While this value investing blog is intended to focus on some of the original members of the Graham Newman Corporation, the news that Warren Buffett has named one of his successors to the CIO position for Berkshire Hathaway deserves its own post. This is major news in the value investing world and I will try to bring you as much information as I can from various sources from the value investing community.
To start, here is the full text from the news release:
Omaha, NE (NYSE: BRK.A; BRK.B)—Berkshire Hathaway is pleased to announce that Todd Combs will soon be joining Berkshire as an investment manager.
Warren E. Buffett, Berkshire’s CEO, commented “For three years Charlie Munger and I have been looking for someone of Todd’s caliber to handle a significant portion of Berkshire’s investment portfolio. We are delighted that Todd will be joining us.”
Todd is 39 and has been managing Castle Point Capital for the past five years. Simultaneously with the issuance of our announcement, Todd issued a letter to the limited partners of Castle Point Capital announcing his decision to join Berkshire.
Berkshire Hathaway and its subsidiaries engage in diverse business activities including property and casualty insurance and reinsurance, utilities and energy, freight rail transportation, finance, manufacturing, retailing and services. Common stock of the company is listed on the New York Stock Exchange, trading symbols BRK.A and BRK.B.
So, obviously some pretty enormous news. What have I been able to find about Todd Combs?
Todd Anthony Combs graduated from Florida State in 1993. According to Carol Loomis, Combs worked for Florida’s comptroller and then went on to set automobile insurance rates at Progressive (is he an actuary?).
In 2002, Combs graduated from Columbia’s Business School. Warren Buffett attended Columbia business school, studying under Ben Graham. In addition, we know he has a soft spot in his heart for graduates from Columbia: Buffett hired Ian Jacobs, also a Columbia graduate earlier in the decade to be one of his “project guys.” It has been reported in the press that Ian went off to start his own fund in 2009. I have not heard much about his since.
Prior to starting Castle Point, Combs worked at Cooper Arch Capital which has since closed. From the press release, we know that Combs started Castle Point 5 years ago. Castle Point was seeded by Stone Point Capital, a well regarded, for lack of a better term, private equity investor in financials and financial services. Their website is down now (massive traffic?).
Castle Point is a long/short hedge fund that is focused on financials. It was formed in 2005. According to Bloomberg, Combs was up 13.6% in 2006, 19% in 2007, down 5.7% in 2008, and up 6.2% last year. It is reported Castle Point was running with $400M of capital recently.
We know from various press reports that Comb was the third pick of Buffett and Munger with Li Lu turning down the position and an unnamed other manager also turning it down. An interesting theory being floated around is Bobby Bierig is the unnamed second person in the running – Bierig is Lou Simpson’s #2 at GEICO (and a former ESL employee) and will, according to sources in the value investing community, be leaving to start his own hedge fund soon.
Nonetheless, Comb got the nod and our hats are off to him. Good on you. It remains to be seen what role Combs will actually play – will he manage just the GEICO book? Will he be partioned off a couple of billion to see how he does? We know Warren had 4 choices in mind – Li Lu, Combs, possibly Biergin and one more. Combs will be stay in CT to run the Berkshire capital.
We know that Combs was under EVERYONE’s radar. Typical Buffett. He has always said he wanted someone that wanted the job for the job itself: not the publicity or the money. A search on Todd Combs from a few days ago would have turned up 2-3 results…now millions.
You can find his 13F all over the web…but here are some other tidbits people have yet to stumble upon:
We know Castle Point is located at 20 Horseneck Lane in Greenwich. One Craig McBeth was listed as an analyst at Castle Point Capital (same address as above). From looking at his Linked In profile, he is listed as a partner at Castle Point Capital and previously worked at Lehman Brothers (he graduated from Amherst in 2004). On July 22nd, 2010 MB Financial held their 2nd quarter 2010 earnings call. On that call, during the Q&A session, McBeth (listed in the as from Castle Point) asked a few questions of management. Here is the relevant exchange:
Your next question comes from the line of Craig McBeth of Castle Point Capital. You may proceed.
<Q – Craig McBeth>: Hi. Thanks for taking the question. Just on the potential problem loans, possible to say how much of the increase in early stage DQs and also NPLs came out of that potential problem bucket from the first quarter?
<A – Tom Prothero, Chief Operating Officer, Commercial Banking>: Most of the increase in the non-performers was out of the potential problem buckets from the prior quarters.
