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Tracking Seth Klarman’s Baupost Group Holdings – Q4 2021 Update

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m.o.s.,margin of safety

pupunkkop/iStock via Getty Images

This article is part of a series that provide an ongoing analysis of the changes made to Baupost Group’s 13F stock portfolio on a quarterly basis. It is based on Klarman’s regulatory 13F Form filed on 2/11/2022. Please visit our Tracking Seth Klarman’s Baupost Group Holdings article for an idea on how his holdings have progressed over the years and our previous update for the fund’s moves during Q3 2021.

Baupost Group’s 13F portfolio value decreased ~7% from $10.88B to $10.13B this quarter. The total number of 13F securities decreased from 57 to 54. The portfolio is heavily concentrated with Liberty Global, Qorvo, Intel, Liberty Media Sirius XM, and ViaSat together accounting for ~50% of the 13F holdings.

Since inception (1982), Baupost Group’s 13F portfolio has accounted for between 2.4% to 15% of the Assets Under Management (AUM). The current allocation is at the high-end of that range. The rest of the AUM is diversified among cash, debt, real estate, and hedges. On average, the fund has held ~25% cash over the last decade. Seth Klarman’s distinct investment style is elaborated in his 1991 book “Margin of Safety: Risk-averse value investing strategies for the thoughtful investor”. The book is out-of-print and copies sell for a huge premium.

Note 1: Baupost has several very small (less than 0.5% of the portfolio each) stakes, many of which are SPAC common shares and/or warrants. Those positions are Altimeter Growth Corp II (AGCB), Aurora Innovation (AUR) wts, Avanti Acquisition (AVAN) & wts, Cvent (CVT), Encompass Health (EHC), Ermenegildo Zegna (ZGN) wts, Finch Therapeutics Group (FNCH), Garrett Motion (GTX), Grab Holdings (GRAB), Hippo Holdings (HIPO) wts, Horizon Acquisition II (HZON) wts, Liberty Media Acquisition Corp (LMACA) & wts, Noble Corp (NE), Outbrain Inc. (OB), Pershing Square Tontine (PSTH) & wts, Redball Acquisition Corp (RBAC) wts, SVF Investment Corp (SVFA) & wts, Trilogy Metals (TMQ), and Vertical Aerospace (EVTL) wts. Although the SPAC stakes as a percentage of the portfolio are very small, it is significant that they hold mid-to-high-single-digit percentage of the trust-values in most of them.

Note 2: They own ~32% of Garrett Motion (GTX) and ~14% of Just Eat Takeaway (GRUB). GTX emerged from Chapter 11 bankruptcy in May. Baupost started buying shares last November when it was trading below $3. It currently trades at $7.14. The bulk of the ownership is through a series A preferred share offering.

New Stakes:

Fiserv Inc. (FISV) and NortonLifeLock (NLOK): These are the two new positions this quarter. FISV is a 3.13% of the portfolio position purchased at prices between ~$96 and ~$111 and the stock currently trades near the low end of that range at ~$98. The 1.48% of the portfolio stake in NLOK was established at prices between ~$24 and ~$27 and it is now at $29.48.

Stake Disposals:

eBay Inc. (EBAY): EBAY stake was at 3.83% of the portfolio as of last quarter. It was established in Q4 2018 at prices between $26 and $33 and increased by ~40% in Q1 2019 at prices between $28 and $38. There was a ~18% selling next quarter at prices between $35.50 and $40. That was followed with a ~30% selling in Q3 2019 at prices between $38 and $42. Q4 2019 saw a ~20% stake increase at prices between $34.50 and $39.25. That was followed with a ~60% increase in Q1 2020 at prices between $26.34 and $38.50. Last three quarters had seen a ~80% reduction at prices between ~$50.50 and ~$78. The disposal this quarter was at prices between ~$64 and ~$81. The stock currently trades at $58.18.

International Flavors & Fragrances (IFF): IFF was a 1.53% of the portfolio position established in Q1 2021 at prices between ~$105 and ~$141. There was a ~40% selling last quarter at prices between ~$132 and ~$157. The remaining stake was sold this quarter at around the same price range. The stock is now at ~$132.

PG&E Corporation (PCG): PCG was a large stake built during the first three quarters of 2018 at prices between $38 and $47. Q2 2019 saw another 58% stake increase at prices between $6 and $24. The three quarters thru Q2 2020 had seen a ~80% reduction at prices between ~$6.50 and ~$18. Q3 2020 saw the position rebuilt at prices between $8.60 and $10. There was a ~75% reduction last quarter at prices between $8.30 and $10.50. The remainder stake was disposed this quarter. The stock currently trades at $11.28.

Note: It was reported in November 2018 that Baupost had hedged this position by buying $1B worth of certain insurance claims against PG&E connected to the Nov 2017 wildfires for ~35c on the dollar. Baupost collected ~$3B on those payments in August 2020.

