The source says Klarman is definitely not soliciting outside money, as he did for a short while several years ago.
In early 2008, for the first time in eight years, he opened his funds to new money, drawing on his long waiting list. Klarman pulled in about $4 billion from foundations, educational institutions — especially Ivy League schools — and existing investors who had one shot at deciding whether they were in or not before the door was shut tight again.
At the end of 2010, he gave back 5 percent of his total assets to investors.
Now he is seriously mulling whether to ask for that money back. However, he is definitely not opening to new investors. If he seeks cash, it would be from those earlier recipients, says a knowledgeable source.
The hedge fund manager told clients in a letter this summer that he is generally bearish on the global economy and concerned about the debt woes in Europe.
Still, the fact he is seeking cash from any source is somewhat encouraging. According to the knowledgeable person, Klarman generally feels there are certain times you want cash available and this may be one of those times.
Baupost, which at year-end was the eleventh largest hedge fund in the world with $23.4 billion under management, was down slightly in the rough third quarter and is roughly flat year-to-date. It has outperformed the S&P 500 virtually every year in the past decade, and its oldest partnership has generated a approximately 19 percent annualized return since inception in 1983.
Klarman is known as a global value sleuth, deftly exploiting virtually any undervalued market, including domestic and foreign stocks and bonds; emerging market securities; distressed securities and trade claims; performing and nonperforming bank loans; real estate-related debt and equity; privately negotiated investments; and other illiquid investments.
He earned a BA in economics from Cornell University in 1979, graduating magna cum laude. He was first exposed to value investing principles working during the summer of his junior year at New York’s Mutual Shares, the legendary value-driven mutual fund firm founded in 1949 by Max Heine, and also headed by Michael Price, who in his 20s had become a Heine protégé.
Upon graduation, Klarman returned to Mutual Shares, and after 18 months he left the firm for Harvard Business School, where he earned his MBA and was named a Baker Scholar. He fatefully took a real estate course with professor Bill Poorvu, who asked Klarman to help him and his friends invest their considerable sums of money. Baupost was born.
In his second quarter letter sent to clients in July, Klarman was very worried about the European debt crisis and was concerned that American banks had too much exposure to European debt. As a result, he even feared money market funds might “break the buck,” as happened in 2008.
He is said to have told clients that little has been learned and almost nothing has changed, and that the next crisis could be far worse.
He also was pessimistic about the prospects for the economy, given the huge budget deficits and other negative developments.
Even so, the bottom-up investor stressed it is still possible to find specific investments to be undervalued. At the time he said he added selectively to residential mortgage backed securities and individual securities.
According to regulatory filings, in the second quarter he increased his exposure to U.S. equity-type instruments by more than one-third, to $2.4 billion, compared with the prior quarter. It was spread over just 20 different names. His biggest positions were in Viasat, which produces satellite and other digital communication products and of which Baupost is the largest shareholder; Microsoft, a new position in the second quarter; Newscorp; and Theravance, a biopharmaceutical company.