by David Merkel, CFA of Aleph Blog
In Omaha, there is Farnam Street. Among value investors, it is well-known, because the small main office of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is located there. Less well known is Harney Street, but from an insurance standpoint it is important, because Berkshire Hathaway’s largest insurance subsidiary, National Indemnity, is located there. One of the major assets of National Indemnity is the Harney Investment Trust, of which National Indemnity is the sole beneficiary.
Before I go further, I want to say there is a lot I don’t know about what I am going to write. Let me tell you what sources I have looked at:
- SEC filings of companies where the Harney Investment Trust was a greater than 5% shareholder.
- Legal documents from Bankruptcies and other corporate legal events where Harney Investment Trust was a party.
- All of the statutory filings for Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s primary insurance companies in 2012.
- All of National Indemnity’s statutory filings on assets 2002-2013.
- All of National Indemity’s statutory audits, 2002-2012.
Now, if you read through Berkshire Hathaway’s filings to the SEC, you won’t find many mentions of the Harney Investment Trust. You have to read the insurance regulatory documents to find it, and even if you do that, you will still be puzzled. Why?
- Over the last 12 years, the National Association of Insurance Commissioners does not require “Other Assets” on Schedule BA to provide enough data so that an external user can make the change in book value or market value make sense. It has gotten better over time, but it is still not enough. You want to have enough data such that it explains the change in market and book value to the nearest thousand dollars.
- There are a few errors that are obvious. Some easy calculations don’t add. Current year starting values are not the same as last year’s ending values.
- A few numbers between the statutory filings and audits don’t agree.
Now, some of that is due to bad regulation. The data reported for schedule BA assets could be streamlined such that it reports the change in the balance sheet for each asset on a book and fair market value basis.
But more of it is due to Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s lack of willingness to discuss/mention the Harney Investment Trust. I did a lot of digging on this, and found little that was definitive. One seemingly intelligent opinion I found here. I will quote the most relevant portion from “globalfinancepartners”:
Regarding the large surplus at Berkshire – it is largely because many subsidiaries are owned inside the insurance companies – especially within National Indemnity. 100% of the stock of BNSF, for example, valued at Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s cost of $34 Billion – is owned by National Indemnity and counts towards the statutory surplus. Also, National Indemnity owns 100% of the shares of GEICO. Then in addition there are the securities, of course.
GEICO, in turn, owns 100% of the shares of Clayton, McLane, TTI, as well the marketable securities.
I’ll attach an NAIC filing if you really want to geek out. But unfortunately, the mystery stock Buffett has been accumulating and receiving confidential status on through the SEC is hidden like always inside the “Harney Investment Trust” – Buffett’s go-to vehicle for keeping stock trading hidden from regulatory filings. (Harney Street is in Omaha)
He gets it, mostly, and concludes that Buffett uses the Harney Investment Trust to hide his buying and selling of positions. Assets inside the Trust do not get reported one-by-one on the insurance Schedule D.
Now, before I close, I want to share the data that I have harvested from the Statutory statements, and make a few more comments.