Amid ‘Too Few Opportunities’, Value Investor Seth Klarman Returns Money to Clients

Unlike most of the industry participants who practice consciously or unconsciously the principal agent problem by continually talking up their businesses and or take on a beta (momentum chasing) approach  regardless of the risk environment, Seth Klarman value investor,  billionaire fund manager and founder of the Baupost Group, the seventh largest hedge fund in the world with $26.7 billion in assets, takes an admirable position by announcing the voluntary return of client’s money by the yearend due to “too few opportunities”. 

From Institutional Investor’s Alpha via the Zero hedge (bold from zero hedge)

Seth Klarman’s Baupost Group has decided to return some money to investors at year-end, but it has not yet determined the amount, according to a person familiar with the firm’s plans. 

This would be only the second time Baupost returned money to investors in the Boston-based investment firm’s 31-year history. The previous time was in 2010, and Baupost subsequently raised money in early 2011.

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In a letter dated April 29, Klarman said the goal is “to better match our assets under management with the opportunity set we see for new investments.” The decision was made, in part, after a series of discussions with clients on the firm’s quarterly webcasts with investors. The firm’s goal is to keep assets under management at $25 billion, according to the person familiar with Baupost.

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Baupost’s performance is even more impressive given its penchant for holding large amounts of cash. It has averaged 33 percent of assets in cash, and its cash balance can reach as high as 50 percent. It is now in the mid-30 percent range, up slightly from 32 percent at year-end.

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However, the firm does not use leverage to try to boost returns.

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“Our willingness to invest amidst falling markets is the best way we know to build positions at great prices, but this strategy, too, can cause short-term underperformance,” Klarman explained in an investor letter earlier this year.

Why? Given perhaps Mr Klarman’s latest outlook where he said "if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse. For if you must rescue everything, then ultimately you will be able to rescue nothing” then the action above means that he seems more concerned with the return OF investment rather than the return ON investment or even management fees. 

Mr. Klarman would rather sit on the sidelines and wait until the right moment.

For value investors, return on investments has always been from siting and waiting. 

At least Mr. Klarman has more than enough to see him through the waiting period.