For the second year in a row, the "Oracle of Boston" failed to make double-digit returns.
Billionaire Seth Klarman, the longtime head of $30 billion Baupost Group, returned just under 5% in 2020, according to sources familiar. Last year, he told investors he made less than 10%. The average hedge fund, according to Hedge Fund Research, made more than 11% last year, and Eurekahedge stated this was the best year for hedge fund performance since 2009.
The firm had lost money in a hectic March, despite big hedges paying off, Bloomberg reported at the time. For the first time in years, Baupost also opened to new capital in March, and the firm — which often holds billions of assets in its portfolio in cash — raised $1.8 billion in commitments by June, according to Institutional Investor.
Baupost declined to comment on performance.
Klarman made waves last year for his midyear letter to investors, criticizing the Federal Reserve's response to the pandemic.
The billionaire, one of the world's most well-known value investors, wrote that "investors are being infantilized by the relentless" relief efforts from central banks. He said the extraordinary measures caused the stock market to decouple from fundamentals.
"It's as if the Fed considers them foolish children, unable to rationally set the prices of securities so it must intervene," he wrote to investors.
The Federal Reserve decided to create emergency lending facilities similar to how the central bank responded to the mortgage crisis in 2008 in order to combat the pandemic. It helped fuel explosive stock growth, particularly growth names like Elon Musk's Tesla, while value managers were left behind again. BlackRock's iShares Value ETF was up a little more than 1% in 2020 while its Growth counterpart made more than 33%.
While value managers continued their struggles, some investors like Lone Pine Capital believe that value investments can still perform — they will just look like one-time growth companies such as Facebook.
That doesn't mean Baupost isn't looking into new financial products. Late in 2020, regulatory filings showed a new bet from the Boston-based manager: SPACs.
Klarman pumped money into several well-known holdings, including a $400 million investment into fellow hedge-fund-billionaire Bill Ackman's Pershing Square Tontine Holdings. He also made a $52 million bet on former Oakland Athletics' general manager Billy Beane's SPAC.
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