Baupost Group Seth Klarman

Baupost Attacks Hedge Funds As Monolithic Look-Alikes

When Alfred Winslow Jones first invented the “hedge fund” in 1966, it was designed to be a true “hedge.” There were two key features of the new investment structure: the strategy and performance fee. The alternative strategy upon which Jones based the hedge fund featured a 50% / 50% Long / Short ratio in the stock market with the goal to profit during up and down market environments. For this feat, Jones wanted a percentage of his ability to deliver performance different from that of stock market beta, particularly during when the market was down. This basic concept led to legendary hedge fund managers such as George Soros and Jim Rogers and their Quantum Fund delivering investors 4,200% during down markets at a time when the S&P 500 only returned 47% over a similar period. This outperformance during down stock markets defined the industry. Fast forward nearly fifty years later and what Baupost Group’s Seth Klarman sees is an industry that is, in part, not changed much but also very different from the initial vision of Jones.

Also see
2016 Hedge Fund Letters
Klarman: Investments Can "only be as sound as the integrity and stability of the system"

Baupost Group says "competitors play like they can never get hurt"
Klarman isn’t exactly sure he self-identifies with this “hedge fund” community, “a category we sometimes get lumped into,” he warily says. The man who reportedly has delivered $22.6 billion in net profit to investors from inception to 2015, delivering a 16.4% annual return, has a different perspective. In a letter to investors, Klarman said the hedge fund industry is “starting to look more alike” and appear “as a monolithic asset class” with one commonality: “charging an annual performance-based fee.”

In other words, of the two factors upon which the hedge fund industry was initially founded, actual “hedging” and a performance fee, it is the performance fee that Wall Street has decided would stand the test of time, fellow hedge fund manager Erik Townsend noted in a recent podcast.

Klarman, for his part, considers the panoply of hedge fund strategies – “absolute return, long-short, growth, quant, country or industry specific, etc.” – and notes they are all in “Wall Street’s ubiquitous short-term performance derby.”

SORRY!

This content is exclusively for paying members. Access all of our content on including years of timeless investment news and in depth analysis for only a few dollars a month by signing up here while also supporting quality content and journalism, or learn more about our premium content here

If you are subscribed and having an account error please clear cache and then cookies if that does not work email support@valuewalk.com and we will get back to you as quick as humanly possible


Saved Articles
X
TextTExtLInkTextTExtLInk

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Congrats! Are you a smart person?

We have an exclusive targeted & limited time offer for being a sophisticated and loyal reader.

ValueWalkPremium is a website and newsletter on the latest industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today and get our exclusive content for 40% off. This is our second biggest discount ever!!

Use coupon code VIP20 or click on the button below

Limited time offer only ENDS 3/31/2020 or after the next 45 subscribers take advantage whichever comes first – please do not share this discount with others

 

0