Seth Klarman

Seth Klarman
Seth Klarman
Born	May 21, 1957 (age 69); New York City, U.S.
Occupation(s)	Investor, hedge fund manager, author
Known for	CEO and chief portfolio manager of the Baupost Group; advocate of value investing

Seth Andrew Klarman (born May 21, 1957) is an American billionaire known for his work as an investor, hedge fund manager, and author. He is a prominent advocate of value investing and acts as the CEO and chief portfolio manager of the Baupost Group, a private investment partnership based in Boston that he established in 1982.

Klarman’s investment approach is deeply influenced by Benjamin Graham’s principles, emphasizing the purchase of undervalued and often overlooked assets with a significant margin of safety to profit from future price increases. Since its initial capital of $27 million, Baupost has delivered an average annual return of 20%. Currently, Klarman oversees roughly $30 billion in assets.

In recognition of his achievements, Klarman was inducted into Institutional Investor Alpha's Hedge Fund Manager Hall of Fame in 2008. Forbes placed him as the 15th highest-earning hedge fund manager worldwide in 2017, estimating his net worth at $1.3 billion. Due to his disciplined application of value investing and sharp market acumen, he has earned the moniker "Oracle of Boston," often drawing comparisons to Warren Buffett.

Early life

Born on May 21, 1957, in New York City into a Jewish family, Klarman relocated at age six to the Mt. Washington neighborhood of Baltimore, Maryland, close to the Pimlico Race Course. His father, Herbert E. Klarman, was a public health economist affiliated with Johns Hopkins University, while his mother worked as a psychiatric social worker. The couple divorced shortly after settling in Baltimore.

From a young age, Klarman exhibited entrepreneurial tendencies—he transformed his bedroom into a mock retail shop complete with price tags and even presented to his fifth-grade classmates on how stock purchases operate. He ran several small ventures including delivering newspapers, operating a snow cone stand, and providing snow shoveling services. At ten years old, he bought his first stock—one share of Johnson & Johnson—which eventually tripled in value. By twelve, he routinely contacted his broker to track stock prices.

Education

Klarman enrolled at Cornell University in Ithaca, New York, initially drawn to mathematics but ultimately earning a degree in economics. Graduating magna cum laude with a minor in history in 1979, he was also part of the Delta Chi fraternity. During the summer of his junior year, he interned at Mutual Shares fund where he met investors Max Heine and Michael Price. After graduation, he worked there for eighteen months before pursuing an MBA at Harvard Business School. At Harvard, Klarman was recognized as a Baker Scholar and shared classes with future business leaders such as Jeffrey Immelt, Steve Burke, Stephen Mandel, James Long, and Jamie Dimon.

Investment

Following his graduation from Harvard Business School in 1982, Seth Klarman co-established the Baupost Group alongside Harvard professor William J. Poorvu and partners Howard H. Stevenson, Jordan Baruch, and Isaac Auerbach. The fund’s name is derived from an acronym representing its founders’ names and was selected prior to Klarman’s involvement. Poorvu entrusted Klarman and his team with managing capital raised from selling Poorvu’s stake in a local television station, launching Baupost with $27 million in seed money. Klarman accepted an initial salary of $35,000—a modest amount compared to other offers—reflecting the risk taken by the founders on a relatively inexperienced manager. Early on, Klarman actively sought insights by engaging with salespeople from Goldman Sachs.

In February 2008, following the forced liquidation of over $1 billion in assets by London-based hedge fund Peloton Partners, Baupost reopened its doors to new investors and successfully raised $4 billion mainly from large foundations and Ivy League endowments. Anticipating favorable conditions for value investors after the financial crisis, Klarman aggressively deployed capital following the failures of institutions like AIG and Lehman Brothers, sometimes investing as much as $100 million daily into equities and distressed securities. By early 2009, after JPMorgan Chase acquired Washington Mutual through government intervention, Baupost’s holdings such as bonds from Sallie Mae began generating double-digit returns. Although the fund posted losses between -7% and -13% during the 2008 financial crisis, Klarman increased exposure to equities describing it as an opportune moment for capital appreciation. That same year he also acquired a minority stake in the Boston Red Sox via Ed Eskandarian.

