Bloomberg News

Buffett’s Hire Is Marathoner Whose BofA Bet Beat Berkshire

September 13, 2011

(Updates with Grace’s closing share price in the 11th paragraph.)

Sept. 13 (Bloomberg) -- Ted Weschler, the hedge-fund manager and marathoner, made money trading Bank of America Corp. stock and held the biggest stake of a bankrupt chemicals firm before being hired by Warren Buffett’s Berkshire Hathaway Inc.

Weschler bought 2 million Bank of America shares in the first quarter of 2009 when the credit crunch pushed down financial stocks. The shares had more than doubled, on a quarterly average basis, when he sold them a year later. Weschler reported a stake of more than 10 percent in W.R. Grace & Co. on April 23, 2001, weeks after the chemicals maker entered bankruptcy. The stock has surged 24-fold since.

Weschler, 50, is part of the second generation of Berkshire leaders whom Buffett, 81, is picking to maintain the culture and performance of the firm he built over four decades. Weschler’s bets will get bigger at Omaha, Nebraska-based Berkshire, which holds about $100 billion in stocks and bonds. His investment approach may serve him well under Buffett, who touts his own fondness for reading corporate regulatory filings, said Bruce Kershner, a headhunter who previously worked for Weschler.

“All he liked to do was read and read and read,” Kershner, president and founder of Bethesda, Maryland-based Kershner & Co., said of Weschler. “He said he took vacations and he would just read his financial statements.” Kershner recruited analyst Bill Beisswanger for Weschler’s fund.

Berkshire Succession

Weschler and Todd Combs, the former hedge-fund manager hired by Berkshire last year, will assume Buffett’s investment responsibilities when the billionaire chairman retires, Berkshire said yesterday in a statement. Until then, Buffett will oversee the bulk of the portfolio. A third manager may eventually be added to the investment team, Berkshire said.

Weschler is shutting his Charlottesville, Virginia-based Peninsula Capital Advisors LLC and returning funds to limited partners. He’ll join Berkshire early next year. Peninsula, which had about $2 billion in nine U.S. stocks as of June 30, counted Michael Bills, the former chief operating officer of Tiger Management LLC, among its investors.

“This is a brilliant move for Berkshire,” Bills, founder and chief investment officer at Charlottesville-based fund of hedge funds Bluestem Asset Management LLC, said in an e-mail. “We are fortunate to have been limited partners with Ted, and think the world of him.”

Peninsula held stock in Cincinnati Bell Inc., Cogent Communications Group Inc., DaVita Inc., DirecTV, FiberTower Corp., Liberty Media Corp., Valassis Communications Inc. and WSFS Financial Corp. at the end of the second quarter.

Three-Person Office

The hedge fund is run in a three-person office, with Weschler assisted by an analyst and an office manager, a person familiar with the business said. It is based in an office above a bookstore in downtown Charlottesville.

Buffett has said he was searching for money managers who are “genetically programmed” to avoid large risks. Buffett, who is chief executive officer and chairman, has said his candidates for CEO already work at Berkshire.

Weschler worked at Grace, a Columbia, Maryland-based chemical maker, from 1983 to 1989 in roles that included assistant to the chairman and CEO. Peninsula’s stake of 10.8 million shares of Grace is valued at about $392 million. The stock jumped $2.05, or 6 percent, to $36.34 at 4:15 p.m. in New York Stock Exchange composite trading after Grace said Weschler will keep his portion of Peninsula’s stake.

Grace Investment

Weschler “has expressed continued support for Grace” and plans to retain 40 percent of the fund’s shares in the chemical maker after other holdings are distributed to investors, said Greg Euston, a Grace spokesman. Grace, which traded at $1.47 on April 23, 2001, the day Weschler disclosed Peninsula’s stake, is under federal bankruptcy protection, seeking to limit financial exposure from more than 100,000 asbestos-related injury claims.

Buffett is hiring “guys that are entrepreneurs and have gone off on their own, kind of like he did,” said Paul Howard, director of research at Solstice Investment Research in Glastonbury, Connecticut. “He’s not grabbing some portfolio manager at some well-known Wall Street shop.”

Bank of America traded at an average of about $6.73 in the quarter when Weschler took the stake, and about $16.23 in the period when he sold it. Berkshire owned Bank of America common stock from the second quarter of 2007 to the final three months of last year, a period in which the lender lost more than two- thirds of its market value.

Reading Statements

Buffett, who accumulated the biggest shareholdings in Coca- Cola Co. and Wells Fargo & Co., invested $5 billion last month in Charlotte, North Carolina-based Bank of America preferred stock. The billionaire, speaking in a July interview with Bloomberg Television’s Betty Liu, said he relies on company filings to help him settle on investments and that, “I read S1s like other people read Playboy.”

Weschler’s enthusiasm for reading financial statements extends to the annual letters written by Buffett, said Thomas Preston, general counsel at Delaware State University. The two men began serving together on the board of WSFS in the 1990s when an investment from Weschler helped save the Wilmington, Delaware-based bank, Preston said.

The stock had soared more than 10-fold to more than $65 a share in the fourth quarter of 2006, when Weschler sold his stake and left the board. At that time, Weschler bought a round of Route 66 root beers to celebrate, Preston said.

‘Fantastic Job’

“I remember Ted saying to the board, ‘You guys have done a fantastic job, and here’s a root beer that commemorates the stock price today,’” Preston said. “He said, ‘I fully expect you to double this stock price.’ Of course, things haven’t worked out quite that way. But, you know, he’s into gestures like that. I’ve still got the bottle of root beer sitting around here somewhere.”

Weschler returned to the WSFS board after building a new stake in the bank, starting in the first quarter of 2009. He distributed copies of the last few years of Buffett’s letters to directors at a board retreat, Preston said.

The 2005 combination of US Airways Group Inc. and America West Holdings Corp. received early support from Weschler, who helped bring other investors on board, said Derek Kerr, finance chief at U.S. Airways.

“He impressed us as a good long-term-oriented investor,” Kerr, who was chief of finance at America West during the transaction, said yesterday in a phone interview. “You could tell, from the people that came in and asked questions after he had committed, that he knew a lot of people and was well connected in the investment community.”

Weschler has completed marathons including those in New York City, Boston and Erie, Pennsylvania, according to results posted online. He finished the 2007 New York City Marathon with a time of 3:30:02, according to the race’s website.

--With assistance from Annie Crabill in Charlottesville, Virginia, Jack Kaskey in Houston and Dakin Campbell in San Francisco. Editors: Dan Reichl, Josh Friedman

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Kelly Bit in New York at kbit@bloomberg.net; Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net.


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