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Hedge fund manager some call the next Warren Buffett owns nearly $1 billion of Puerto Rico's bonds

  • Klarman's hedge fund, Baupost, owns $911 million of the island's bonds through Decagon Holdings entities, according to a public court filing.
  • "The Baupost Group is a holder of COFINA [Puerto Rico Sales Tax Financing Corp.] bonds through the Decagon entities. Baupost regularly makes investments through subsidiary holding entities," Baupost spokeswoman Diana DeSocio wrote in an email.
  • Baupost has $30 billion in assets under management as of March 2017, according to the firm.

Seth Klarman, the value investing giant who draws comparisons to Warren Buffett, has a very large position in Puerto Rico's controversial debt.

Klarman's hedge fund, Baupost, owns $911 million of the island's bonds through Decagon Holdings entities, according to a July public court filing.

"The Baupost Group is a holder of COFINA bonds through the Decagon entities. Baupost regularly makes investments through subsidiary holding entities," Baupost spokeswoman Diana DeSocio wrote in an email.

COFINA stands for the Puerto Rico Sales Tax Financing Corp. that issues bonds.

The Intercept on Tuesday was first to report the hedge fund's large stake. It was previously known that Baupost had a holding in COFINA bonds, but the size was not.

Puerto Rico's bonds plunged Wednesday after President Donald Trump pledged to wipe out its debt in an interview with Fox News. The island's general obligation bonds fell to 36 cents on the dollar versus 56 cents on the dollar last month.

The fund declined to comment specifically on the plunge in the debt Wednesday.

Two weeks ago, the island was hit by Hurricane Maria, a Category 4 storm that left most of the population without electric power.

Puerto Rico currently has more than $70 billion in debt. Cate Long, founder of Puerto Rico Clearinghouse, told CNBC in an email retail investors own about 75 percent of the island's debt.

Baupost has $30 billion of assets under management as of March 2017, according to the firm.

Klarman's fund has generated annual returns of 16.4 percent and $22.6 billion in net profit for clients since inception through 2015, according to a Morgan Creek Capital letter. Baupost's main fund posted a 'high single-digit' return last year.

The hedge fund manager has largely avoided controversy over his career and is often compared with Buffett for his disciplined investing philosophy and solid returns. As the political rhetoric heats up around what Wall Street is owed as Puerto Rico tries to recover from this tragedy, a negative spotlight could fall on owners of the controversial debt like Baupost.

That is likely something Klarman would not welcome since he is notoriously reclusive. He rarely appears publicly and used copies of his "Margin of Safety" investment book still sell for more than $700 online.

— CNBC's Fred Imbert contributed to this report.

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