In 2009, Klarman concentrated on distressed credit opportunities arising from the crisis by purchasing bonds of CIT Group at approximately 65 cents on the dollar yielding around 15%. When CIT filed for bankruptcy protection, Baupost extended loans while activist investor Carl Icahn withdrew a $6 billion loan proposal; this accelerated CIT’s bankruptcy process but increased Baupost’s bond value to about 80 cents on the dollar. Subsequently, Klarman invested in biotech company FacetBiotech at roughly $9 per share—below its net cash value of $17 per share—capitalizing on undervalued spin-offs. When FacetBiotech became subject to a hostile takeover bid by Biogen, offers rose to $14 per share before eventual acquisition by Abbott Laboratories at $27 per share. Baupost closed that year with a +27% return.

By 2016, Baupost managed assets totaling approximately US$31 billion. As of 2020, Klarman’s largest single holding was eBay, valued at about US$1.48 billion.

Investment philosophy

Klarman firmly identifies as a practitioner of value investing, a conviction he has held since his university days. In an interview with Harvard Business School, he stressed that value investing demands both patience and discipline, even suggesting these traits might be innate.

Discussing his fund’s methodology, Klarman emphasized the intellectual rigor and historical success of value investing:

Value investing involves acquiring undervalued assets, a strategy supported by empirical evidence. Those focused on growth often overpay and are outperformed by investors who exercise patience. Genuine pricing inefficiencies in overlooked companies present opportunities that eventually correct, rewarding disciplined investors.

As a disciple of Benjamin Graham, Klarman criticized the short-term focus prevalent during the 2008 financial crisis, cautioning against the "this-time-is-different" mentality. He highlights the necessity of comprehending economic business cycles and typically keeps 30% to 50% of his portfolio in cash to avoid unfavorable market conditions, deploying capital only when attractive mispricings arise.

His investment style includes targeting unpopular assets, utilizing sophisticated derivatives and put options, and concentrating on undervalued firms neglected by mainstream Wall Street analysts. Prioritizing risk control and the margin of safety, Klarman frequently holds substantial cash reserves, often surpassing 50%, reflecting his cautious approach.

Despite employing unconventional strategies, he consistently achieves robust returns. His fund focuses on companies trading at discounts, particularly distressed or slow-growth entities. For instance, during the 2015 downturn in the energy sector, Baupost actively pursued acquisition opportunities. According to Institutional Investor, Klarman is adept at capitalizing on undervalued markets across equities, junk bonds, bankruptcies, foreign debt, and real estate.

In a 2011 interview with Charlie Rose, Klarman disclosed that he does not rely on a Bloomberg Terminal, explaining that his long-term perspective renders daily market fluctuations irrelevant.

Horse racing

Klarman owns Klaravich Stables Inc. and has collaborated with William Lawrence in horse racing since 2006. Their horse, Cloud Computing, captured victory in the 2017 Preakness Stakes. In 2019, Klarman and Lawrence were honored with the Outstanding Owner award, largely due to their horse Bricks and Mortar’s remarkable performance that season. On Klarman’s 65th birthday in 2022, their stable secured another Preakness Stakes win with the lightly raced horse Early Voting.

Personal life

Klarman maintains a discreet public profile, seldom giving interviews or making public statements. He lives in Chestnut Hill, Massachusetts with his wife Beth Schultz Klarman, whom he met in 1982; they have three children together. His brother, Michael Klarman, is a faculty member at Harvard Law School.

Political and economic views

Klarman has contributed to both Democratic and Republican entities while registered as an independent voter. Following Donald Trump’s 2016 election victory, his support shifted predominantly toward Democrats. Through the Klarman Family Foundation—which he co-manages with his wife—he has donated significantly to pro-democracy initiatives focused on safeguarding journalists, fighting discrimination, and advancing LGBT rights. The foundation held assets totaling $700 million in 2018 and distributed $40 million in grants during 2016.

He is a major donor to political nonprofits such as the Ending Spending Fund and the American Unity Fund advocating for same-sex marriage. Klarman describes himself as "fairly nuanced," motivated by what he perceives as beneficial for the nation.

