Q1 letter noted,
“Unless the opportunity set increases dramatically later this year, we anticipate making a partial return of capital to clients at the year-end of 2013 to better match our assets under management to the opportunity set we see for new investments. More information and greater specificity will be provided in the fall”.
Klarman’s Baupost continued to pursue new investments in the proceeding quarters, especially in the European credit space. However staying true to their word, the fund has decided to give back $4 billion from its assets; the fund managed close to $27 billion as of the end of 2012. Klarman’s Baupost wants to maintain assets at $25 billion, according to II Alpha.
Tepper continues to return capital
A few days later, it was reported by the same outlet that David Tepper is also going to distribute $1.5-2 billion back to investors. Appaloosa Management has tried to maintain assets aroung a range that it deems fit for optimal managment, the firm manages $20 billion. Including the $2 billion that Applaoosa will return this year, the hedge fund has returned $10 billion to investors since its inception in 1993.
Watch Tepper’s latest interview at Robin Hood Conference here.
Tepper is the king of bulls these days – the fast-talking hedge fund manager has incurred an over 40% gross return in his flagship strategy. Tepper’s $6.7 billion Palomino Fund has netted a gain of 31.5% through October of this year, according to the latest report from HSBC Hedge Weekly.
Eddie Lamperts suffers from redemptions
While these two managers have a problem of ballooning assets, Eddie Lampert’s ESL Investments is having difficulty maintaining its asset base. Clients of Goldman Sachs who invested roughly $3.5 billion in the hedge fund requested to have their money returned last year, The Wall Street Journal reports. Interestingly ESL’s clients had filed the redemption request even before the lock-up period had expired, with the payments rolling out this year.
Lampert, who is the CEO of Sears Holdings Corp (NASDAQ:SHLD), has suffered because of lackluster earnings of department store chain. Sears reported a net loss of $534 million, or $5.03 a share, in the last quarter, which makes it its sixth straight quarterly loss; even worse, the company has reported a decline in sales for 27 staright quarters now. Lampert has previously reduced his holding in Sears from 55% to below 50% to meet the above mentioned redemptions.
In Lampert’s leadership, Sears is spinning off its assets to meet the endless fall in sales. Just today, Bloomberg reported that the company will be selling off its Lands’ End Inc unit to shareholders.