Warren Buffett moved one step closer to completing his succession plan, naming a Connecticut hedge fund manager with insurance experience to run a “significant portion” of Berkshire Hathaway Inc.’s investment portfolio.
Todd Combs, 39, becomes an investment manager, Berkshire said yesterday in a statement. Combs manages about $400 million in financial-services shares at Castle Point Capital in Greenwich, Connecticut, according to marketing materials sent to investors. Buffett, the 80-year-old Berkshire chairman and chief executive officer, is searching for candidates to take over his duties when he steps away.
“He runs financial-services investments and obviously Berkshire has a significant percentage of companies” in those sectors, including insurance and banking, said Michael Yoshikami, who oversees about $1 billion at YCMNet Advisors in Walnut Creek, California. Still, “it’s somewhat of a surprise. He’s certainly not one of the people that have been bandied about in terms of taking over the role.”
Buffett has said his responsibilities will be split among at least three people upon his death or retirement. A CEO will oversee the more than 70 operating units assembled by Buffett, and one or more investment heads will be appointed to manage Berkshire’s portfolio. Buffett has said his son, Howard Buffett, would be an effective non-executive chairman.
“For three years, Vice Chairman Charlie Munger and I have been looking for someone of Todd’s caliber to handle a significant portion of Berkshire’s investment portfolio,” Buffett said in the statement. “We are delighted that Todd will be joining us.”
Hedge fund manager Li Lu, who was reported by the Wall Street Journal in July as a potential Berkshire hire, won’t join the firm because he doesn’t want the job, Buffett told the newspaper in an interview published today. David Sokol, chairman of Berkshire’s MidAmerican Energy Holdings Co., is a possible CEO candidate, Barron’s has reported. Berkshire Chief Financial Officer Marc Hamburg didn’t return calls for comment.
“I could imagine a situation where you have a general investment manager and then equal investment managers in charge of certain portfolios,” Yoshikami said.
Buffett, who took control of Omaha, Nebraska-based Berkshire in 1967, has said he’d look for youth in selecting an investment chief. He launched a succession plan in 2006. The search for a chief investment officer of the holding company has taken longer.
‘A Long Tenure’
“The directors believe it’s important that my successor have the prospect of a long tenure,” Buffett wrote in his annual letter to shareholders in 2007. “I intend to hire a younger man or woman with the potential to manage a very large portfolio.”
Combs oversaw $405 million at the end of September, with his largest holdings including U.S. Bancorp, MasterCard Inc., Western Union Co. and Chubb Corp., according to the marketing materials. In the 1990s, Combs spent three years as an analyst at the Florida banking regulator and about four years as an analyst for auto-insurer Progressive Corp., the documents show.
“I was surprised to learn that the fund doesn’t own billion-dollar positions because that is what he will have to do,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP.
Berkshire amassed equity holdings of more than $50 billion as of June 30, including Wells Fargo & Co. and American Express Co. stakes, partly by investing premiums from insurance operations. The fixed-income portfolio, valued at more than $30 billion, includes corporate debt and government securities.
Combs’s “value-oriented” investment approach is focused on both long and short investments in financial services, and bets “will play out over several years,” according to the marketing materials. The fund had declined about 4 percent this year through September.
Castle Point’s fund gained 6.2 percent last year, fell 5.7 percent in 2008, rose 19 percent in 2007 and climbed 13.6 percent in 2006, according to the letter. Castle Point was founded by Combs in 2005 with backing from Stone Point Capital, the private-equity firm whose chairman is former Goldman Sachs Group Inc. executive Stephen Friedman, who was chairman of the board at the Federal Reserve Bank of New York before resigning last year.
Buffett told Fortune magazine that he met Combs through Munger. Combs won’t move to Omaha, and instead will continue to work from Connecticut, Fortune reported on its website.
Combs was head of financial-services investments at Copper Arch Capital LLC, a New York-based hedge fund that closed in 2008. He received an undergraduate degree from Florida State University and a master’s of business administration from Columbia University, Buffett’s alma mater.
“He’s a young guy which is what Buffett wants,” Matthews said. “And anytime Warren Buffett says you’re up to it, that’s the Good Housekeeping Seal of approval.”