Seth Klarman
Seth Andrew Klarman is an American billionaire investor, hedge fund manager, and author. He is a proponent of value investing. He is the chief executive and portfolio manager of the Baupost Group, a Boston-based private investment partnership he founded in 1982.
He closely follows the investment philosophy of Benjamin Graham and is known for buying unpopular assets while they are undervalued, seeking a margin of safety and profiting from any rise in price. Since his fund's $27 million-dollar inception in 1982, he has realized a 20% compounded return on investment. He manages $30 billion in assets.
In 2008, he was inducted into Institutional Investor Alpha's Hedge Fund Manager Hall of Fame. Forbes listed his personal fortune at US$1.3 billion and said he was the 15th highest earning hedge fund manager in the world in 2017. He has drawn numerous comparisons to fellow value investor Warren Buffett, and akin to Buffett's notation as the "Oracle of Omaha," Klarman has been called the "Oracle of Boston."
Early life
Klarman was born on May 21, 1957, in New York City from a Jewish family. When he was six, he moved to the Mt. Washington area of Baltimore, Maryland, near the Pimlico Race Course. His father, Herbert E. Klarman, was a public health economist at Johns Hopkins University and his mother was a psychiatric social worker His parents divorced shortly after their moving to Baltimore.When he was four years old, he redecorated his room to match a retail store putting price tags on all of his belongings and gave an oral presentation to his fifth-grade class about the logistics of buying a stock. As he grew older, he had a variety of small-time business ventures including a paper route, a snow cone stand, a snow shoveling business, and sold stamp-coin collections on the weekends. When he was 10 years old he purchased his first stock, one share of Johnson & Johnson. His reasoning behind buying a share of Johnson & Johnson was that he had used a lot of band-aids during his earlier years. At age 12 he was regularly calling his broker to get stock quotes.
Education
Klarman attended Cornell University in Ithaca, New York, and was interested in majoring in mathematics but instead chose to pursue economics. He graduated magna cum laude in economics with a minor in history in 1979. He was a member of the Delta Chi fraternity. In the summer of his junior year, he interned at the Mutual Shares fund and was introduced to Max Heine and Michael Price. After graduating from college, he went back to the company to work for 18 months before deciding to go to business school. He went on to attend Harvard Business School where he was a Baker Scholar and was classmates with Jeffrey Immelt, Steve Burke, Stephen Mandel, James Long, and Jamie Dimon.Career
Investment
After graduating from business school in 1982, he founded the Baupost Group with Harvard Professor William J. Poorvu and partners Howard H. Stevenson, Jordan Baruch and Isaac Auerbach. The name is an acronym based on the founders' names. Poorvu asked Klarman and his associates to manage some money he had raised from the selling of his share in a local television station and the fund was started with US$27 million in startup capital. His starting salary was $35,000 a year, considered low to alternative job offers, and he later recalled that the other founders "were taking a big risk on a relatively inexperienced person." Early on in his investment career, he used to badger Goldman Sachs salesmen with so many questions regarding their options and thoughts on the markets that they were afraid to pick up the phone if they saw that Baupost was calling.In February 2008, Klarman was alerted that a London-based hedge fund, Peloton Partners, were forced to liquidate more than a billion dollars' worth of their assets, he decided to open up his fund to new investors subsequently raising $4 billion in capital, mainly from large foundations and Ivy League endowments. He believed that there was serious market opportunity for value investors in the coming months and after the collapse of AIG and Lehman Brothers, he invested heavily in the equity markets, sometimes buying $100 million in stocks and other assets per day. While the market was down due to the aftermath of the crisis, he purchased many distressed securities and bonds. By early 2009, after JPMorgan Chase acquired Washington Mutual as a part of their deal with the United States Department of the Treasury, Sallie Mae bonds were returning double digit figures for Baupost. Overall, Klarman's bond position appreciated 25%, however, during the 2008 financial crisis, his fund returned -7% to -13%. Although many hedge funds faced negative returns and low performance during the crisis and its aftermath, Klarman saw increased equity positions and described it as a "fortuitous time" for the fund's capital gains. The same year he would go on to buy a minority share in the Boston Red Sox, via a stake in Ed Eskandarian.
