When the Reserve Bank of Australia or the Federal Reserve in the United States releases a statement, you can guarantee that economists will pick over every word, looking for that extra bit of meaning or insight. The slightest change in terminology can send traders into a meltdown.
So it is with legendary investor Warren Buffett. When his investment company Berkshire Hathaway releases a statement – and they are almost always brief – it’s undeniable it will be examined in microscopic detail.
This morning, Berkshire released a statement on perhaps the biggest issue for Buffett watchers – who will follow the 81-year-old when he finally decides to step down.
The big news was that 50-year-old hedge fund manager Ted Weschler will join Berkshire early next year from his current employer, Peninsula Capital Advisors.
Analysts say Weschler is not well known in the investment community, although he did hit the headlines when he was part of a group that paid $5 million in a charity auction to have lunch with Buffett a few years ago.
But reports suggest Weschler is a Buffett disciple and follows the “value” investing process that Buffett has made famous, where he finds undervalued stocks, takes a sizeable stake and watches the share price soar.
Weschler also appears to have a bit of a sense of humour. According to one report on the Wall Street Journal, last year be bought a box of cuff links once owned by Ponzi scam artists Bernie Madoff in an auction, and he loves nothing more than giving them to clients as a joke.
Almost as interesting as Weschler’s appointment was the clearer picture that Berkshire provided of its likely structure after Buffett no longer leads the company.
It appears it will take four people to replace Buffett – a chief executive, a chairman and two or three investment managers, including Weschler and Todd Combs, who was appointed by Berkshire in 2010.
“After Mr Buffett no longer serves as CEO, Todd and Ted – possibly aided by one additional manager – will have responsibility for the entire equity and debt portfolio of Berkshire, subject to overall direction by the then-CEO and Board of Directors,” Berkshire’s statement read.
“With Todd and Ted on board, Berkshire is well-positioned for successor investment management at the time Mr Buffett is no longer CEO.”
The statement also seemed to make it clear that Buffett wasn’t going anywhere anytime soon, saying that Buffett “will continue, however, to manage most of the funds until his retirement”.
But even that seemingly innocuous statement has conveyed extra meaning to Buffett fanatics.
Previously, Buffett has said he would work until he was dead or incapacitated.
Meyer Shields, an analyst at Stifel Nicolaus in the US, says the very use of the word retirement was “jarring” simply because it has not been uttered by the Oracle.
I’m not sure that the idea of a massively wealthy old man thinking about retirement is “jarring”, although I can understand that for the thousands of Berkshire Hathaway shareholders who essentially own the stock to own a piece of Buffett’s investment genius, this is a crucial issue.
But Buffett and Berkshire is taking a very sensible approach here. After being vague about succession for many years, Buffett is now clearly explaining how the process will work and more importantly, who will have which jobs.
We don’t know who will be CEO yet – and this is clearly the big question – but Buffett has now ensured that the market is clear how the company would operate if Buffett suddenly stepped away.
The various operating businesses within Berkshire have their own management and now the company’s investment portfolio has its managers too.
It remains to be seen when exactly Buffett might step aside. But at least we know the structure that will exist when this does happen.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
