Todd Combs: Berkshire’s new money manager marching in at the head of the new guard

While it isn’t clear whether Todd Combs will ever be at the helm of Berkshire Hathaway Inc., it is clear that this relatively young and unknown former hedge fund manager will be taking over a piece of the legendary investment conglomerate, starting Jan. 1.

Mr. Combs, 39, has been a virtual ghost since the announcement that he had agreed to shutter his hedge fund to work alongside (or at least in view of) Warren Buffett, Berkshire’s 80-year-old founder, chairman, chief executive and chief investment officer.

In typical Berkshire fashion, Mr. Combs was plucked from below Wall Street’s radar screen, although the October announcement has elevated him to a new level of prominence.

If projections are correct and Mr. Combs is charged initially with managing $2 billion to $3 billion of the $100 billion Berkshire portfolio, it represents the beginning of inevitable changes at Berkshire, according to Greggory Warren, a senior stock analyst at Morningstar Inc.

“Over the past five years, the firm has laid the groundwork of its succession-planning process, hinting that Berkshire ultimately would have one person handling the operating side of the business, and upwards of three to four people handling the investments,” Mr. Warren said.

‘MOVING FORWARD’

Citing the recent departure of 74-year-old portfolio manager Lou Simpson, and the fact that Berkshire vice chairman Charlie Munger will turn 87 on Jan. 1, Mr. Warren said that the hiring of Mr. Combs suggests that the succession-planning process is “moving forward.”

Where Mr. Combs will make his mark is anyone’s guess, and some have argued that too much already is being made of this particular hire.

As the manager of a $400 million long/short hedge fund, Castle Point Capital Management, Mr. Combs honed his craft in financial sector stocks.

Despite that sector’s extreme volatility during the downturn, the hedge fund was down just 5.7% in 2008, while the S&P 500 fell 37%.

In 2009, the hedge fund was up 6.2%, while the S&P gained 19.8%.

“Buffett has been monitoring Combs for three or four years, and he was impressed with the way Combs got through 2008 and 2009 without any blowups in the portfolio,” said Steven Check, founder of Check Capital Management.

“Warren Buffett cares more about the downside than the upside,” he added.

Of the $400 million Mr. Check manages for his clients, $100 million is invested in Berkshire Hathaway shares — a strategy he doesn’t plan to alter.

“I think Todd Combs is one of the managers in line to lead Berkshire Hathaway, but I think some of the attention being paid to his hiring is overblown,” Mr. Check said. “The hope is that he will turn into one of the key asset managers within Berkshire, and if Warren Buffett died today, Combs would probably be managing a lot more money. Right now, though, he’s going to be managing about $2 billion out of more than $100 billion that needs to be managed.”

MORE CHANGES UNLIKELY

Mr. Warren concurs that while Mr. Combs does represent fresh blood at Berkshire Hathaway, it is worth noting that this is still Warren Buffett’s empire.

“We wouldn’t be surprised if Buffett, who continues to act as chairman, chief executive and chief investment officer, finds it difficult to step completely away from the last aspect of his job description,” Mr. Warren said.

And while Mr. Warren predicted that there eventually will be more investment managers at Berkshire, he doesn’t expect to see any new faces joining Mr. Combs anytime soon.

“We’d be surprised if anything happened in the near term, given that it has taken Buffett and the board nearly five years to get to where they are today,” he said.

— Jeff Benjamin