UPDATE: CONFIRMED: Seth Klarman is Not Short BAC, Might Be Long MBSs involved in Case


Confirmed by Baupost, not short BAC-Thomson Reuters

Our friends at Zero Hedge, put out an interesting report suggesting that Seth Klarman is short BAC.

Below is a brief excerpt:

Alkeon: Big Tech Is Only Just Getting Started

TechnologyThe ACAP Strategic Fund's managers see a "significant scarcity of attractive asset allocation choices globally," but also a strong environment for fundamental stock picking. Q2 2021 hedge fund letters, conferences and more According to a copy of the fund's second-quarter investor update, which ValueWalk has been able to review, its managers currently hold a balanced Read More

As a reminder, Baupost is one of the world’s biggest hedge funds at $23 billion, and unlike other fly-by-night one hit wonders, is not down 47% YTD. In fact, the mere name of Seth Klarman being long or short a stock has typically had a huge impact on the stock price. And since by implication in his continued efforts to destabilize the proposed settlement, Klarman is either short BAC, or long the beneficiaries of ongoing, and successful, litigation such as MBIA, this means that the pain for BAC is about to magnified as the traditional 13F clones jump on board the pair trade, and short BAC while going long MBIA et al (incidentally this is half the thesis that we presented back in September 15, when we said to… go long MBIA and short Bank of America).

While it is very possible that Klarman is long MBIA (people suggested that this is not far fetched), we have reason to believe that he is not short BAC stock.

First, some colleagues very familiar with Seth Klarman’s investment style said that Klarman never shorts stocks. From what we know personally about Klarman we would agree.

One source close to Baupost refused to comment on the matter.  Another source could not confirm at the moment, but agreed that is was highly unlikely. Here is a quote:

“They very rarely short equities – particularly one as levered as BAC. The risk of loss is very high on that trade – squeeze risk is immense.”

A few other sources close to Baupost suggested that Baupost is not short.

A few people suggested something along these lines. Note: none of this is confirmed, it is just a guess by people knowledgeable.

Here is a quote from one of them. “My (pretty certain) guess is that he’s long the private label MBS pools that the settlement covers.  The settlement was signed by many of the biggest holders of those pools, but if you didn’t sign it’s in your best interest to be the biggest pain in the neck possible because the floor for your recovery has been set, and if you can raise that floor, all the better.”

This is all the information I have obtained from now, but if I hear more I will update.

As always readers can leave anonymous tips at jacob(at)valuewalk.com

Disclosure: Long BAC LEAPs (Likely speculation on my part).

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