Seth Klarman’s Baupost Group Goes Crazy for SPACs and Sallie Mae

Quite a few money managers filed their SEC filings today. One that caught my eye was Seth Klarman’s Baupost Group. Klarman’s track record is legendary and frankly, after Warren Buffett, I can’t think of a better investment role model to seek to emulate.

I’ll post the spreadsheet to the website over the weekend but here’s a quick comment. While I’ve noticed Klarman’s (or one of his associates) affinity for the special purpose acquisition companies (SPAC), this quarter’s filing is literally littered (how’s that for alliteration) with new additions from this class.

I know that some of the “mainstream” pundits have poo-poo’d SPACs as speculative vehicles not fit to grace long-term investor portfolios but I’d take Klarman’s example over these pundits any day. On a fundamental level, I can see some attraction behind these securities, especially for someone who is comfortable investing in alternative asset classes with managed fees, i.e. private equity funds or hedge funds. These SPACs give the investor more control, more liquidity to exit the investment and in some cases, lack of management fees (though the 20% equity/carried interest component is still present).

I haven’t done much research on them but it seems to me that the overriding consideration in SPAC investment is the management. In this way, the small retail investor (i.e. me) may be disadvantaged. I would assume (but don’t know for sure) that dealmakers looking to raise money through SPACs go on investment road shows to generate interest similar to other IPOs. Money managers like Klarman probably have access and insights on these management teams that folks like me just can’t match. And the smart thing to do when you don’t have an edge or are operating at a disadvantage is to sit it out.

Added Note — It looks like Baupost has also put a huge bet on Sallie Mae (SLM). According to my spreadsheet, Baupost’s SLM position is 25% of the total value of all securities listed in their SEC filing. Now, I don’t know if they have hedged that position with instruments that wouldn’t show up on these filings (like a CDS) but that position does make me sit up and take notice.

More on this topic (What's this?)
Sallie Mae I? No, You May Not.
Late additions…
Sallie Mae, First Data and Japanese Yen.
Read more on SLM Corp at Wikinvest

3 Responses to “Seth Klarman’s Baupost Group Goes Crazy for SPACs and Sallie Mae”

  1. blacknag Says:

    You ain’t too smart mate. He is not buying SPACs for the management – all of the SPACs he is buying trade below cash with the potential catalyst that their mandates (read their prospectuses) state that if they have not completed a reverse merger transaction – they must return the cash to investors. Why in the world would you post this ill considered nonsense? Enlightened American is an oxymoron.

  2. blacknag Says:

    As a follow-up = think for yourself and don’t ride others coat tails!

  3. Davy Bui Says:

    I’m aware SPACs are required to return cash to shareholders in the event they fail to complete a transaction.

    You’re commenting on a post over a year after the fact, mate. At the time of the posts, the SPACS weren’t selling at massive discounts.

    And yes, there’s a chance management may make ill-considered mergers. Unless you have a large enough stake and/or communication w/ other shareholders, you can’t be assured your money will be returned to you if management wants to overpay for companies, which in Feb 2008 w/ the Dow @ 14,000 was a possibility.

    BTW, when Charlie Munger asked Warren Buffett for investment advice, Buffett replied “Coattail — you got to coattail.”

    Enlightened American actually is an oxymoron, mate.

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