Buffett Hands Pension Management To Lieutenants

Buffett Hands Pension Management To Lieutenants
By USA White House [Public domain], via Wikimedia Commons

Warren Buffett, a man who has always been extremely hands-on in choosing who will manage the company’s money, is trusting two of his lieutenants to find some value in Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s $10.4 billion in pension assets.

Buffett Hands Pension Management To Lieutenants

Todd Combs and Ted Weschler have been saving Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) quite a bit of money on fees that it would be paying to other asset managers, as the two have been overseeing defined-benefit plans at Berkshire subsidiaries.

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Buffett’s pick for Berkshire’s money management

“For his whole career, Buffett has been extremely choosy about who he will allow to manage Berkshire’s money,” said James Armstrong, president at Henry H. Armstrong Associates, which oversees about $400 million, including shares in the Omaha, Nebraska-based company. “Now he’s got two young guys who have a lot of energy and some capacity, and I think it makes perfect sense” that he selected them for pension investments rather than “some big bank.”

By reallocating pension assets, Buffett is able to give the two lieutenants more to manage without having to liquidate his own holdings in Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)’s portfolio, which is presently valued at just shy of $104 billion. Buffett wrote in March that each of the aforementioned lieutenants is managing around $5 billion each. Both men were brought on by Berkshire in the last three years and have quickly gained Buffett’s trust.

Presently, the two have been investing the pensions for Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) subsidiaries in less than a dozen stocks with a very small, or at least below Berkshire’s average, investment in bonds.

Buffett has repeatedly warned investors that bonds are among the “most dangerous” assets, stating that with present interest rates near record lows, there isn’t enough compensation for investors given the risk of inflation.

Combs and Weschler’s stocks management

According to regulatory filings, Combs and Weschler have done well with a number of stocks. While managing FlightSafety’s pension, the two bought a stake in Phillips 66 that has nearly doubled in value. Additionally, the two have done well with General Motors Company (NYSE:GM) stock that it picked up for Justin Brands in 2012, the stock has climbed more than 70 percent since the two made the purchase.

“These are the kinds of bets he’s believed in all along,” Jeremy Gold, an independent pension actuary and economist, said of Buffett. “He believes that these insights provide returns and cost savings above and beyond the returns for risk taken in more highly diversified, externally managed portfolios.”

H/T Pensions & Investments

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