The Financial Life: Seth Klarman

Some hedge fund managers are famous for big scores—John Paulson made $15 billion shorting the housing market. Then there's Seth Klarman, who got rich by making money steadily over time. As markets began to collapse in 2008, the founder of Baupost Group focused on corporate bonds he calculated would yield solid returns even if the economy got worse. "We didn't have the degree of conviction Paulson had," says Klarman, 53, in an interview in his Boston office. "We don't deal in absolutes. We deal in probabilities."

Baupost has returned 19 percent a year, net of fees, since Klarman started it in 1983, vs. 11 percent for the Standard & Poor's 500-stock index. His record helped Klarman almost double Baupost's assets, to $22 billion, over the past two years—a period when the hedge fund industry was seeing withdrawals. He runs more money than better-known managers such as Ken Griffin and Steven Cohen.