The Baupost Group's 4Q13 positions: An investor's must-know guide

The Baupost Group's 4Q13 positions: An investor's must-know guide (Part 1 of 6)

The Baupost Group’s 4Q13 positions: An investor’s must-know guide

The Baupost Group

Seth Klarman’s Baupost Group, LLC was ranked the fourth best-performing hedge fund manager of all time for generating $21.5 billion in returns over its history. In this series, we’ll discuss the notable positions traded by the $27 billion fund during the fourth quarter of 2013.

The Baupost Group started new positions in Fidelity National Financial Inc. (FNF), Kindred Biosciences Inc. (KIN), and Alon USA Partners LP (ALDW) and it increased its positions in Idenix Pharmaceuticals (IDIX) and PBF Energy Inc (PBF).

Baupost 4QEnlarge Graph The Baupost Group returned $4 billion to clients at the end of last year. Klarman told investors in a private letter cited by news sites that the fund “drew a line in the sand” while deciding to return money to clients. He further noted, “We could not allow the firm to grow without limit.  We are wise enough to know a good thing when we see it, and cautious enough to want to cherish, protect and nurture it so that we might maintain its essential qualities for a very long time.”

Klarman maintained a bearish stance in his year end-letter to investors. “Any year in which the S&P 500 jumps 32% and the Nasdaq 40% while corporate earnings barely increase should be a cause for concern, not for further exuberance,” Klarman wrote. “On almost any metric, the U.S. equity market is historically quite expensive. A sceptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla Motors,” he added.

Klarman further noted, “There is a growing gap between the financial markets and the real economy.” On Bitcoin, he wrote, “Only in a bull market could an online ‘currency’ dubbed bitcoin surge 100-fold in one year, as it did in 2013. Now most sell-side firms are rushing to provide research on this latest fad.”

Baupost 4Q1Enlarge Graph

Klarman drew comparisons between the Federal Reserve’s management of the U.S. economy and the movie The Truman Show, writing, “Every Truman under Bernanke’s dome knows the environment is phony. But the zeitgeist is so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end, and no one wants to exit the dome until they’re sure everyone else won’t stay on forever.” The excerpts from the letter are available here.

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