May 12, 2021

Seth Klarman on his investment firm's competitive advantage

To outperform over time, managers must find edges that enable them to earn excess returns.  We believe that we have real edges as a firm, such as our truly long-term focus and flexible investment mandate (including holding significant cash balances).  In today's frenetic marketplace, these edges seem more enduring than ever.  Most of our competitors feel intense pressure from their clients to generate short-term performance and have trouble maintaining a truly long-term perspective, whether in bad markets or good.  They also operate with partnership structures and a client base that restrict their investment mandate.

Our ability to stay the course and move in a decisive and concentrated way into the most attractive areas of opportunity was enormously important during the 2008-2009 crisis, as many of our competitors pulled back from making new investments after sustaining significant losses.  We, by contrast, were able to consistently add to positions that were becoming increasingly attractive.  We exepect that this same value discipline and long-term focus will help us avoid getting caught up in market bubbles that most competitors simply cannot resist, while serving us well in future pockets of turbulence.

~ Seth Klarman



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