Ten years ago, I attended the Berkshire Hathaway 50th Anniversary Symposium at the Museum of American Finance in New York, celebrating Warren Buffett's five decades of leadership of the company. The Museum of American Finance is housed in a historic building, which served as the former headquarters of the Bank of New York & Trust Company. 

One of the reasons I attended the event, was because of the stellar line-up of speakers. Prominent figures in finance, including Seth Klarman (Baupost), Bill Ackman (Pershing Square ), Tom Gayner (Markel) Roger Lowenstein (author), Tom Russo (Gardner, Russ & Quinn), Carol Loomis (author), and Jason Zweig (WSJ) all spoke about investing. 

I was particularly keen to listen to Seth Klarman, the fund manager and founder of the Baupost Group. Klarman is a bit of an investing legend, with a signed first edition of his book, “Margin of Safety” sells for $9,500 (I’ve read a bootleg copy). At the event, I found Klarman to be engaging, intelligent and open. He spoke about the principles of value investing and the need for patience in investing. He didn’t act like a hot-shot financier whose fund had delivered a 20% per annum return over the preceding decade. Irish investors cannot typically invest in US funds, however, if given the opportunity in 2015, I would have gladly handed him my money. 

Roll on a decade and returns from Baupost Group have been dismal. From 2014 to 2024, Baupost achieved average annual returns of approximately 4%, a significant decline from its historical average of 20% per annum. In contrast, the S&P 500 delivered substantially higher returns during the same period, returning 16% per annum.

This prolonged underperformance led to investor dissatisfaction, resulting in withdrawals totalling around $7 billion over the past three years. A significant factor contributing to this underperformance is Baupost's commitment to value investing, a strategy that has been out of favour in recent years. Klarman has expressed concerns about elevated market valuations and the potential for a market correction, leading him to maintain substantial cash reserves in anticipation of future investment opportunities. This cautious approach, while prudent, has resulted in returns that lag behind the broader market during prolonged bull runs.

Over the last ten years, I have learned a couple of lessons as a financial advisor. The first is that your investment heroes are human. They have periods of outperformance and underperformance. Taken as a whole, most fund managers underperform the market over a ten-year period. Just 15% of fund managers did better than the S+P 500 over the last ten years. Do you really want to tie your financial future to picking the best fund manager? I don’t, so I look for the returns of the market. I don’t rely on picking the ‘best’ fund managers who invariably disappoint. 

Secondly, if you do decide to pick a fund manager you have to know their style. Seth Klarman and Baupost focused on debt markets, and what they believed to be deeply undervalued equities. This is not an investment style that would suit retirees or those who need income in retirement. So, knowing what is under the investment bonnet is important. 

Finally, just in case you feel some sympathy for a once great fund manager, Baupost has taken a couple of hundred million of fees over the last decade and Klarman remains a billionaire. He will be fine, his investors not so much.