Stake Increases:

Qorvo Inc. (QRVO): QRVO is a large (top three) 9.18% portfolio stake established in Q1 2017 at prices between $53 and $69 and increased by ~25% the following quarter at prices between $63 and $79. There was another ~22% stake increase in Q4 2017 at prices between $65 and $81. 2019 had seen a ~75% selling at prices between $60 and $118. Q4 2020 saw an about turn: ~50% stake increase at prices between ~$125 and ~$170. That was followed with a ~18% further increase next quarter. This quarter also saw a similar increase. The stock is now at ~$129.

Note: They have a 5.39% ownership stake in the business.

Liberty Media Sirius XM (LSXMK): The 7.78% LSXMK stake was primarily built in Q3 2020 at prices between $32 and $37. Q4 2020 saw a ~14% stake increase and that was followed with a ~35% increase last quarter at prices between ~$44 and ~$50. There was another ~15% increase this quarter. The stock currently trades at $50.59.

Willis Towers Watson (WLTW): WLTW is a 2.93% of the portfolio stake established in Q1 2021 at prices between ~$200 and ~$235 and the stock currently trades at ~$219. Last two quarters saw a ~60% selling at prices between ~$202 and ~$270 while this quarter there was a ~25% stake increase at prices between ~$226 and ~$249.

Verint Systems (VRNT): The 1.95% VRNT stake was built in Q3 2020 at prices between ~$42 and ~$51 and the stock currently trades at $52.18. Q1 2021 saw a ~20% stake increase at prices between ~$33.50 and ~$52. That was followed with a ~15% increase last quarter at prices between ~$42 and ~$46. This quarter also saw a minor ~6% stake increase.

Stake Decreases:

Intel Corp (INTC): INTC is a large (top three) 9.17% of the portfolio stake established in Q4 2020 at prices between ~$44 and ~$55. Q1 2021 saw a ~28% stake increase at prices between ~$50 and ~$66. The stock currently trades at $47.58. Last three quarters have seen a ~23% selling.

Alphabet Inc. (GOOG) (GOOGL): The 6.52% GOOG stake was purchased in Q1 2020 at prices between $1057 and $1527 and the stock currently trades at ~$2706. Last three quarters of 2020 had seen a ~75% selling at prices between ~$1098 and ~$1830. There was a ~265% stake increase in Q1 2021 at prices between ~$1725 and ~$2100. This quarter saw a ~22% trimming at prices between ~$2665 and ~$3014.

Meta Platforms (FB) previously Facebook: FB is a 3.27% of the portfolio position established in Q1 2020 at prices between $146 and $223. The next two quarters had seen a ~70% selling at prices between ~$154 and ~$304. There was a ~175% stake increase over the last three quarters at prices between ~$245 and ~$355 while this quarter there was a ~36% reduction at prices between ~$307 and ~$348. The stock is now at ~$218.

Micron Technology (MU): MU is a ~3% of the portfolio position purchased in Q3 2020 at prices between $42.50 and $52.65 and the stock currently trades at ~$90. Q2 2021 saw a one-third increase at prices between ~$77 and ~$96 while this quarter there was a ~55% selling at prices between ~$66 and ~$96.

Nexstar Media Group (NXST): The 2.55% NXST position was established in Q4 2018 at prices between $71 and $88. Q2 & Q3 2019 saw a ~80% stake increase at prices between $90 and $120. The stock is now at ~$177. There was a ~17% trimming this quarter.

Dropbox Inc. (DBX): DBX is a ~2% of the portfolio position established last quarter at prices between ~$28 and ~$32.50 and the stock currently trades below that range at $24.39. There was a ~13% trimming this quarter.

Joby Aviation (JOBY): JOBY is a 0.69% of the portfolio position that saw a roughly two-thirds stake increase last quarter at prices between $8.15 and $13.40. The stock is now at $4.76. There was a minor ~4% trimming this quarter.

Note: Joby Aviation is a De-SPAC that started trading last August following the close of its merger transaction with Reinvent Technology Partners.

IronSource Ltd. (IS): Thoma Bravo Advantage was a SPAC that had a ~$1B IPO in January 2021. In March 2021, they announced the merger with IronSource. The transaction closed in June. Baupost established the original stake in Q1 2021. The position was doubled in Q2 2021 at prices between ~$10 and ~$11. This quarter saw a ~50% selling at prices between ~$7.50 and ~$12.50. The stock currently trades at $6.73.

Kept Steady:

Liberty Global (LBTYK) (TBTYA): LBTYK is currently the largest position at 17.07% of the portfolio. It was established in Q3 2018 at prices between $25 and $28.50 and increased by ~120% next quarter at prices between $19.50 and $27.50. There was another ~27% stake increase in Q1 2019 at prices between $19.80 and $25.80. Since then, the activity has been minor. The stock currently trades at $27.74.

