Seth Klarman Cautions “False Sense Of Calm In The US”

May 4, 2013 Leave a comment

Seth Klarman Cautions “False Sense Of Calm In The US”

April 30, 2013

By Tabinda Hussain

Seth Klarman’s Baupost Group was not able to translate the enthusiasm of equity markets into similar returns but the fund did well in Q1, according to Klarman’s latest letter to investors. As is the custom with Baupost, detail of returns and investments are released some time later. Just like last quarter, Baupost continues to benefit from the liquidation of Lehman Brothers Holdings Inc. (OTCMKTS:LEHMQ) debt. This time the fund boosted its cash balance by 2 percent of AUM through Lehman. Baupost is looking forward to more inflows from US and international Lehman debtors throughout the year.

Klarman again talks about overdrive in stocks that has lulled investors into a new comfort zone where theFed’s monetray easing is taken for granted. He takes a jab at Ben Bernanke again in his missive, saying that Bernanke will not take advice from the hedge funds and traders when he decides to take a u-turn onQE, and these investors will not have a sufficient door to exit from as inflation booms. Klarman has been against the trend of jumping on QE bandwagon and reiterates that there is a false sense of calm in the US which is betrayed by the slowdown in almost every other part of the world. He adds that the US public is not, however, duped by promises of growth and wealth from raising debt load, adding taxes and increasing spending cuts. While painting a realistic picture, Klarman convincingly writes, “They know that society’s wealth is not unlimited, and that if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse.”Seth Klarman stresses that the greatest strength of Baupost is in making long-term investments that could lose for considerable periods but the fund has the confidence to stick to them with unwavering patience. The firm also applies a risk-averse strategy with lower leverage than other firms. Baupost believes in having a sizeable cash balance at hand when there are not many investing opportunities and is not deterred by under-performance, Klarman agrees that Baupost’s approach may seem over-cautious and conservative but it pays off in the long run. Baupost tries to keeps its portfolio concentrated in winning approaches and is not over excited about diversification.

Seth Klarman extended his condolences to the families who were disrupted as a result of attack on Boston marathon,

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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