In 2009, Klarman began buying distressed credits during the 2008 financial crisis. He purchased the bonds of CIT Group, a financial holding company based in New York City at 65 cents on the dollar with a yield rate of 15%. After the company went into prepared bankruptcy, as Baupost began lending it money via a loan, Carl Icahn gave a loan of $6 billion to the CIT Group but backed out of the deal a week later. This caused the bonds to speed into prepared bankruptcy and gave the Baupost group securities valued at 80 cents to the dollar for their debt in CIT Group. Shortly after the CIT deal was finalized, Klarman amassed a stake in a new bio-tech company called FacetBiotech, at an average cost of $9 a share. At the time, FacetBiotech had $17 a share in net cash. Klarman noted that when stocks are spun off of their larger parent companies they become "cheap and ignored." When Biogen eventually tried a hostile takeover of the company bidding up the price to $14 a share, Abbott Laboratories asked for a $27 per share settlement for acquisition. Klarman's fund finished that year up +27%.
As of 2016, the fund had US$31 billion in assets under management. In 2020 Seth Klarman's largest holding is eBay with a value of US$1.48 billion.
Investment philosophy
Klarman is a known proponent of value investing, and has stated that he has known he was one since junior year of college at age 25. During an interview at Harvard Business School, he stated: "It turns out that value investing is something that is in your blood. There are people who just don't have the patience and discipline to do it, and there are people who do. So it leads me to think it's genetic."When asked what drives his fund's overall investment strategy and how value investing fits into the capital markets he replied:
Firstly, Value investing is intellectually elegant. You're basically buying bargains. It also appeals because all the studies demonstrate that it works. People who chase growth, who chase high fliers, inevitably lose because they paid a premium price. They lose to the people who have more patience and more discipline. Third, it's easy to talk in the abstract, but in real life you see situations that are just plain mispriced, where an ignored, neglected, or abhorred company may be just as attractive as others in the same industry. In time, the discount will be corrected, and you will have the wind at your back as a holder of the stock.
Klarman has been an avid supporter of the teachings of Benjamin Graham, and during the 2008 financial crisis criticized the short-term thinking of other fund managers, he believes that the "this-time-is-different" mindset will give a false sense of security to investors, and they ought to look at the bigger picture. He stresses the utility in the economy's business cycles and their predestined and perpetual self-corrective tendency. Klarman is known to sit on 30% to 50% of his funds in cash as to avoid unfavorable market conditions and only buys stocks he thinks have a suitable mispricing.
He makes unusual investments, buying unpopular assets while they are undervalued, using complex derivatives, and buying put options. During his first years running Baupost, he made it a point to only invest in companies that were not widely accepted by the Wall Street community; he stressed managing risk and using the margin of safety. He is a very conservative investor, and often holds a significant amount of cash in his investment portfolios, sometimes in excess of 50% of assets. Despite his unconventional strategies, he has consistently achieved high returns. Klarman looks for companies that are traded at a discount. Klarman and his fund usually go "bargain hunting," when companies are distressed or face low growth or declining years. In 2015, when energy stocks were declining, his firm "started looking for deals." According to Institutional Investor, " has succeeded by deftly exploiting under-valued markets whether they are in equities, junk bonds, bankruptcies, foreign bonds or real estate."
In a 2011 interview with Charlie Rose, Klarman states he does not use a Bloomberg Terminal. Klarman stated due to his long-term strategy he is mostly uninterested in daily price fluctuations.
Horse racing
Klarman owns Klaravich Stables Inc. and has been racing horses with William Lawrence since 2006. Their horse, Cloud Computing, won the 2017 Preakness Stakes. In 2019, Klarman and Lawrence won the Outstanding Owner category at the Eclipse Awards, mainly due to the incredible season for their horse Bricks and Mortar. In 2022 the stable won the Preakness Stakes on Seth Klarman's 65th birthday with their lightly raced horse Early Voting.Personal life
Klarman typically keeps a low profile, rarely speaking in public or granting interviews. He lives in Chestnut Hill, Massachusetts, with his wife, Beth Schultz Klarman, whom he met on a Boston Harbor cruise in 1982; they have three children. His brother, Michael Klarman, is a professor at Harvard Law School.Klarman was one of the founding board members of the Broad Institute in 2009. He was appointed chairman of the board on July 17, 2025, after former chairman Eric Schmidt stepped down.