This week I bring you a special edition of the newsletter: Berkshire after Buffett. In a series of pieces, led by my colleague and longtime Berkshire Hathaway watcher Eric Platt, the FT examines the conglomerate’s rich success under Warren Buffett and the challenges that will eventually face the company’s next generation of leaders.
Eric was in Nebraska for Berkshire’s annual shareholder meeting on Saturday, dubbed the Woodstock of capitalism. The Omaha gathering had a particular poignancy, being the first time Buffett took to the stage since the death of his longtime investment partner Charlie Munger, who passed away in November at the age of 99. His death has intensified questions over the future of the business when Buffett, 93, is no longer at the helm.
At the start, the legendary investor mistakenly referred to his successor Greg Abel as “Charlie” when passing a question to him. The packed arena — so full that hundreds of people sat behind the stage, unable to see Buffett in the flesh — broke into a thunderous applause. “I’m so used to . . .,” he said, before laughing. “I checked myself a couple times already. I’ll slip again.”
Can any stockpicker follow the Oracle?
At the AGM on Saturday, Buffett gave his most direct answer yet on how responsibilities will be doled out among the small executive team that will one day lead the company, handing Abel responsibility for how hundreds of billions of dollars are allocated. “I think the responsibility ought to be entirely with Greg,” Buffett said from the stage at the CHI Health Center in downtown Omaha. “I used to think differently about how that would be handled, but I think that the responsibility should be that of the CEO.”
While Buffett made clear that Abel will have authority over not just takeovers but the sprawling conglomerate’s mammoth stock portfolio as well, two other lieutenants — Ted Weschler and Todd Combs — are expected to play a prominent role within Berkshire’s $354bn equity portfolio.
Berkshire is the last great American conglomerate, with hundreds of subsidiaries fused with the backbone of the US economy. Its freight trains run over more than 32,000 miles of track. Its utilities provide power to 13mn customers and in Geico it owns one of the largest insurers in the country.
Combs and Weschler were plucked from relative obscurity to help run this portfolio. Weschler, 61, was hired after twice paying millions of dollars at charity auctions for lunch with Buffett in 2010 and 2011, and Combs, 53, was recruited in 2010 after writing to Munger, asking to meet him.
The FT set out to address the biggest questions confronting Berkshire shareholders as they imagine a future without Buffett: how do Weschler and Combs approach investing, are they any good, and can they build on his astonishing record?
The analysis found that Buffett’s deputies are trailing both their mentor and the market.
The risk ‘genius’ pulling the insurance strings
In early 2023, Ajit Jain was weighing Berkshire’s exposure to the risk of a devastating hurricane hitting Florida.
If its insurance business provided more cover and the upcoming season proved tame, Berkshire would reap a multibillion-dollar windfall. The downside? A potential $15bn in losses if it turned into an ugly year for natural catastrophes. Jain sought permission from his boss, Warren Buffett, to increase the bet.
“Warren said yes without even listening to what the numbers were,” Jain recounted to shareholders at Berkshire’s annual meeting last year. With the season ending up a mild one, the decision helped propel the insurance business to one of the best underwriting profits in its history.
The 72-year-old Jain heads the insurance operations that underpin Berkshire, providing the cheap capital that has allowed Buffett to build a conglomerate spanning businesses from Duracell batteries to railroad operator BNSF and one of the biggest investors in the US stock market.
In this article, Eric and Ian Smith examine Berkshire’s insurance business, drawing on accounts of current and former employees, competitors and advisers.
Prized energy business faces upheaval
When Berkshire announced the acquisition of MidAmerican Energy in 1999, Buffett hailed the Iowa gas and electric utility as squarely in the conglomerate’s “sweet spot”.
Unheralded at the time, the $2bn transaction catapulted Buffett into the energy business, kicking off a quarter of a century of dealmaking that has transformed Berkshire into a major player, operating across 28 states, transporting 15 per cent of America’s natural gas and serving 13mn customers.
The $138bn of assets owned by its subsidiary, Berkshire Hathaway Energy, are varied, but the appeal of the businesses — and their place within Berkshire — have gone unquestioned. Its utilities, accounting for the bulk of BHE’s assets, boast the economic moats against competition prized by Buffett and have long been an attractive home for the cash that the conglomerate generates.
But if predictability was hardcoded into the sector’s DNA 25 years ago, global warming is bringing epochal change. The threats confronting Berkshire are multipronged: from billions of dollars in potential damages from wildfires, to criticism over how quickly it plans to retire its coal-fired power stations and the increasing politicisation of climate change in the US.
In this article, Myles McCormick and Eric explore how the energy division arguably faces the most fundamental upheaval of any part of the Berkshire empire.
