Investors around the world have wondered who would take the reins of Berkshire Hathaway (BRK.A), once the 87 year-old CEO and the world's third richest man Warren Buffett passes away. The answer has yet to be revealed, but the Oracle of Omaha continues to provide hints in his annual reports. Not just that, Berkshire Hathaway in an expansion of its board, appointed the two front-runners Ajit Jain and Gregory Abel as vice-chairs of the board. That could be a sign that one of them could definitely could take over the company's reins from Buffett. Let’s handicap the likely candidates.
(TUTORIAL: Value Investing)
What We Know
He will be a man (sorry Tracy Britt Cool) and he will be young enough to run the company for at least 10 years. We also know that the board knows who the pick is, and that multiple individuals could be tasked to run Berkshire post-Buffett. Lets get into the candidates.
Meet the man Warren Buffett says has made more money for Berkshire shareholders than anyone else, including Buffett himself - Ajit Jain, the head of Berkshire’s reinsurance division. Buffet himself has consistently mentioned Jain as a top performer in his annual letter. Charlie Munger has even noted that he thinks Jain, as well as Greg Abel, would be worthy candidates. Jain worked as an IBM salesperson until he lost his job when IBM discontinued operations in India. He then attended Harvard Business School. He joined Berkshire after a tenure at McKinsey & Co. and has been involved in the insurance operations since that time.
However, age may not be on Jain's side and the 66 year-old may lose out to a younger candidate, especially since in his 2014 annual letter to shareholders Buffett said, "Our directors also believe that an incoming CEO should be relatively young, so that he or she can have a long run in the job." Furthermore, Bloomberg Businessweek reports that Jain has been facing health issues and that may make it difficult for him to take the job.
As noted above, it has been rumored for some time that Mr. Jain and Mr. Abel are top candidates for the job. Mr. Abel has run Berkshire Hathaway Energy since the departure of former likely successor David Sokol. He is a top performer who owns a controlling stake of Berkshire’s assets. It would make sense that he would be given more responsibility after Buffett’s departure.
He began working in the energy industry in 1992, and was mentored by Sokol, rising up the ranks of MidAmerican Energy Company which Berkshire took a majority stake in 1999. The 55 year-old has grown the energy business and both these attributes, age and performance, work in his favor. In September 2017, JP Morgan analyst Sarah DeWitt wrote in a note, “The most likely successor in our view, who Warren Buffett regularly praises, is Greg Abel.”
While Jain and Abel are far ahead in the race, there were others that were once in the fray as well.
Jorge Paulo Lemann, 3G Investments:
An interesting tidbit from Berkshire’s recent annual report is the mention of Mr. Lemann. Buffett noted that he would like to invest alongside Lemann again in the future. Though his age (76 years) and his position at 3G make it unlikely that he will be the successor, it is possible that Mr. Lemann could be put in charge of M&A responsibilities if the leadership role was broken up.
Todd Combs and Ted Weschler:
Both of these men are investment managers for Buffett and have been taking on greater responsibilities in managing smaller companies in the Berkshire portfolio. In the most recent annual report neither men's performance was discussed (rumors are that both underperformed). It is possible that both will be given more responsibility in investing Berkshire’s assets after Buffett’s departure, but it is less likely that either will become the CEO.
The Bottom Line
Considering the board already knows who the successor will be, it is likely that Jain is the man. But, we have little information to go on and it’s really up in the air. It is also likely that responsibilities could be split between many of the individuals mentioned above. The only thing we know for sure is that there is only one Warren Buffett, and we will enjoy every moment we get to watch him work his craft.