* Klarman sees no gains for stocks this decade
* Klarman looking for commercial real estate bargains
* No plans to reissue coveted investing guide he wrote
(Adds comment on book, background on Baupost)
BOSTON, May 18 Star hedge fund manager Seth
Klarman sees few bargains in the current environment and
predicted on Tuesday that the stock market could suffer another
lost decade without any gains.
"Given the recent run-up, I'd be worried that we'll have
another 10 years of zero returns," Klarman, who rarely speaks
in public, said at the CFA Institute's annual conference in
Current market conditions remind Klarman of a Hostess
Twinkie snack cake because "everything is being manipulated by
the government" and appears "artificial."
"I'm more worried about the world broadly than I've ever
been in my whole career," Klarman said.
Klarman has 30 percent of assets at his $22 billion Baupost
Group in cash, he said. He started the firm in 1982 with $27
million and has averaged 20 percent annual gains ever since. In
2007, amid the depths of the credit crash, Baupost had its best
year, gaining 52 percent.
Inflation is a risk that Klarman said he is particularly
concerned with given the government's high rate of borrowing to
bail out the financial system. Baupost has purchased far
out-of-the-money puts on bonds to hedge the risk, he said.
The puts, which Klarman said he viewed as "cheap
insurance," will expire worthless even if long-term interest
rates rise to 6 or 7 percent. But if rates rise to 10 percent,
Baupost would make large gains, and if rates exceed 20 percent
the firm could make 50 or 100 times its outlay.
Typically, Baupost focuses on out-of-favor stocks and
bonds. Klarman cleaned up in 2007 and 2008 buying distressed
debt and mortgage securities that later recovered.
One area Klarman said he is currently scouring for
potential investments is private commercial real estate below
the top quality. Publicly traded real estate investment trusts,
however, have "rallied enormously" and are "quite
unattractive," he said.
Copies of Klarman's long out-of-print investment guide,
"Margin of Safety," sell at auction for $700 or more. Klarman
said on Tuesday he has "no immediate plan" to reissue the book
published in 1991 because he does not have enough free time to
update it or even to write a fresh introduction.
(Reporting by Aaron Pressman, editing by Matthew Lewis)