Updated on February 22nd, 2023 by Nikolaos Sismanis
The Baupost Group is a long-only hedge fund founded in 1982 by Harvard Professor William Poorvu and his partners.
Among Mr. Poorvu’s founding partners was Seth Klarman, who built his billion-dollar fortune at the helm of the fund over these years, remaining the key executive today.
The fund has around $31.6 billion in assets under management (AUM), $6.1 billion of which is allocated to the firm’s public equity portfolio. The Baupost Group is headquartered in Boston, Massachusetts.
Investors following the company’s 13F filings over the last 3 years (from mid-February 2020 through mid-February 2023) would have generated annualized total returns of -0.5%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of about 7.5% over the same time period.
Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.
You can download an Excel spreadsheet with metrics that matter of the Baupost Group’s current 13F equity holdings below:
Keep reading this article to learn more about The Baupost Group.
Table Of Contents
- Introduction & 13F Spreadsheet Download
- Baupost Group’s Fund Manager, Seth Klarman
- Baupost Group’s Investment Philosophy & Strategy
- Baupost Group’s Noteworthy Portfolio Changes
- Baupost Group’s Portfolio & 10 Largest Public Equity Investments
- Final Thoughts
Baupost Group’s Fund Manager, Seth Klarman
Upon founding Baupost, Poorvu asked Klarman and his associates to handle some funds he had raised from the selling of his stake in a local TV station, and the fund was commenced with US$27 million in start-up capital. Among Baupost’s founders, Mr. Klarman was considered relatively inexperienced. Therefore, the fund was taking a big risk with his involvement.
In 2008 Klarman managed to raise $4 billion in crisis-liquidated capital from large foundations and Ivy League endowments. He would allocate $100 million of these funds in stocks and other assets per day, including distressed securities and bonds, resulting in multi-bagger returns post-2008.
Klarman wrote the book Margin Of Safety, which details his risk-averse and value-driven investment philosophy. The book is an investing classic that is out of print. Copies on eBay sell from hundreds to thousands of dollars.
Baupost Group’s Investment Philosophy & Strategy
The Baupost Group’s investment philosophy revolves heavily around Mr. Klarman’s investing principles, which can be summed into the following key points:
- Risk evaluation: While this may sound like a well-known and trivial principle, in reality, sophisticated risk-aversion is far from commonly practiced in the investing world. This is especially true in times of low volatility, such as the current incredible bull market, in which market participants tend to ignore the systemic risks that arise in the underlying economy. Therefore, Mr. Klarman and his team will make sure that their risk is well-mitigated, usually by holding put options against a market index.
- Capitalizing on “Motivated sellers”: A motivated seller is someone who, as Klarman puts it, is letting go of their shares for a non-economic reason. One such reason, for instance, can be the exclusion of stock from a major index. This can cause a stock to trade lower without anything changing in regards to its everyday operations, which can create compelling buying opportunities.
- Capitalizing on “Missing buyers”: One of Warren Buffett’s more famous proverbs is that if you have been in a poker game for 30 minutes and still don’t know who the patsy is, you can be fairly certain it’s you. Mr. Klarman’s version is that he never wants to appear at an auction (i.e., stock buying) to discover that all the other bidders (Mr. Market) are more knowledgeable and have a lower entry cost than he does. Therefore, Baupost is likely to be buying unpopular assets if it sees value in them in an attempt to be ahead of the overall market, despite the “missing buyers.”
The Baupost Group’s Noteworthy Portfolio Changes
During its latest 13F filing, The Baupost Group executed the following notable portfolio adjustments:
Noteworthy new Stakes:
- Herbalife Nutrition Ltd (HLF)
- Altice USA Inc (ATUS)
Noteworthy New Sells:
- Archaea Energy Inc (LFG)
- Dropbox Inc (DBX)
- Encompass Health Corp (EHC)
Baupost Group’s Portfolio & 10 Largest Public Equity Investments
Baupost’s public-equity portfolio is not heavily diversified. Instead, its holdings are concentrated, featuring high-conviction ideas. The portfolio numbers only 30 equities, the 10 most significant of which account for 69.7% of its total composition. The fund’s largest holding is Qorvo, Inc. (QRVO), occupying around 11.1% of the total portfolio.
Source: 13F filing, Author
Qorvo, Inc. (QRVO)
Qorvo develops and markets technologies and products for wireless and wired connectivity worldwide. It is the fund’s largest holding. If the forecasts regarding 5G are realized, the semiconductor industry (along with Qorvo) is likely to enjoy massive growth over the next few years.
At the same time, the company’s revenues are expanding, and Qorvo has started delivering sturdy profits as well. Performance lagged in fiscal 2022, illustrating the company’s cyclical nature, nonetheless.
Baupost trimmed its position by around 15% during the latest quarter. The company is still the fund’s largest holding.
Viasat, Inc. (VSAT)
Media conglomerate Viasat is Baupost’s second-largest holding, accounting for roughly 9.4% of its portfolio. In the current landscape, legacy media conglomerates have been in trouble as content creation is becoming increasingly decentralized.
Companies such as Netflix (NFLX), Amazon (AMZN), and even Apple (AAPL) have started producing their own content, while the news outlets have moved mostly online, generating sales through ads or a subscription fee.
