Why Does Seth Klarman Like Pershing Square Tontine?
- By Rupert Hargreaves
Earlier this year, Seth Klarman (Trades, Portfolio)'s Baupost hedge fund raised just under $2 billion from clients to take advantage of emerging opportunities in the market. As I noted in April, Klarman was very busy adding stocks to Baupost's portfolio in the first quarter.
He deployed at least $1.5 billion into public equity markets, according to his firm's 13F filing at the time. Baupost's cash balance was around 31% of assets under management at the end of 2019.
Disclaimer: These figures only detail part of the picture. The 13Fs only highlight public equity positions. They do not show cash balances, credit, real estate, or other asset trades. Still, Baupost's third-quarter 13F does provide some insight into the companies Klarman was buying during the three months to the end of September.
We know that only around $10 billion of Baupost's $30 billion in assets under management are invested in public equities. That suggests the figures for approximately two-thirds of his portfolio are not available to the public.
According to the hedge fund's latest 13F filing for the quarter ended Sept. 30, eBay (NASDAQ:EBAY) was the most substantial single public equity investment in Baupost's portfolio at the time. It owned 30 million shares in the group with a $1.6 billion value, giving it a 17% portfolio weight. Liberty Global (NASDAQ:LBTYK) was the second most significant position in the portfolio at the end of September. Baupost owned 53 million shares in the group at the end of the quarter, giving it a 12% portfolio weight.
The most significant new addition to the portfolio was Pershing Square Tontine Holdings Ltd (NYSE:PSTH). According to Baupost's 13F, the hedge fund acquired 17.5 million shares in this firm during the period. This position was worth around $400 million and had a 4.3% weight in the equity portfolio.
Pershing Square Tontine is a special purpose acquisition company (SPAC) formed by activist hedge fund manager Bill Ackman (Trades, Portfolio).
Klarman is no stranger to investing in SPACs. In reviewing his portfolio over the past few years, I noticed that he has held many of these firms in the past, and these vehicles can be very profitable for their owners and sponsors if managed correctly.
Ackman is incentivized to produce positive returns for investors of this newly public enterprise. His hedge fund, Pershing Square, subscribed to the share offering and provided capital. If the SPAC does not work out, it will reflect poorly on his returns -- unlike other SPACs where sponsors put in minimal capital to achieve the highest returns.