ViaSat (VSAT): VSAT is a large (top five) position at 7.16% of the portfolio. The stake has only seen minor increases since Q3 2012. Klarman first purchased VSAT in 2008 at much lower prices and his overall cost-basis is in the high-teens. In July 2020, Baupost participated in ViaSat’s 4.47M share private placement by acquiring ~2.56M shares at ~$39 per share. The stock currently trades at ~$43.

Note: Baupost controls ~22% of the business.

Veritiv Corporation (VRTV): VRTV is a 4.31% of the 13F portfolio position established in Q3 2014 at prices between $32.50 and $50.50. Q4 2017 saw a ~20% stake increase at prices between $22.50 and $32.50. The stock currently trades at ~$95.

Note: Klarman’s ownership interest in VRTV is ~23%.

SS&C Technologies (SSNC): SSNC is a ~3% position built in Q3 2020 at prices between ~$56 and ~$65 and it is now at ~$75. The two quarters through Q1 2021 had seen a ~25% stake increase at prices between ~$63 and ~$71. Q2 2021 saw a ~13% trimming while last quarter there was a similar increase.

DigitalBridge (DBRG) previously Colony Capital: The 1.88% stake in DigitalBridge came about as a result of the three-way merger of Colony Capital, Northstar Asset Management Group, and Northstar Realty Finance that closed in January 2017. Baupost held stakes in all three of these stocks and those got converted into CLNY shares. Roughly half the position was sold in Q2 2020 at prices between $1.42 and $3.10. Since then, the activity has been minor. Their overall cost-basis is ~$12.50 per share. DBRG currently trades at $6.95.

Note: Baupost owns ~6.8% of DigitalBridge.

Pershing Square Tontine (PSTH) and wts: PSTH is a 1.86% of the 13F portfolio stake established in Q3 2020. Pershing Square Tontine is a ~$4B SPAC that had an IPO in July 2020. The units started trading at ~$21.50. Separate trading of the stock and warrants started around mid-September. They currently trade at $19.84 and $1.31 respectively. The common stake was reduced by ~27% in Q4 2020 at prices between ~$22.25 and ~$27.75. That was followed with a ~20% selling in Q2 2021 at prices between ~$22 and ~$25.50.

Theravance Biopharma (TBPH): TBPH is a 1.49% of the portfolio position established in Q2 2014 as a result of the spinoff of TBPH from Theravance (now Innoviva). The spinoff terms called for Theravance shareholders to receive 1 share of TBPH for every 3.5 shares of Theravance held. Last two quarters saw a ~50% stake increase at prices between ~$7 and ~$22.50. The stock is now at $9.26.

Note: The stock dropped ~50% last August after a clinical setback – ampreloxetine missed primary endpoint in orthostatic hypotension study. In September, they announced a ~75% headcount reduction to focus on their respiratory assets. There is speculation that GlaxoSmithKline (GSK) is considering a merger deal. Klarman controls ~20% of the business. The 13F also lists a small position in Theravance Biopharma Notes.

Atara Biotherapeutics (ATRA): ATRA is a 1.32% of the portfolio stake established in Q4 2014 at around $19 per share. The original position was almost doubled next quarter at prices between $18 and $42.90. Recent activity follows: Q3 2019 also saw a ~20% stake increase at prices between $12 and $20. Q2 2020 saw a similar increase at prices between $7.50 and $14.93. The two quarters through Q1 2021 had seen a combined ~15% trimming. The stock currently trades at $14.24.

Note: Klarman controls ~9% of the business.

Advantage Solutions (ADV): The ~1% ADV stake was established in Q4 2020 at prices between $8.75 and $13.35. The stock currently trades at ~$7.20.

Nuvation Bio (NUVB): NUVB is a 0.72% of the portfolio stake established in Q1 2021 following their de-SPAC transaction that closed last October. The stock currently trades at $5.20.

Note: The Nuvation Bio SPAC sponsor was Panacea Acquisition. In 2004, their team did a SPAC transaction for Medivation which turned out to be the best performing biotech SPAC deal ever – after going revenue-less for almost a decade, Medivation came up with the blockbuster drug XTANDI (late-stage prostate cancer treatment). Pfizer then acquired them in 2015 for ~$14B compared to ~$3M market-cap for the de-SPAC transaction that closed in December 2004.

Archaea Energy (LFG): The small 0.61% of the portfolio LFG stake was purchased last quarter at prices between ~$14.50 and ~$20 and it is now at $15.96.

Note: Archaea Energy is a De-SPAC that started trading last September following the close of their merger with Rice Energy Acquisition. Baupost controls ~6.5% of Archaea Energy.

The spreadsheet below highlights changes to Klarman’s 13F stock holdings in Q4 2021:

Seth Klarman - Baupost Group

Seth Klarman – Baupost Group’s Q4 2021 13F Report Q/Q Comparison (John Vincent (author))

Source: John Vincent. Data constructed from Baupost Group’s 13F filings for Q3 2021 and Q4 2021.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

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