Maybe I am way off base on this, but given that Warren Buffett is the greatest investor we have ever seen (or even if you disagree with me, he has to be in the top few, right?) I would have expected more when Berkshire Hathaway decided to start hiring outside investment managers to eventually replace him. Given Buffett’s knowledge and connections in the industry, coupled with the fact that this job opening has to be one of the most intriguing ones for a value investor anywhere on the planet, it seems as though they should have been willing (and able) to hire someone who we have at least heard of before. The addition of Todd Combs, an unknown 39-year old hedge fund manager who graduated business school just eight years ago, is not only baffling but I doubt that it instills all that much confidence for Berkshire shareholders.
Let’s review some facts about Combs and the hiring process, according to an article recently published in the Wall Street Journal:
1) Combs graduated from Columbia Business School in 2002, and worked as an equity analyst for 3 years before being seeded with $35 million in 2005 to start a new hedge fund, Castle Point Management, focused exclusively on financial services companies.
2) While assets have grown to about $400 million during the five years Combs has been an investment manager, his cumulative returns over that span are 34%, less than 7% per year. Depending on the risk profile of the fund, which is unclear, this may or may not be very impressive, but it is interesting that Castle Point returned 6% in 2009 (when the S&P 500 rose by more than 26%), and in 2010 has actually lost 4% of its value (despite the S&P 500 rising by 6% during that time). Combs’ five-year track record is not only extremely short, but it also doesn’t scream “Berkshire Hathaway.”
3) It is also interesting that Combs sent Buffett a letter in 2007 to apply for the job as Berkshire’s next investment manager but Buffett was unimpressed (his resume “didn’t distinguish itself” according to the WSJ article). Only recently did Combs send a second letter to Charlie Munger, which impressed Munger enough to advance the process and resulted in him being hired shortly thereafter.
To me, none of this information taken on its own can prove whether or not Combs is ready for the prime time or not. I have no doubt he is a very smart guy and his personality seems to fit with Buffett, Munger, and Berkshire well. His focus on financial services is important as Berkshire has a large insurance operation and invests in a lot of banks and other financial companies. That said, if I were a Berkshire shareholder I would be asking why this is the best they could do. Hiring an young, unknown fund manager with a five-year track record seems risky given how many more well known, established, and proven people are out there and would likely have been honored to join the Buffett team. In the case of Combs, it will be years before we find out exactly how good he is at picking stocks and managing tens of billions of dollars.
Full Disclosure: No position in Berkshire Hathaway at the time of writing, but positions may change at any time.