Berkshire Hathaway’s Deputy Stock Pickers Now Entrusted With 8 Billion Of The Company’s Investment Funds

Billionaire CEO and chairman of Berkshire Hathaway, Warren Buffett, will be putting more of the company’s investments in the hands of deputy stock pickers. This is being done to prepare the company for Buffett’s eventual departure.

Two former hedge fund managers named Ted Weschler and Todd Combs, who were hired by Berkshire Hathaway over the last two years, are now going to oversee about $4 billion each of Berkshire Hathaway’s Omaha, Nebraska investment fund, said Warren Buffett during an interview with Betty Lui on July 13. This interview took place on her show “In The Loop,” and both members of the firm had previously only oversaw $2.75 billion of the firm’s money, claimed Buffett.

“They have terrific talent,” Buffett said. “I feel very, very, very good about where we are now versus a few years ago in terms of successor investment management.”

The 81-year-old Buffett has been spending a lot of his time getting the new generation of Berkshire leaders prepared to take control of the company that he has built over the last four decades with stock picks and business acquisitions. It’s important to note that Berkshire has entrusted Weschler, 51, and Combs, 41, with the overall authority to manage their ever-growing investment funds “exactly as they see fit,” said Buffett. They will completely take over the reins of Berkshire Hathaway and oversee all company investments once Warren Buffett finally departs.

Thomas Russo, a partner at Gardner, Russo and Gardner, a Berkshire investor, said that Warren Buffett “has to assure himself and the firm that these people have the ability to deliver when he’s gone.”  “If the experience is now just simply vetted trades that Warren would have done anyway, we haven’t moved the needle.”

Berkshire’s Biggest Holdings

Warren Buffett is still currently overseeing the largest portion of Berkshire’s investments which are worth a grand total of $89.1 billion in their stock portfolio. All of these investments are part of Berkshire’s largest holdings, and the companies included in this category are Wells Fargo and Co., Coca-Cola Co. and American Express Co. to name a few. Weschler and Combs’ investments will not exceed $1 billion at this point in time, said Buffett.

Berkshire has added shares of such firms as DaVida Inc., and MasterCard Inc. over the last six quarters. Both of these investments are valued less than $1 billion. Prior to joining Berkshire Hathaway, Combs had invested in MasterCard at Castle Point Capital Management LLC, and Weschler had purchased DaVida as one of his holdings while he was at Peninsula Capital Advisors LLC. The price of both of these stocks has risen since Berkshire made them part of their portfolio.

Buffett also commented that he wasn’t the person responsible for the new stake that Berkshire has taken out in General Motors Co. at 10 million shares during the first quarter. He did not say which of his deputies made the investment. The majority of this investment was purchased at an average price of $24.35 according to the February 3 regulatory filings. General Motors has slumped a total of 19% from the purchasing level, and recently closed at $19.62 just last week.

Incentive Pay For Weschler & Combs

Weschler and Combs are expected to receive incentive pay from Buffett for quality long-term performance. Their overall salary at this time is in the amount of $1 million, plus they earn 10% of the amount in which their personal portfolios outperform the S&P 500 index. This is done on a three-year rolling basis, according to Buffett which he stated at Berkshire’s annual shareholders meeting in May. Also, part of their incentive pay is based on the performance of the other individual, so it’s very beneficial to both of them if they collaborate, Buffett said.

“They run their portfolios,” Buffett told Liu. “I can’t hold them responsible for what they do unless I give them the authority within that total block of money.”

The one thing in the investment managers do not help Buffett with is deciding which companies that Berkshire Hathaway is going to acquire. But Weschler was involved with Berkshire’s bid for a loan portfolio this year, as well as mortgage assets of now bankrupt lender Residential Capital LLC.

 

According to Peter Rup, Chief Investment Officer at Artemis Wealth Advisors LLC, a New York-based firm, that also invest in hedge funds, said that Combs and Weschler should not have any difficulty purchasing stocks now that they’ve acquired the additional funds. There are plenty of opportunities that exist for money managers who are capable of selecting stocks for the long-term and understand the target companies that they are purchasing.

New Investments For Berkshire Hathaway

“I would imagine that these guys are finding a lot of value,” Rup said. “They could easily deploy an extra billion” dollars by adding to holdings or finding new investments.

Berkshire’s largest shareholder, Warren Buffett, said that the roles of these two individuals are going to be divided up when he finally leaves the firm. The Board of Trustees has also selected their next CEO, as well as two backups, according to an interview given by Warren Buffett back in February.

He would not identify the names of the individuals in which they determined. Buffett also stated that his son Howard Buffett, who has been a director of Berkshire Hathaway since 1993, would be an excellent non-executive chairman.

 

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