On holding cash:
“One of the most common misconceptions regarding Baupost is that most outsiders think we have generated good risk-adjusted returns despite holding cash. Most insiders, on the other hand, believe we have generated those returns BECAUSE of that cash. Without that cash, it would be impossible to deploy capital when we enter a tide market and great opportunities become widespread. Seth has said on a number of occasions in both types of markets, ‘If you have great ideas, you will have capital to deploy.’ This is incredibly motivating to our investment team.”
On team work:
“When a team member finds a good idea, we discuss who should work on it and how it compares to other ideas we are currently finding (as well as other past ideas). This is a complicated management issue. Good ideas are scarce and most investors like to pursue investments they have sourced. At most investment firms, analysts operate as free agents. Their pay is based primarily on the performance of their individual “book.” Rather than cooperating and maximizing investment returns for the firm, they are often incentivized to do the converse. This may breed a culture of mistrust and misplaced motivations.
At Baupost, it is just the opposite. This is an area that I believe makes Baupost exceptional and can’t be fully understood from the outside. People work together to maximize the returns for our clients, partly because they are incentivized to do so, but also because they believe in one another. No one would want to hand off a good idea and watch another analyst drop the ball. But, since our investment staff is accountable to both the partners and the team, they comfortably make hand-offs, root for one another, and try to help in any way possible. This means reviewing investments, exchanging impactful information and opinions, as well as mentoring one another.
Spector concluded that Baupost’s successful long-term track record isn’t due to a “silver bullet” of “formula,” but rather the 215 people who make up the firm.”