Link to: Klarman returns cash [via ValueWalk]
On stage at the Grant’s conference, seated on a bar stool, Seth Klarman corrected a misapprehension. This is not the first time The Baupost Group LLC, over which he presides, has returned cash to its investors. “Actually, it is the second,” he said. ‘(We returned some cash at the end of 2010 as well…. There are two or three reasons we reached the decision to return cash at the end of this year. Number one, around 50% of our assets are in cash, and that’s a very high absolute number, now around $14 billion and rising. So we look at it both as a percent of the portfolio, where 50% is a very sizeable chunk, but also $14 billion is always a lot to put to work. For most people, it is a big-sized fund, and that’s how much we have in cash on top of the other $16 billion that we have invested.
Also, we look hard at our organization. I think one of the things that helped us be successful for 31 years is a very healthy fear of things we don’t understand, of the unknown, of not remaining humble. We literally worry every day: ‘Will we find another good idea and where might that be, because we want to find. it.’ Growing an organization from $27 million in 1982 to $30 billion, which we hit just last month, is really complicated.
A lot of people who have tried will tell you the same thing, that you are at enormous risk all the time and, in some sense, hurting the virtuous circle that got us to where we are. The virtuous circle of good process, good record attracts good clients, attracts good people, and all of that feeds into itself successfully. But if we try to keep going-$35 billion, $40 billion, $50 billion-we would potentially start letting down our guard. We would start looking at other places, like that old joke about where the light is. I don’t want people at the firm saying, ‘Where’s something big I can work on?’
“If we were sure and had high conviction that the world was going to collapse in ·the first quarter of 2014,” Klarman went on, “we wouldn’t return the cash. We would keep going because our batting average would go up so high that everything we looked at would be cheap, like it was in 2008. So it’s really not a statement or prediction.
It’s a statement about our own limitations, our own capacity constraints, and our desire to be excellent way into the future, which means not getting bigger than here.