It turns out, though, that Baupost’s stock purchases, valued at $873 million at the end of September, are just part of a bigger and more complex wager on California’s largest utility. Baupost also bought $1 billion of legal claims in November that an insurer held against the utility, giving the hedge fund the right to recover losses incurred from the deadly wildfires in 2017, according to people familiar with the matter.

Baupost is a major player in the esoteric market for subrogation claims, where insurers sell the right to sue to recoup damages suffered by policyholders. Insurers offer the claims at a discount to investors in return for the certainty of being paid upfront. For Baupost, the claims are in keeping with Klarman’s penchant for knotty litigation and bankruptcy workouts, from Puerto Rican debt to U.S. nuclear power plants.

A Baupost representative declined to comment.

PG&E said it will file for bankruptcy later this month after the cost ofwildfires left it with potential liabilities of $30 billion or more. Since the endof September, when Baupost last reported its equity holding, PG&E’s shareshave plunged about 82 percent. While equity is usually wiped out in abankruptcy proceeding, there have been exceptions, including thereorganization of mall owner General Growth Properties amid the recession. […]