During the 2016 presidential race, Klarman gave the maximum legal contribution of $5,400 to Hillary Clinton’s campaign, citing Donald Trump as unfit for office. After Trump took office, Klarman circulated a letter warning investors about risks stemming from protectionism and trade barriers despite possible tax reductions, emphasizing that propping up inefficient businesses would merely delay market corrections.

Although he donated $2.9 million to Republican causes in 2016, by 2018 Klarman had shifted support toward nearly 150 Democratic candidates including Joe Kennedy III, Beto O’Rourke, and Kirsten Gillibrand. He expressed disappointment with what he termed "spineless" Republicans and advocated for Democrats to act as a counterbalance to Trump’s administration.

Together with investor John Pritzker and LinkedIn cofounder Reid Hoffman, Klarman has funded the Republican Accountability Project opposing Trump.

Additionally, Klarman supports organizations such as the Foundation for the Defense of Democracies and the Middle East Forum. Concerned about perceived bias in Israeli media coverage, he helped found The Times of Israel, where he currently serves as chairman.

Wealth

According to Forbes, his net worth is estimated at US$1.3 billion. In 2017, he was ranked as the 15th top-earning hedge fund manager worldwide.

Philanthropy

Klarman founded The Klarman Family Foundation, which held assets totaling $255 million as of 2010. The foundation supports healthcare initiatives, Jewish organizations such as the American Jewish Committee, Boston's Combined Jewish Philanthropies, and Gann Academy, along with projects in Israel. He serves as chairman of Facing History and Ourselves, an organization dedicated to creating educational content aimed at combating anti-Semitism and prejudice. Additionally, Klarman is engaged with the Israel Project, a pro-Israel advocacy group, to which he contributed $4 million between 2008 and 2010. He is the primary U.S. backer of The Times of Israel, an English-language digital news outlet focusing on Israeli and Jewish topics.

In 2013, Klarman spearheaded funding for the Seth '79 and Beth Klarman Humanities Building at Cornell University, a $61 million project. The following year, he made a significant contribution toward Harvard Business School’s Klarman Hall conference center and auditorium, which opened in 2018. In 2019, Cornell revealed his major donation to establish the Klarman Fellowships postdoctoral program.

Awards

Klarman has earned recognition as a "hedge fund titan" and a "quiet giant of investing," distinguished by consistent capital appreciation and a low public profile; in 2008, his hedge fund ranked as the sixth largest globally. The New York Times described him as "the most successful and influential investor you have probably never heard of," while Investopedia refers to him as "an enigma in the investing world."

He is frequently dubbed "the Warren Buffett of his generation" and known as the "Oracle of Boston." Buffett has publicly commended Klarman’s investment methodology and is said to keep a copy of his book on his personal bookshelf.

In 2008, Klarman was inducted into Institutional Investors Alpha's Hedge Fund Manager Hall of Fame alongside industry icons including Alfred Jones, George Soros, James Simons, Julian Robertson, Kenneth Griffin, Paul Tudor Jones, and Steven A. Cohen.

Publications and works

Klarman primarily communicates through annual letters to shareholders and has limited his participation in articles, opinion pieces, or books. His only authored book, Margin of Safety: Risk Averse Investing Strategies for the Thoughtful Investor (1991), encapsulates his value investing philosophy applied at his hedge fund. The book criticizes retail investors who base decisions on factors like stock price momentum, describing such actions as speculative and often unprofitable. Klarman promotes value investing—acquiring stocks at prices below their intrinsic worth to achieve discounts.

Although only about 5,000 copies were sold initially, the book developed a devoted following and is currently out of print. Originally retailing for $25, used editions now sell for approximately $700, with newer copies fetching between $2,500 and $4,000. University libraries report it as one of their most requested yet frequently misplaced titles. Klarman has contemplated reissuing it solely for philanthropic purposes.

Moreover, Klarman edited the sixth edition of Benjamin Graham and David Dodd's Security Analysis in 2008, reinforcing his commitment to advancing core value investing principles.

External links

Seth Klarman profile on Forbes