In our view, Baupost holds a stake in Viasat as an activist investor due to the fund holding 21.6% of its total outstanding shares. This indicates the possibility that Baupost wants to have an active influence on how the company is run, with a potential aim towards modernizing.
For retail investors, the position could be a risky long-term bet, though an admittedly attractively priced one.
Warner Bros. Discovery, Inc. (WBD)
Warner Bros. Discovery is an international mass media company and one of the largest in the space globally. The stock has now declined to the same levels it was trading 15 years ago, as the combined company has had a hard time integrating its assets and having them produce solid cash flow. On the one hand, Warner Bros. Discover has already achieved $750 million in incremental synergies this year, while from next year, those synergies are expected to rev notably to $2.75 billion for 2023 and $3.5 billion in 2024+. On the other, such improvements remain highly uncertain.
The fund boosted its position on the stock by 6% during the quarter. Warner Bros. Discovery is now Baupost’s third-largest holding, and the fund owns 1.3% of the company’s total outstanding shares.
Veritiv Corporation (VRTV)
Veritiv Corporation functions as a B2B provider of value-added packaging products and services, as well as facility solutions, print, and publishing products and services internationally.
Note that while Veritiv’s shares have performed well over the past three years, the company’s business model suffers from extremely low margins. Net income margins over the past four quarters amount to just 4.4%. Hence the company’s ultra-low valuation multiple of 0.2X from a price/sales perspective.
The company is Baupost’s fourth-largest holding and was trimmed by just 3% during the quarter. Baupost holds around 24.7% of the company’s total shares, meaning it has an active influence on the company. The fund has been accumulating shares since Q3-2014.
Alphabet Inc. (GOOGL) (GOOG)
Shares of Alphabet have been under severe pressure lately as the ongoing macroeconomic turmoil, including reducing advertising spending and a strong dollar has materially impacted the company’s ability to grow. Additionally, due to accelerated hiring and an overall increase in spending, the company’s profitability has been compressed over the past few quarters as well.
Nevertheless, the company continues to feature one of the healthiest balance sheets in the market, management returns tons of cash to shareholders through stock buybacks, and its overall performance should rebound once the overall market conditions improve. Alphabet is Baupost’s fifth-largest holding, with the fund trimming its position by a massive 190% during the quarter.
Willis Towers Watson Public Limited Company (WTW)
U.K.-based Willis Towers Watson operates as an advisory, broking, and solutions firm internationally. The company operates through two segments, Health, Wealth, and Career, as well as Risk and Broking. The company has historically recorded stable book value per share gains, which has led to a rather stable stock price appreciation trend.
The fund held its position more or less stable during the quarter. Willis Towers Watson is now Baupost’s sixth-largest holding.
Meta Platforms, Inc. (META)
Meta Platforms has so far been unsuccessful in convincing both investors and consumers of the metaverse’s potential. Could the market be wrong? The truth is, nobody knows if the metaverse will succeed as a concept or not, at least in the way Meta envisions it. However, one thing is certain. The company is burning tons of cash, and the market doesn’t like it.
How can that be surprising? With the current burn rate at $40 billion per annum, Meta will have to produce hundreds of billions in revenues by some high-handed point over the next decade to have made a worthwhile return on its investment. It may be premature to draw a conclusion, but let’s just say that Meta’s trajectory does not look that inspiring. With revenue growth lagging and CAPEX skyrocketing, Meta will have to focus back on shareholder value creation if it wishes the market to start taking the stock seriously again.
Nevertheless, Baupost appears quite confident in Meta’s future, with the stock being its seventh public equity holding. The stock accounts for around 5.7% of the fund’s portfolio.
The Liberty SiriusXM Group (LSXMA) (LSXMK)
Baupost initiated a position in The Liberty SiriusXM Group in Q1-2020 and has since grown its equity stake steadily. The company specializes in the entertainment business in the U.S. and Canada. It offers music, comedy, talk, news, weather channels, podcast, and infotainment services via its proprietary satellite radio systems, streamed applications for mobile devices, and other consumer electronic products.
While the company has managed to grow its revenues gradually, net income margins have struggled to expand, leading to somewhat weak profitability.
Baupost held both its positions in the Liberty SiriusXM Group rather stable during the quarter. The two classes of stock, A, and K, account for 5.0% and 4.9% of its portfolio, respectively. Separately they make up the fund’s ninth and tenth holdings.
SS&C Technologies Holdings, Inc. (SSNC)
SS&C Technologies Holdings provides software products and software-enabled services to financial services and healthcare industries. The company operates a technology stack across securities accounting, front, middle, and back-office functions, processing and clearing, and compliance and tax reporting, amongst others.
Earnings-per-share growth has lagged lately, but the 1.3%-yielding dividend continues to grow gradually and remains well covered. The company also executes substantial amounts of stock repurchases as a way to return its excess cash to shareholders.
The fund held its position stable during the quarter. SS&C Technologies Holdings is now Baupost’s tenth-largest holding.
The Baupost Group’s holdings provide several interesting positions for investors to consider. Based on our calculations, the fund’s public equity portfolio has been underperforming against the overall market. However, this could be due to clients joining/leaving Baupost, as well as the fund’s various hedging instruments, distorting our return results. In any case, investors are likely to find several appealing investing ideas inside their holdings.
See the articles below for analysis on other major investment firms/asset managers/gurus:
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