Baupost Co-Portfolio Manager Wagner to Start His Own Firm

Herb Wagner, the Baupost Group LLC executive appointed as Seth Klarman’s co-portfolio manager two years ago, will leave the firm at the end of 2012 to start his own investment company, according to a letter sent to the hedge fund’s clients yesterday.

Wagner, who has worked at Baupost for 13 years, plans to manage his own wealth initially and eventually take in money from outsiders, according to the letter, portions of which were obtained by Bloomberg News.

Klarman, 55, doesn’t plan on replacing Wagner in the near future, according to the letter. Jim Mooney was named co-head of Boston-based Baupost’s public investments along with Wagner and will become sole head on Jan. 1, Klarman wrote. Baupost, which Klarman started in 1983, oversees about $25 billion.

“Herb’s departure will create opportunities for many others to take on new challenges and greater responsibility, continuing our focus on progress and succession planning,” Klarman wrote in the letter. “Baupost has lost senior, highly talented, team members before, and each time has emerged stronger.”

Klarman said in his letter that change is part of the “natural course of events” at investment firms given that employees are well-paid and highly motivated. In the past week, Greg Coffey, co-chief investment officer of Moore Capital Management LLC’s European business, left the hedge fund industry after a trading career spanning almost two decades, and Thomas Steyer said he is quitting Farallon Capital Management LLC, the firm he founded, to focus on public service.

‘Highly Successful’

Mooney is a member of the Baupost management committee in Boston and head of Baupost’s London office. He has overseen many of the firm’s “highly successful” distressed-debt investments in recent years, said Klarman, who had discussed Mooney’s new role with Wagner for about a year. The move was slated for the end of 2012, according to the letter.

Klarman meets regularly with each of the 10 Baupost partners to discuss the firm, teams and plans, the firm said. It was during one of those meeting in late September that Wagner said he wanted to start his own firm.

“Nothing in the portfolio was bought or sold without my own involvement and approval,” Klarman wrote. “My intense focus on the portfolio has remained constant since the firm was founded, and will remain so in the future.”

Diana DeSocio, a spokeswoman for the firm, confirmed the contents of the letter. Wagner didn’t respond to telephone and e-mail messages.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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