The 39-year-old Combs has run a small Greenwich, Conn., hedge fund, Castle Point Capital, with $400 million of assets invested almost entirely in financial stocks. (See table.) He reportedly has a good record, with his fund up 35% since 2005. Buffett called the diligent, low-key Combs a "100% fit for our culture."
Different Strokes
As their top holdings show,Todd Combs and Berkshire approach investing in very different ways.
| BERKSHIRE Value (bil) | |
| Coca-Cola /KO | $12.0 |
| Wells Fargo /WFC | 8.0 |
| American Express /AXP | 6.0 |
| TODD COMBS Value (mil) | |
| MasterCard /MA | $25.0 |
| U.S. Bancorp /USB | 24.0 |
| State Street /STT | 23.0 |
| Source: Company reports | |
Berkshire would be a giant challenge for Combs, who will join it later this year. Its equity portfolio totaled $54 billion on June 30. Berkshire shares fell on Tuesday, the day after the Combs announcement. On the week, the Class A (BRKA) was down 4%, to $119,700, and the Class B (BRKB) also slid 4%, to $80.
Combs initially will run a small part of the Berkshire portfolio, with Buffett continuing to oversee all investments. This will let him assess Combs. Buffett has said his job will be split in two when he leaves Berkshire, with one person heading investments and the other acting as CEO. The likely CEO-in-waiting is 54-year-old David Sokol, now chairman of the company's large utility operations, whose profitable growth he orchestrated.
In the post-Buffett Berkshire, the CEO is apt to be much more important than the chief investment officer because most of the company's profits now come from more than 60 wholly owned businesses, including auto insurer Geico and the Burlington Northern railroad, rather than the stock portfolio.
Berkshire's equity portfolio accounts for about 25% of its stock-market value; now $205 billion. In the mid-1990s, the figure was above 60%. Buffett prefers to buy companies, rather than stocks, because he then controls all the profits, instead of simply getting dividends. Berkshire, which now pays no dividend, is likely to pay a sizable one post-Buffett, trimming the funds available to invest.
If Combs does ultimately run Berkshire's investments, big changes are unlikely, partly because longtime holdings, such as American Express, Coca-Cola and Procter & Gamble, have large embedded gains and would incur heavy taxes if sold. Combs also will have to broaden his focus beyond financial stocks. Buffett is comfortable in all major asset classes.
Berkshire made over $20 billion of attractive private investments during the financial crisis, including $5 billion of Goldman Sachs 10% preferred, because companies facing possible trouble figured that a Buffett investment would reassure Wall Street. Such juicy deals probably won't fall into the lap of Buffett's successor.
One unanswered question is whether Buffett wanted a younger, lesser-known investment manager, or whether higher-profile managers weren't interested in the job because of pay issues, or the challenge of following the world's greatest investor.
Berkshire is expected to report third-quarter results on Nov. 5. Barclays Capital analyst Jay Gelb expects earnings of $1,960 per class A share, up 48% from the level a year earlier. Book value could rise 4%, to above $90,000, Gelb wrote in a client note.
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