Seth Klarman's Baupost: Investment Changes During The First Quarter

by: Zvi Bar


Seth Klarman is one of the most respected long-term value investors. His hedge fund, Baupost Group, is hugely successful, but not heavily followed by media.

Klarman continues to accumulate targeted energy, technology and biotech positions in companies where Baupost already holds sizable stakes.

Baupost's overall equity holdings are sizable compared to the fund's historic allocation, indicating the hedge fund may soon reduce its exposure to U.S. equities.

Baupost Group's Seth Klarman is well regarded as one of the better value investors. His portfolio full of margin of safety selections rarely undergoes significant changes in any quarter or even year. Nonetheless, he does often increase and reduce positions, and even occasionally sells out of or adds new ones. According to Baupost's latest 13F-HR, during the first quarter of 2014, the fund made several changes to its portfolio of publicly traded equities. Those changes are discussed below.

Position Reductions:

Baupost substantially cut its position in BP PLC (NYSE:BP) during the first quarter. Klarman's fund had accumulated a position in the energy giant since 2012. In the second half of 2013, Klarman first substantially reduced the position and then later slightly increased it. In the first quarter of 2014, Baupost sold 2.5 million shares of BP, or about 45 percent of the shares it held at the end of 2013. Baupost still held over 3.16 million BP shares at the end of the first quarter, but this significant cut to the holding was likely only furthered thus far in the second quarter of 2014, given BP's recent strength and possible better pricing at which to sell.

The only other reduced stake was to Kindred Biosciences (NASDAQ:KIN), which Baupost only entered in the prior quarter. Baupost's position in KIN was substantial, accounting for almost one-fifth of the company. Baupost's reduction to its KIN position was of fewer than five percent of the previously reported stake. It is likely that Baupost reduces its position due to the dramatic price increase that occurred following the announcement of the fund's position.

Position Eliminations:

Baupost sold out of its position in Fidelity National Financial (NYSE:FNF). Klarman held 1,974,400 shares of Fidelity National, all of which it acquired in the fourth quarter of 2013. The position was worth about $64 million at the start of 2014.

Baupost also exited its position in Rovi Corporation (NASDAQ:ROVI). Klarman first acquired shares in ROVI during the third quarter of 2012. Baupost significantly cut its stake in ROVI during the fourth quarter of 2013, selling about two-thirds of the position, and divested itself of the remaining stake in the first quarter.

New Positions:

Baupost initiated a rather substantial position in Cheniere Energy (NYSEMKT:LNG) during the first quarter of 2013. Seth Klarman's fund acquired 5.66 million shares of the liquefied natural gas distributor, currently with over $320 million. Many believe LNG is the clearest way to invest in the future exporting of liquefied natural gas from the United States to other markets. This significant position may indicate that Klarman agrees with this expectation.

Baupost also initiated a position in Keryx Biopharma (NASDAQ:KERX). The hedge fund acquired 6,310,850 shares of the biotech company during the first quarter, worth around $107 million at the end of the quarter. Similarly, the fund initiated a small stake RF Microdevices (RFMD), of which it acquired 6,585,000 shares worth about $52 million. Baupost also acquired a small stake in TriQuint Semiconductor (TQNT), in which the fund bought 3,825,000 shares that were worth around $51 million at the end of the first quarter. Shares of TQNT have appreciated dramatically within 2014, largely because the company is merging with RFMD. Therefore, these two positions are in some ways the same.

Position Increases:

Baupost significantly increased its position in Idenix Pharmaceuticals (NASDAQ:IDIX) during the first quarter. Klarman has been adding to its position in the company since 2011, and held about 36.9 million shares, worth over $220 million, at the end of 2013. In the first quarter of 2014, Baupost added about 16.4 million shares at $6.50 per share (where shares now trade roughly ninety cents cheaper). Baupost now holds about 35% of the biotech company, worth around $300 million.

Baupost increased its position in PBF Energy (NYSE:PBF) during the first quarter of 2014. Klarman has been accumulating PBF shares over the last three quarters. In Q1, Baupost added 3.44 million shares of PBF, and increased the fund's position by almost 175 percent. Baupost now owns about 7.7 percent of the petroleum refiner.

Baupost also made marginal increases to its positions in Theravance (THRX) and ViaSat (NASDAQ:VSAT), both of which were already significant stakes within the hedge fund. Baupost increased its stake in Theravance by around five percent, and now holds over 20.7 million shares, or about 18 percent of the company, worth around $600 million. THRX is currently splitting into two publicly traded entities. Baupost's stake in VSAT is also rather sizable. Klarman has been accumulating shares for almost six years. The hedge fund added 266,700 shares and now holds 11,295,900 shares of the satellite company, or just fewer than 25% of the company.

Baupost's continued accumulation of VSAT indicates Klarman continues to see value there. The recent proposed acquisition of DirecTV (DTV) by AT&T (NYSE:T) also indicates there may be interest by large telecom and cable operations in acquiring satellite assets. VSAT is a far smaller and easier to absorb entity, and may be an eventual target. Baupost's aggressive accumulation of PBF Energy also indicates Klarman is rather keen on it, making PBF Energy a worthwhile company to follow.

Baupost Group's U.S. equity holdings are generally a small portion of the hedge fund's total holdings, often accounting for less than ten percent of assets under management. It appears that the fund already has substantial exposure to publicly traded equities. This makes it unlikely that the fund would further expand its equity holdings this quarter, or that if it does accumulate equities, any forthcoming additions will be minor. If anything, it appears more likely that Baupost would lessen its exposure in the near term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.