Is Greg Abel up to the top job?
During the 1990s, Greg Abel, then a high-flying energy industry executive, lived just a few blocks from Buffett in Omaha, Nebraska, the home of Berkshire.
The pair never met at the time, but three decades later Abel is in line to eventually succeed him at the top of Berkshire, handing the plain-speaking Canadian a challenge even more daunting than the one Tim Cook faced when he took the reins at Apple from Steve Jobs.
Buffett’s longevity means putative successors have either died or fallen by the wayside. But Buffett’s advancing years and the death of Berkshire’s acerbic vice-chair Munger means that the question of what the future holds when the legendary investor is no longer in charge is an ever more pressing one.
In the final part of the series, Eric explores whether Abel will be able to deliver on Buffett’s promise that Berkshire, America’s last great conglomerate in an age when they have fallen out of favour, was really built to outlast a founder whose investment record, folksy charm and professorial wisdom have made him the country’s most admired business leader.
Abel will be tested on multiple fronts. The 61-year-old will have to show he can allocate the nearly $10bn that flows from Berkshire’s operating businesses into Omaha each quarter just as the task of unearthing acquisitions, both big and at a good value to make a difference to the $862bn company, becomes harder.
At the same time, he will have to navigate a board which includes two of Buffett’s children, Howard and Susie, as well as executives such as Jain, who has for years reported directly to the billionaire.
“You are coming after the GOAT [greatest of all time],” said Bill Stone, the chief investment officer of Glenview Trust, which owns Berkshire shares.
Chart of the week
Berkshire’s cash pile swelled to a record $189bn in the first quarter of 2024 as the sprawling conglomerate continued to dump stocks, including Apple, one of its largest positions.
The figure underscores the difficulty the billionaire investor and his team have had in trying to find worthwhile investments, as well as the relative allure of the high yield on US government debt, Eric reports from Omaha.
The company on Saturday disclosed it had sold just under $20bn worth of stocks in the first three months of the year, buying $2.7bn over the same period. As a result the value of its stock portfolio slipped to $336bn, from $354bn at year-end.
The filing with US securities regulators indicated that Berkshire had sold a significant portion of its stake in Apple, which had become a core holding for the Omaha-based business since one of Buffett’s deputies first invested in 2016.
The company said its position in the iPhone maker was worth $135.4bn in the first quarter, down from $174.3bn at the end of 2023, indicating it had sold roughly 115mn shares in the company at the start of the year, or 13 per cent of its holdings. Berkshire started to pare its holdings in Apple in late December, selling roughly 10mn shares.
Five unmissable stories this week
US active asset managers are getting left behind as investors tiptoe back into the markets via index tracking funds. Active mutual funds experienced outflows of more than $50bn in the first three months of the year, according to Morningstar Direct, hurting large asset managers such as Capital Group, T Rowe Price and Franklin Templeton. Instead, investors are focusing on strategies that track an index over those that select stocks, particularly exchange traded funds.
Jeremy Hunt has warned the Financial Conduct Authority against its plan to “name and shame” companies under investigation in an unusual broadside against the UK’s top financial regulator. “I hope the FCA re-look at their decision,” the UK chancellor told the Financial Times, referring to the watchdog’s plan to publicly disclose the identities of companies under investigation more frequently and at a much earlier stage.
BlackRock has struck a deal with the Saudi Arabian government to open a multi-class investment firm in Riyadh, anchored by a $5bn mandate from the kingdom’s Public Investment Fund. BlackRock Riyadh Investment Management will be a wholly owned subsidiary of the $10.5tn US asset manager. The goal is to attract additional overseas capital to Saudi Arabia and deepen its capital markets through a range of investment funds managed by BlackRock.
Billionaire Michael Platt’s BlueCrest Capital is planning to expand its number of trading teams by 10 per cent by the end of the year after a run of performance in which the family office has trounced many of its macro hedge fund rivals. The secretive investment firm is in talks with 30 portfolio managers across the industry, as a war for talent rages with multi-manager hedge funds such as Citadel and Millennium.
Marc Lipschultz, the co-founder of Blue Owl, one of Wall Street’s largest alternative asset managers, said it was planning to keep pursuing acquisitions to expand beyond its core business of arranging financing for other private equity groups. The New York-based investment group is considering acquiring an infrastructure investor or a lender with a focus on originating securitised debts backed by assets such as aircraft or rental equipment.
And finally
I’m in Los Angeles this week for the Milken Institute Global Conference — hit me up if you’re here. Meanwhile here’s Fleabag star Phoebe Waller-Bridge looking fabulous at the Château Marmont after winning an armful of Emmys in 2019. See you at the bar.
