Seth Klarman has made a career as a hedge fund manager — and more than a billion dollars, according to Forbes Magazine — by investing in undervalued assets. It was the same approach he took when he became the majority owner of Cloud Computing.
As he stood near the rail Saturday night at Pimlico Race Course after his 13-1 long shot's stunning down-to-the-wire victory in the 142nd Preakness, the New York-born, Baltimore-raised Klarman recalled the conversations he had with trainer Chad Brown when he purchased the horse for around $200,000.
Asked if Cloud Computing was another undervalued investment, Klarman said, "Arguably he was. His breeding isn't the top sire, he's a relatively inexperienced sire. When the trainer loved him at the sale physically and he vetted clean, we made the decision to buy him."
Still, Klarman doesn't equate what he has done since founding the Boston-based investment company, Baupost Group, after graduating from Harvard Business School in 1982 to the horses he has bought and sold over the past 25 years.
Klarman's interest in horse racing dates to when he was growing up on Whitney Avenue, a few blocks from Pimlico, and coming to races, including the Preakness several times. As a high school student at Poly, he watched Secretariat's victory in Baltimore en route to the Triple Crown in 1973.
"I started out as a teenager handicapping and enjoying the races, enjoying the athletic performances and also enjoying the puzzle of trying to figure out who might win a race," Klarman said. "As an adult I was offered the opportunity to participate in a small partnership and gradually became an owner. This is the culmination of 25 years of hard work and learning and trying to figure this game out."
Asked how much different investing in a thoroughbred is to investing in a stock, mutual fund or company, Klarman said, "In my regular life, I'm a long-term investor, so we make patient, long-term investments on behalf of our clients. This is gambling, this is a risky undertaking. This is not at all like what I do the rest of my life, but it does provide one of the highest levels of excitement that a person can have."
The victory by Cloud Computing — one of several horses Klarman owns that he gave names related to finance, technology and "other names that make sense in a business or economics content" — eclipsed his two most lasting sports memories.
Along with the win by Secretariat, which Klarman watched from the infield, there was the four-game sweep by his beloved Orioles over the favored Los Angeles Dodgers in the 1966 World Series.
"I was only nine when that happened," said Klarman, who will celebrate his 60th birthday Sunday.
Beth Klarman smiled at the memory of her husband's involvement in horse racing, coming about a decade after they were married in 1983.
"It was kind of gradual," she said Saturday. "I knew he grew up near Pimlico. We went to races very early in our relationship. It was kind of a natural evolution. It's been a tremendous ride, very exciting and I've learned a lot."
Klarman is the second owner in as many years with Baltimore roots to win the Preakness. Sol Kumin, a former Johns Hopkins lacrosse player, who like Klarman is a private equity hedge fund manager, was happy that Klarman followed him in the winner's circle at Pimlico after winning the Preakness. Kumin is the co-owner of Exaggerator, which upset Kentucky Derby champion Nyquist last year.
"He's a great guy," Kumin said Saturday. "He's a hardworking guy, incredibly generous. He loves the sport and has been it in for a long time. I just couldn't be happier for him."
Though it isn't certain whether Klarman will run Cloud Computing in the Belmont Stakes, it seems doubtful considering that the 3-year-old's first three races all came exactly month apart. The last leg of the Triple Crown will be in three weeks. Nor is Klarman second-guessing himself for not running his horse earlier this month at Churchill Downs.
"No regrets," he said. "I think possibly some of the reasons we won today was because we were patient and didn't throw an inexperienced horse against a 20-horse field in the Derby on a very difficult track. I think that's actually why we're here today. I also learned in life that you don't look back with a lot of would've, could've, should've. We made a great call, and we're ecstatic and we'll worry about the future, not the past."
Baltimore Sun reporter Jonas Shaffer contributed to this article.