Hedge Fund Gathers $3 Billion in Bet on Wildfire Insurance Coverage Claims – Insurance Coverage Journal

24August 2020

Post 1 Remarks Baupost Group, the hedge fund run by Seth Klarman, got more than$&3 billion in July from its bet on insurance claims against PG&E Corp. linked to a series of lethal California wildfires, according to individuals with knowledge of the matter.

The payment yielded Baupost’s greatest profit generator last month and represented a large markup from what the firm had anticipated, it informed financiers Thursday. The fund bought $6.8 billion of subrogation claims against PG&E, court documents show.

Baupost got some of the claims at about 35 cents on the dollar, Bloomberg formerly reported, so its profit on the trade could have approached$ 1 billion. But the gains were partly offset by losses on the firm’s equity holdings in the utility company, one of the people said, asking not to be identified due to the fact that the info is personal. Read more: Baupost Is Said to Hold $1 Billion in PG&E Insurance Coverage Claims

A spokeswoman for Boston-based Baupost decreased to comment.

In a subrogation claim, an insurance provider sells the right to take legal action against to recoup damages suffered by insurance policy holders. Insurance providers offer the claims at a discount rate to financiers in return for the certainty of being paid upfront.

PG&E entered bankruptcy in January 2019 facing huge liabilities from blazes blamed on its equipment that sweltered Northern California in 2017 and 2018. The fires eliminated more than 100 individuals and ruined 10s of countless structures.

The utility, claims and insurance providers holders consisting of Baupost reached a deal last September that would bring the financiers$11 billion in cash, a plan approved by a federal judge. A spokesperson for fire victims at the time called the accord an outright move by the utility and insurance providers “to assist rich hedge funds and Wall Street.”

PG&E likewise concurred in December to pay$ 13.5 billion to fire victims. Half was paid with shares from the publicly traded utility, which emerged from bankruptcy in July.

The subrogation-claims distribution raised Baupost’s cash balance to 38% of net asset value from 31%, the people said.

The fund, which acquired approximately 10% in the 2nd quarter, manages nearly $30 billion.

Image: Paradise, Calif., Nov. 12, 2018. (AP Photo/John Locher)

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