WARREN BUFFETT NEEDS MORE SWEETHEARTS / THE WALL STREET JOURNAL

Warren Buffett Needs More Sweethearts

At his annual confab, he opined about how large hedge funds struggle to post superior returns, but his Berkshire Hathaway is in the same position

By Lauren Silva Laughlin


Berkshire Hathaway Chairman and CEO Warren Buffett attended the company’s shareholders meeting in Omaha, Neb., on Sunday. Photo: Nati Harnik/Associated Press



Berkshire Hathaway BRK.B +0.34%▲ may be too big to fail, but it is also getting too big to succeed.

Warren Buffett’s investment vehicle has a lean management structure, massive war chest and an iconic leader at the helm that puts it in a unique position when corporate America comes calling.

The $10 billion he recently pledged to Occidental Petroleumfor its purchase of rival Anadarko Petroleum shows Berkshire at its best. It was agreed upon over a weekend, Mr. Buffett explained to the investors in Omaha, Neb., on Saturday for his annual “Woodstock for Capitalists.” With an interest rate of 8% on preferred shares as well as warrants valued at more than $500 million, it was the type of deal only Mr. Buffett could get.

It helps, as Mr. Buffett says, that Berkshire doesn’t have lots of committees and spreadsheets to approve such transactions. Mr. Buffett’s sterling personal reputation makes it inconceivable that he would renege on a deal. Swift financing from Berkshire has proven successful in the past. Mr. Buffett took a big bet on Goldman Sachs Groupin the midst of the financial crisis. That 2008 deal produced returns of some 70% three years later. There also were financing deals for Dow Chemicaland Bank of America .

But it now takes many such transactions to move the needle. Sweetheart deals like Occidental and Goldman represent shining moments in what have been a mixed several years for Berkshire Hathaway. Its shares have underperformed the S&P 500 over the past decade. One reason is that until recently, Mr. Buffett shunned technology stocks that gave a tailwind to the equity market but were outside of his comfort zone.

At the meeting, Mr. Buffett urged investors to keep the faith. Yet he and sidekick Charlie Munger made critical comments that could describe Berkshire, too. While opining on the connection between the size of a fund and returns, Mr. Munger noted he has “seen genius after genius” that before long gets “$30 billion and two floors of young men,” and “away goes the good record.”

Berkshire can be decisive, but good deals are hard to find. Over the course of several hours, Mr. Buffett invited companies looking for an investor with deep pockets to come knocking, even suggesting Berkshire could write a $50 billion check without much notice. His largest deal so far was the $37 billion acquisition of Precision Castparts in 2015 and he said Berkshire came close to concluding a large transaction in 2018 that slipped away.

Having the wherewithal to make a deal and the requisite reputation are two different things. Messrs. Buffett and Munger are 88 and 95 years old, respectively. Mr. Buffett says his two much younger portfolio managers, Ted Weschler and Todd Combs, could one day carry the deal torch, but they each oversee only around $13 billion for Berkshire.

Potential successors Ajit Jain and Greg Abel run entire business units, but neither have been highlighted by Messrs. Buffett or Munger as the ones manning the red phone. Berkshire needs those handshake deals to keep up. Whether they can get them without Mr. Buffett, or enough of them to matter, remains to be seen.