Klarman Made $1 Billion Hedging Markets. He Still Lost Money

(Bloomberg) -- Seth Klarman made $1 billion betting against stocks and corporate credit. That wasn’t enough to prevent his hedge fund from losing money last month.

His successful hedges were offset by deeper losses in the portfolio and overall Klarman’s Baupost Group declined as much as 8% in March, according to a person familiar with the firm’s performance.

Even so, the legendary value investor clearly sees bargains in today’s market. Since Feb. 24, Baupost has deployed a net $2.3 billion of cash.

Klarman wasn’t the only manager to dip back into the market. Bill Ackman, who made $2.6 billion hedging his portfolio with credit protection on investment-grade and high-yield credit indexes, used the money to increase wagers in companies including Lowe’s Cos. and Warren Buffett’s Berkshire Hathaway Inc. Boaz Weinstein’s Saba Capital Management posted double-digit gains in January and February by using credit default swaps to bet against companies.

A Baupost spokeswoman declined to comment on the firm’s strategies or performance.

In a conference call with clients on March 27, Klarman disclosed plans to raise as much as $1 billion from existing investors, the person said. Last month, he reopened the Boston-based firm to new capital for the first time since 2011. Baupost manages about $29 billion

Among the other highlights from the call:

• The hedge fund added equity stakes in EBay Inc. and Liberty Global Plc while making new investments in Alphabet Inc., HP Inc. and residential mortgage-backed securities since February.
• Klarman, known for keeping a lot of cash on hand, pushed down the firm’s cash balance to 26% of the portfolio from 31% at the beginning of the year. Only about 20% is available because the rest is earmarked for transactions.
• Liquid positions in the portfolio were down 10% for the month through March 27, led by losses on equities.

Klarman’s March performance was in line with the industry, which lost 6.8% as the coronavirus spurred a rout in global markets. Equity hedge funds were the worst-performing strategy for the month, sliding 10.8%, according to preliminary figures compiled by Bloomberg.

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