Baupost Group, a hedge fund managed by Seth Klarman, is planning to return investors some of their money by the end of the year. This according to a Reuters report citing several anonymous sources familiar with the plans of the hedge fund with assets close to $28 billion. The action is mainly caused by Baupost’s difficulties related to finding investment opportunities, the source said.
Baupost, which is one of the largest hedge funds in the world, is seeking to return money for the second time since Seth Klarman began managing the fund. The sources did not specify the exact date, nor the amount of the funds that will be returned. However, Baupost is not the only large hedge fund that is struggling to find investments with enough potential to warrant an investment, either from a value standpoint or a market-cap standpoint.
When a hedge fund gets too large, it is inherently forced to commit a greater portion of its assets to large-cap companies. In many cases, the best potential to find mispriced securities comes from the small-cap space, due to a lack or research surrounding those names. This phenomenon is evidently clear in Insider Monkey’s market-beating strategy, which has been able to outperform the S&P 500 because of this market inefficiency.
Reuters adds that Third Point, and “Tiger Cubs”–Stephen Mandel, the manager of Lone Pine Capital and John Griffin of Blue Ridge Capital–have adopted similar strategies, either by closing their doors to new investors or by shedding some assets. In a world where returns are already scrutinized endlessly, transparency from the newly approved JOBS act has placed an even higher premium on sparkling statistics. Thus, it makes sense why some hedge funds like Baupost seem to be concerned with quality over quantity.
If Klarman did rely on his “Margin of Safety” textbook to pay the bills, he’d need to sell some more copies. Fortunately for him, he’s got over a billion in the bank.