market folly

Hedge fund Baupost Group has filed an activist stake via 13D filing and has disclosed a 16.1% ownership stake in Breitburn Energy Partners (BBEP) due to activity on April 27th, 2009. They now own 8,495,939 shares. This is not a new position for Klarman, as they previously owned 8,157,439 shares. That figure was as of December 31st, 2008 when we looked at Baupost's entire portfolio. Since December, Baupost has obviously added slightly to their stake in Breitburn.

Originally, they had filed a 13G on Breitburn back in October of 2008. But, they've decided to file the 13D to reserve their right to take on an activist role to bring change to the company. 13G filings represent passive investments, while 13D filings represent an activist stake in a company. So, Baupost has simply shifted their passive stake to an activist one. This is the second company in a week that Baupost has filed an activist position in via 13D. We also covered their activist stake in Facet Biotech (FACT).

If you're unfamiliar with Klarman or his investment style, we highly recommend you check out his video presentation that we recently posted up. In the video, Klarman examines the current markets and really drills down what he looks for in his investment process. Klarman once wrote, "At Baupost, we are big fans of fear, and in investing, it is clearly better to be scared than sorry." His investment process is also further detailed in his hard to find book Margin of Safety.

Baupost Group's tremendous performance over the years is one of the main reasons that we selected them as one of the hedge funds in our custom Market Folly portfolio. Our model hedge fund portfolio has seen a total return of 194% since mid-2002 and is returning 17% annualized. It's very evident that Baupost's sterling reputation and performance is a big contributor to our custom portfolio's solid numbers.

Klarman's hedge fund is ranked 13th in the 2009 hedge fund rankings, jumping way up from being ranked 49th in Alpha's 2008 hedge fund rankings. Klarman has always considered himself a value investor and has been patient through the market turmoil. The past few years they have had nearly half their $14 billion in assets in cash. But, with turmoil comes opportunity and Baupost's cash has been gradually deployed. Some of their activity includes increasing their position in RHI Entertainment (RHIE) and making other SEC filings as well.

As you can see, we've covered Klarman's moves and will update his entire long portfolio when it is filed in a week or two via 13F filing. Lastly, we'll leave you with some of his additional thoughts on recent market action in his interview with Harvard Business School and his thoughts from Value Investor Insight.

Taken from Google Finance,

BreitBurn Energy Partners is "an independent oil and gas partnership focused on the acquisition, exploitation and development of oil and gas properties in the United States. The Company’s assets consist primarily of producing and non-producing crude oil and natural gas reserves located in the Antrim Shale in Michigan, the Los Angeles Basin in California, the Wind River and Big Horn Basins in central Wyoming, the Sunniland Trend in Florida, the New Albany Shale in Indiana and Kentucky, and the Permian Basin in West Texas."