<Q – Craig McBeth>: Okay. And I mean any of the charge-offs this quarter come directly from that bucket?
<A – Tom Prothero, Chief Operating Officer, Commercial Banking>: We did have some charge-offs on the C&I side. The charge-offs that were – companies related to construction, real estate and housing. Some of those deteriorated very, very quickly and they bypassed the potential problem bucket.
<Q – Craig McBeth>: Okay. And just on the real estate owned. I heard what you’re saying about the legal hang-ups in foreclosure process, but I think you also said you expect that OREO line to increase. Is that case going to be different than we’ve seen? It’s been just a few million each quarter recently.
<A – Tom Prothero, Chief Operating Officer, Commercial Banking>: Well, we have several deals in the pipe, if you will, where we have negotiated a deed in lieu arrangement or deed in the box, and I do expect, some of those to come to fruition in the coming quarters, as well as loans that are just going to go through the regular foreclosure process that were getting close. So, I do expect it to continue to go up, probably at a higher faster pace than it has in the last two quarters.
<Q – Craig McBeth>: Okay.
<A – Tom Prothero, Chief Operating Officer, Commercial Banking>: And of course, we do continue to sell some other real estate every quarter, so there – what you’re seeing in the increase is net.
<Q – Craig McBeth>: Right, right, okay. What I’d, I mean the sales should increase as things get into that bucket as well. Right?
<A – Mitchell Feiger, President and Chief Executive Officer>: I’m sorry, I couldn’t hear your question.
<Q – Craig McBeth>: The sales of real estate should, you can’t sell them until you own them, right?
<A – Mitchell Feiger, President and Chief Executive Officer>: Correct.
<Q – Craig McBeth>: So hopefully, those will increase in line with the gross change?
<A – Mitchell Feiger, President and Chief Executive Officer>: Yes, we would anticipate that sales at some point would increase as well.
<Q – Craig McBeth>: Okay, just one unrelated question, can you say what the fee income is today coming from debit?
<A – Jill E. York, Vice President and Chief Financial Officer>: I can. I thought that question might be asked, its, hold on, one second.
<A – Mitchell Feiger, President and Chief Executive Officer>: From which part – which part of — are you speaking of debit card interchange or what…
<Q – Craig McBeth>: Yes, that’s what I was thinking of but I mean.
<A – Mitchell Feiger, President and Chief Executive Officer>: Debit card interchange revenues.
<A – Jill E. York, Vice President and Chief Financial Officer>: Yes, it’s about 5 million a year.
<Q – Craig McBeth>: Okay. All right. Thank you.
Similarly, on February 12th, 2010, Penson Worldwide held their 4Q 2009 conference call. Again Craig McBeth asked management a number of questions:
[Operator Instructions]. Your next question comes from the line of Craig McBeth of Castle Point Capital.
<Q – Craig McBeth>: Hi, thanks for taking my question.
<A – Phil Pendergraft, Chief Executive Officer and Co-Founder>: Of course.
<Q – Craig McBeth>: Sorry, if I missed this, but just on Broadridge, I was hoping you could elaborate on the specific products that you wouldn’t support and just maybe why?
<A – Phil Pendergraft, Chief Executive Officer and Co-Founder>: Yes, the – probably the biggest one is in the area of mortgage-backed TBA processing. I don’t know how familiar you are with that market. But
<Q – Craig McBeth>: Not very.
<A – Phil Pendergraft, Chief Executive Officer and Co-Founder>: It’s – it is very capital and it’s actually very cash intensive. And the – the return on the cash and capital allocated to support that business is sub-par. And – and so that’s a business line that we’re not in today. And that we really have no interest in expanding into. And that there is a portion of Broadridge book of business that is heavily focused in that area and that’s not a good fit.
<Q – Craig McBeth>: Okay, and is that – can you size that?
<A – Phil Pendergraft, Chief Executive Officer and Co-Founder>: It’s in that – that 15, 20. I mean in total it’s in that 15, $20 million delta between the current run rate and where we think we’re going to be, I don’t actually have the exact breakdown of what it might be or what that component is.
<Q – Craig McBeth>: Okay. Thanks.
So, a little insight into their investment process there. I am still trying to locate Comb’s letter to his partners and will be sure to post it when it hits the wires. This is indeed huge value invest news and we look forward to keep readers up on the story in the coming weeks.