Greg Abel was one of those celebrating the world’s biggest investor careers as 40,000 Berkshire Hathaway shareholders rose to Omaha on Saturday with Warren Buffett’s standing ovation.
By the time they gather for next year’s annual meeting, their eyes will be pinned to Abel, Buffett’s hand-picked successor in the financial powerhouse he has built for six decades.
The 62-year-old, who rose through the Berkshire utility business, has been largely avoided by Buffett in recent years, with investors trusting the return that has beaten the benchmark S&P 500 by more than 5.4 million percent in the past 60 years.
Abel has two tasks. It will keep the group’s record war chest working, maintaining the culture that Buffett and his late vice-chairman Charlie Munger planted in Berkshire.
It takes investors years to know how Abel stacks up as a capital allocator, whether he has the same talent to identify where he moves the billions that flow into Omaha every month, and whether he can approach Buffett’s return.
“I don’t think a bar to replace Warren Buffett is possible,” said investment group president Christopher Bloomstrun and Berkshire shareholder Semper Augustus. “Greg is under the microscope, not from the shareholder base, not from the public eye.”
Greg Abel, left, along with Warren Buffett at Berkshire Hathaway’s Annual Meeting in Omaha on Friday © Matthew Putney/AP
Some of America’s most powerful financiers paid tribute to Buffett, a sign of Gravitas on Wall Street, after it was announced on Saturday.
Jamie Dimon, CEO of JPMorgan Chase, told the Financial Times that Buffett “represents everything good about American capitalism and America itself.”
But such a praise is a sign of the challenge Abel is facing.
Berkshire has struggled for years to identify the right acquisition target. Buffett says he and his team are already picking something worth buying, but that rating is growing.
It sometimes hampers shareholders who have seen Berkshire lose or sit on the sidelines in acquisitions to other bidders. But Buffett could ultimately prove a wave of leveraged buyouts in the aftermath of the pandemic, in which buyout companies paid empty prices, if they pay flounder under a debt weight and slowing economy.
There is also the risk that some of Berkshire itself are targeting acquisitions. But Buffett’s High Boat Class A-share, and Berkshire’s pure size, have long been driving the activists and the private equity industry out of action, allowing the company to film the number of hundreds of subsidiaries. And the fact that the trust overseeing Buffett’s stock after his death will slowly give to the charity means that Abel is unlikely to face a threat from outside investors anytime soon.
Abel has enormous firepower when taking reins. Berkshire has been sitting on about $3500 billion in cash after roughly $175 billion in stock sales over the past 10 quarters.
Buffett reminded investors on Saturday that Berkshire is often washed away as an opportunity during the sale. With the drastic changes in the US economy, they were able to quickly present themselves for Abel.
The question is whether he will become more proactive in searching for targets, or will he be plugged into a Wall Street deal-making machine?
Buffett’s reputation was cemented by a major call, such as sitting in the dot-com boom of the late 1990s. So they avoid massacres when the bubble bursts and recently cut their stockholdings. It raised questions to shareholders until recently when market corrections and economic instability made decisions forward.
Eventually, Buffett said at a meeting on Saturday, “We’re happy to have cash.” He added:
It remains to be seen whether Abel will be extended to the same goodwill as his towering predecessor, and whether he will be able to grasp all of the Berkshire activities. He has contributed to many major acquisitions, including several energy businesses, but he has not monitored the $264 billion equity portfolio, one of the berkshire crown jewels.
“He’s not known as an investor,” said Bill Stone, chief investment officer of the longtime Berkshire shareholder Glenview Trust, adding that his trust in Berkshire is based on his faith in Buffett as a trustworthy steward of investors’ money.
Larry Cunningham, a professor at George Washington University and author of Buffett beyond Berkshire, said Abel’s commitment to Berkshire’s investment philosophy doesn’t mean there is no change under his leadership.
“Abel is an operational guy, but Buffett takes the well-known laissez-faire approach and trusts his manager,” he said.
According to Cunningham, a more operating chief executive could benefit from helping Berkshire subsidiaries share ideas and expertise, but that was risky.
“Abel made it clear that he is committed to the principles of autonomy. He will not interfere,” Cunningham said. “But Buffett’s delegation made his manager want to prove his trust. Abel must develop that superpower.”
Few people would expect Abel to take Buffett’s position in the sky of investment, or develop a cultural cachet that attracted millions of people to Buffett and his philosophy.
Howard Marks, co-founder of Oaktree Capital, believes it is impossible for anyone to measure up to Buffett.
“He says he was able to buy dollars for 50 cents when he started in the early 1950s. “But the problem is, no one else would do that, even if there was an opportunity. There were no multiple Warren Buffets.”
Additional Reports by James Fontanella-Khan
