Bloomberg News

Buffett Deputies Leaving Billionaire in the Dust Get Funds

March 04, 2013

Berkshire Hathaway Inc. CEO Warren Buffett

Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett is preparing Berkshire for new leadership after building the Omaha, Nebraska-based firm over more than four decades. Photographer: Daniel Acker/Bloomberg

Berkshire Hathaway Inc. (A:US) is again giving stock pickers Todd Combs and Ted Weschler more money to invest after they beat the Standard & Poor’s 500 Index and left Warren Buffett “in the dust,” the billionaire chairman said.

The deputies, who made profitable bets on Visa Inc. (V:US) and DaVita HealthCare Partners Inc., each oversee almost $5 billion, Buffett, 82, wrote in an annual letter to investors March 1. That’s up from the $4 billion he outlined in July and reflects his confidence that Berkshire found managers capable of running more than $80 billion of stocks once he and Vice Chairman Charles Munger, 89, are no longer leading the company.

“We hit the jackpot with these two,” wrote Buffett, who is also chief executive officer. “Todd and Ted are young and will be around to manage Berkshire’s massive portfolio long after Charlie and I have left the scene.”

Buffett is preparing Berkshire for new leadership after building the Omaha, Nebraska-based company over more than four decades. Stock picks and takeovers (5CA:US) transformed the company from a failing textile maker into a $250 billion firm with more than 80 operating units and the largest equity stakes (5CA:US) in companies including International Business Machines Corp. (IBM:US), Coca-Cola Co. (KO:US) and Wells Fargo & Co. (WFC:US)

Continuing that track record will fall to Weschler, 51, and Combs, 42, who were hired in the past three years to help pick stocks. Buffett has said he still oversees the largest investments in Berkshire’s portfolio, while his deputies will make bets from “a couple hundred million” dollars to $1 billion. The company doesn’t break out each person’s portfolio in its filings.

MasterCard, IBM

Combs and Weschler beat the S&P 500 by “double digits” last year, Buffett said, without providing specifics. The index returned 16 percent including dividends in 2012.

Some of the smaller holdings in Berkshire’s portfolio including Visa and MasterCard Inc. (MA:US), the world’s biggest payment processors, rose more than 30 percent last year. Two of Buffett’s three biggest equity holdings, Coca-Cola and IBM, advanced less than 5 percent in 2012.

“He’s trying to build these guys up,” said Luke Sims, co- portfolio manager of the Eagle Capital Growth Fund, which has lists Berkshire among its largest holdings (GRF:US). Promoting their records to shareholders helps Buffett show that he hired the right money managers to succeed him, Sims said.

At least one of their picks climbed past $1 billion in value, Buffett wrote. DirecTV (DTV:US), the satellite television provider, is the first stock not picked by the billionaire to be included in a list of the company’s largest holdings in the annual report, he said. Both Weschler and Combs invested in it.

Kidney Dialysis

Berkshire has also built the largest stake in DaVita since Weschler’s hiring was announced in September 2011. The operator of kidney dialysis centers climbed 46 percent in 2012 and was among Weschler’s biggest holdings when he ran a hedge fund before joining Berkshire.

Buffett will boost each manager’s portfolio to $6 billion at the end of this month, he told CNBC in an interview today. While he had previously said he may hire an additional manager to oversee investments, Weschler and Combs’ performance has made that less necessary, Buffett said.

“I’m so happy with the two,” he told the cable-news network. “I’d rather just give them more money.”

The performance by Combs and Weschler was “extraordinary” in 2012, said Jeff Matthews, author of “Warren Buffett’s Successor: Who It Is And Why It Matters” and a Berkshire shareholder. The billionaire takes a longer view than one year, Matthews said.

‘Let’s See’

“Let’s see what happens in a down market,” he said. “Let’s see what happens over the course of a cycle.”

Weschler and Combs each earn a salary of $1 million as well as 10 percent of the amount by which their portfolios outperform the S&P 500 on a three-year rolling basis, the billionaire said at Berkshire’s annual shareholder meeting in May, when he announced the first increase in their portfolios to $2.75 billion each from $1.75 billion.

Twenty percent of each manager’s performance pay is based on the other’s results so that they have an incentive to collaborate, Buffett has said. Neither consults with Buffett on what to buy, he told Bloomberg Television’s Betty Liu in a July interview.

Buffett also wrote in the letter that Weschler and Combs were “models of integrity” and “a perfect cultural fit” at Berkshire. The two investors’ duties include managing pension funds for some subsidiaries, and they have helped in ways beyond portfolio management, he said without specifying projects.

Loan Portfolio

Weschler was involved in Berkshire’s bid for a loan portfolio from bankrupt lender Residential Capital LLC last year. He also helped Buffett on a deal to purchase most of Media General Inc.’s newspapers for about $140 million in June.

Buffett uses the letter every year to laud the performance of Berkshire managers from reinsurance chief Ajit Jain to Matt Rose, the CEO of railroad unit Burlington Northern Santa Fe. His praise for Weschler and Combs extended beyond their job performance.

Both are talented runners, he said. That skill will help them as Berkshire’s Brooks Sports subsidiary inaugurates a 5 kilometer (3.1 mile) fun run on May 5, the day after the company’s annual meeting.

“Regretfully, I will forgo running,” Buffett wrote. “Someone has to man the starting gun.”

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett is preparing Berkshire for new leadership after building the Omaha, Nebraska-based firm over more than four decades. Photographer: Daniel Acker/Bloomberg July 13 (Bloomberg) -- Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., talks about JPMorgan Chase Co.’s $4.4 billion trading loss at its chief investment office and the U.S. banking industry. Buffett also discusses his investment strategy and holdings, the U.S. economy and housing market, and the outlook for the euro. He speaks with Betty Liu at the the Allen Co. media conference in Sun Valley, Idaho, on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • A
    (Agilent Technologies Inc)
    • $58.31 USD
    • -0.09
    • -0.15%
  • V
    (Visa Inc)
    • $216.19 USD
    • -0.25
    • -0.12%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus