Berkshire’s moneymakers

06-May-2013

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







By Steve Jordon, From Omaha World-Herald Co.,

Warren Buffett’s decision to hire two investment lieutenants is paying off for Berkshire Hathaway, and it’s paying off for the two younger money managers, too.

Todd Combs, 42, and Ted Weschler, 51, are expected to receive bonuses exceeding $50 million each based on their investment results in 2012, evidence that they and Buffett made the right choices when they connected.

Combs and Weschler discussed how they came to work for Buffett in interviews for a new World-Herald book, “The Oracle & Omaha: How Warren Buffett and His Hometown Shaped Each Other.”

Weschler and Combs had admired Buffett long before meeting him, and both actively sought connections that led to their hiring.

Also in an interview for the book, Buffett said hiring Combs and Weschler happened because of “a lot of good luck.”

“Like Woody Allen said, 95 percent of it is just showing up,” he said. “That’s what’s happened with Berkshire. That’s happened with the people. And once you get ’em, you’ve got ’em for decades to come.

“And people do want to join us.”

Buffett hired Combs in 2010 and Weschler in 2011 as part of Berkshire’s succession plan, which calls for splitting his job into three parts: a non-executive chairman; a CEO to handle acquisitions and the care of executives who run Berkshire-owned businesses; and a small group to invest Berkshire’s money.

Today, Combs and Weschler each manage about $5 billion out of Berkshire Hathaway’s $88 billion in investments.

Their pay package is no surprise. Both were high-income investment managers on their own before joining Berkshire.

Buffett has said they would be paid salaries of about 0.1 percent of the money they manage, which would be $5 million a year based on a $5 billion portfolio. They also receive “performance pay” of 10 percent of the amount their investments grow beyond gains by the Standard & Poor’s index of 500 publicly traded stocks averaged over several years.

In his latest report to shareholders, Buffett said investments by Weschler and Combs in 2012 were more than 10 percentage points higher than the 16 percent returns by the S&P 500. “They left me in the dust as well,” Buffett wrote.

If each managed $5 billion and had 26 percent returns, their performance pay would be $50 million, with one-third paid in 2013, one-third in 2014 and one-third in 2015. Part of their pay also depends on the other’s investing success.

That kind of compensation wasn’t on Combs’ radar when he first saw Buffett in person. He was among 165 students in a Columbia University investing class.

Combs didn’t meet Buffett that day but says, “I still remember it like it was yesterday.”

One of the students asked what he could do now to prepare for an investing career. Buffett thought for a few seconds and then reached for the stack of reports, trade publications and other papers he had brought with him.

“Read 500 pages like this every day,” said Buffett, or words to that effect. “That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

Remarkably, Combs began doing just that, keeping track of how many pages and what he read each day. Eventually finding and reading productive material became second nature, a habit. As he began his investing career, he would read even more, hitting 600, 750, even 1,000 pages a day.

Combs discovered that Buffett’s formula worked, giving him more knowledge that helped him with what became his primary job — seeking the truth about potential investments.

After graduating, Combs worked as a bank regulator and in the pricing department of Progressive Insurance and, five years later, he began running Castle Point Capital, a private investment fund in Greenwich, Conn., where he lived.

His road to Omaha began when he met a money manager from Australia who was going to California to see Charlie Munger, vice chairman of Berkshire and a confidant of Buffett’s. Combs remembers thinking, “I’d like to meet Charlie some day.”

Not long afterward, Combs was headed to California and called Munger’s office, figuring it was “pretty unlikely” that he would get to see Munger.

To his surprise, Munger offered to meet him at the California Club for breakfast. “I was terrified,” Combs said. He had attended two of Berkshire’s annual shareholder meetings in Omaha and knew that Munger often gave blunt assessments of people and businesses.

“But we really hit it off,” Combs said. “He’s the most warm, gentle man.”

The two talked for hours, and Munger offered to get together again. Combs quickly arranged to return to California. Eventually, Munger told him, “I really think Warren would like to meet you.”

Combs, of course, needed no persuasion and, in the fall of 2010, he was invited to Buffett’s office. He arrived at 10 a.m., met people and talked, went with Buffett for a two-hour lunch at Piccolo’s restaurant and returned to the office.

“We just talked and talked and talked,” Combs said. “I’ll never forget it. It doesn’t take a rocket scientist to know you’ve met someone very special. It’s really hard to describe.”

Eventually, Buffett began talking about his plan to hire a money manager. Combs — this is true, he insists — started thinking about another person he could recommend. But Buffett had another idea.

“He said, ‘Well, I think we’re kind of thinking of you.’ Flabbergasted would be an understatement,” Combs said.

As the stunned Combs listened, Buffett talked about compensation and suggested they both think about the offer. Combs returned home and talked with his wife, April, about the job and Omaha, then accepted Buffett’s offer.

By then, Ted Weschler had already met Warren Buffett, although the two had not talked about a job. With his own record of success in hand, Weschler pursued the idea of working for Buffett, in the process donating $5,252,722 to one of Buffett’s favorite charities.

Richard Jay Weschler — Ted is a nickname — didn’t expect to be working for an Omaha company when he came to town several years ago to attend an annual meeting of Berkshire’s shareholders. On that visit, he blended in with thousands of others who had come to hear Buffett.

The Buffalo, N.Y., native first heard about Buffett’s investing style in 1979, when he was at the University of Pennsylvania’s Wharton School of Business, the same college Buffett attended for two years before graduating from the University of Nebraska.

A friend introduced Weschler to Buffett’s writings. “From then on, I kept my eye open for anything that had to do with him. It was on my list that at some point I wanted to meet the guy. He had such an impact on my life from afar. He really is very generous in teaching others things that he learned through living his life.”

After college, Weschler worked for W.R. Grace Co., a Maryland chemical company. He handled investments in New York City for six years before he and a colleague set up a private equity firm, Quad-C Management Inc., in Charlottesville, Va., in 1989.

The move out of the city was for a reason, he said. “That was one of the real takeaways for me in all of the reading that I did over the years about Warren, was how important it was to stay away from the noise.”

In 2000, Weschler formed his own investment fund, Peninsula Capital Advisors LLC., managed from Charlottesville with a researcher and an assistant. “It was really more of a library. We really kept outside noise out of the place. I certainly shaped Peninsula based on what Warren had done with Berkshire.”

For example, he didn’t employ a stock trader, figuring that a trader would have an incentive to buy and sell stocks rather than help make longer-range decisions. The fund, with about 60 investors, turned out Buffett-like results: An investor who put $100 into the Peninsula fund when it opened on Jan. 14, 2000, would have been left with a stock portfolio worth $1,134.66 when it closed on Dec. 9, 2011.

During that same period, the Standard & Poor’s index of 500 stocks gained 6.72 percent, meaning Weschler’s investors did 153 times better than the overall stock market.

At some point, an annual online auction caught Weschler’s eye. Since 1993, Buffett had been raising money for the Glide Foundation, an anti-poverty group in San Francisco, by having lunch with the highest bidders.

Weschler already was giving money to charities, including the Charlottesville Free Clinic, the University of Virginia’s children’s hospital building fund, the Building Goodness Foundation, Children, Youth and Family Services and Saint Anne’s-Belfield School in Charlottesville.

Three years ago, Weschler’s business took him to San Francisco, and he made an appointment to see Glide firsthand.

“I wanted to know more,” he said. “They were terrific. They invited me in and I ended up spending half a day at Glide. I met (Glide Pastor) Cecil Williams. I was just blown away by how thoughtfully and how carefully Glide really helps the otherwise hopeless.

“That gave me the comfort that this was not only an opportunity to potentially visit with Warren but also, in many ways more significantly, to help out a really worthwhile charity.”

Armed with confidence in Glide’s work and a checkbook built up by his investment success, Weschler’s bid of $2,626,311 won the 2010 auction. At his request, Glide and Buffett kept his name secret.

“After I won, Warren called,” Weschler said. “He was happy to come to Charlottesville,” or to meet at a widely known steakhouse in New York City that would donate a luncheon for eight.

“I suggested, no, actually, it would be better for me if it would work for me to come out to Omaha, see the office, and instead of lunch make it dinner. When we actually got together, the only condition was that we not do it in a public forum.”

Buffett readily agreed, and two or three weeks later, Weschler came to Omaha for dinner at Piccolo’s.

The two got along handily, Weschler said. “It was very natural and conversational.” He spent an hour or more at the office, with Buffett introducing him to staff members and showing him some of the memorabilia on the walls.

“I was interested in his story,” Weschler said. “We’ve got similar backgrounds, both liked business as kids, had done all sorts of active investing in companies. I wanted to see his environment. People’s environments are very telling to me, to come back to his workplace and see how he functions.”

In 2011, he won the auction again and came to Omaha a second time for dinner. After that, Buffett offered him the job, and Weschler accepted.

Soon after, Weschler was at a horse show where one of his two daughters was competing when a neighbor asked: Are you the Ted Weschler who was just hired by Warren Buffett?

That’s me, Weschler answered. Well, the neighbor said, my mother-in-law is a good friend of Buffett’s.

Turns out, she was talking about Dr. Carol Angle, a former Omahan and widow of Dr. Bill Angle, one of Buffett’s earliest investors and a pal who shared Buffett’s love of model trains in the 1950s and who helped him recruit doctors as early investors.

A remarkable coincidence, but it was no coincidence that Buffett and Weschler could work together. As a kid, Weschler was practically obsessed with sports, but before long he realized he could channel that obsession into numbers and money — both subjects that also appeal to Buffett.

“With Warren, it’s terrific,” Weschler said. “It really is all about the people you work with. To be able to kick ideas around with somebody like Warren, that’s pretty spectacular. I’m passionate about investing.

“If you’re passionate about electrical engineering and that was what really motivated you and made you jump out of bed every morning, and you had a chance to work alongside Thomas Edison, how could you say no to that?”

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

http://www.omaha.com/article/20130428/MONEY/704289987/1697

 

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