By Josh Fineman and Erik Holm
March 31 (Bloomberg) -- Byron Trott’s departure from Goldman Sachs Group Inc. after 27 years to run a Berkshire Hathaway Inc.-financed venture fund is fueling speculation he may succeed Warren Buffett as head of the billionaire investor’s $130 billion company.
Trott, 50, has been singled out for praise by Buffett, Berkshire’s 78-year-old chief executive officer, for unearthing investment possibilities. In September, Trott helped line up a $5 billion capital injection into New York-based Goldman Sachs from Berkshire. Trott’s new merchant-banking fund will invest in family-owned firms, the same type of enterprise Buffett favors.
“He’s a perfect candidate,” Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life” and now a Bloomberg News columnist, said in an interview yesterday. “That’s so obvious.”
Schroeder’s assertion contradicts the prevailing wisdom about who may be the next head of Berkshire, the insurance and investing firm that Buffett transformed from a failed maker of men’s suit linings into a company with interests ranging from candy and underwear to airports and energy plants. Buffett said in his 2005 and 2007 letters to shareholders that there were three internal candidates to replace him as CEO.
Debbie Bosanek, an assistant to Buffett, said yesterday that Berkshire “will have a modest investment” in Trott’s venture and didn’t reply to additional requests for information. Berkshire shares fell 11 percent this year through yesterday, compared with a 13 percent drop in the Standard & Poor’s 500 Index.
Who’s Next?
Fitch Ratings stripped its AAA rating from Omaha, Nebraska- based Berkshire earlier this month, citing concern about Buffett’s successor as one of the reasons for the downgrade. Berkshire’s past performance has been “intimately tied to Mr. Buffett,” Fitch said.
Buffett said in his most recent letter to shareholders he has candidates to succeed him as CEO and investment head.
“All candidates currently work for or are available to Berkshire and are people in whom I have total confidence,” he said in the company’s 2008 annual report. In a March 5 interview, Buffett said the candidates hadn’t changed in a year. He declined to name them.
“You could water-board me,” and he still wouldn’t tell, Buffett joked.
Sokol, Nicely, Jain
Berkshire stockholders and Buffett-watchers have long speculated about who will replace one of the most successful investors in history. Barron’s has reported that David Sokol, the head of Berkshire’s MidAmerican Energy Holdings Co., was the most likely successor. Speculation has also included Tony Nicely, the head of Berkshire’s Geico Corp. car insurance unit, and Ajit Jain, who runs a unit that sells reinsurance.
Trott, a vice chairman of investment banking at Goldman Sachs, aims to raise $2 billion for his new fund, a person familiar with the matter said yesterday, speaking on condition of anonymity because the plans haven’t been publicly disclosed. Trott didn’t reply to a phone call and e-mail seeking comment. Andrea Rachman, a spokeswoman at Goldman Sachs, declined to comment.
“He’s extraordinarily able and young,” said Thomas A. Russo, who manages $2 billion at Gardner Russo & Gardner in Lancaster, Pennsylvania. Russo has owned Berkshire stock since the early 1980s. “He’s a tremendous part of the bench that Warren’s relied on.”
Buffett has praised Trott in Berkshire Hathaway’s annual reports. “He understands Berkshire far better than any investment banker with whom we have talked and -- it hurts me to say this -- earns his fee,” Buffett wrote in 2004.
‘No Chance’ for Trott
It’s more likely that Buffett will pick an internal candidate to succeed him, said Whitney Tilson, managing director of New York-based hedge fund T2 Partners LLC, which owns Berkshire shares.
While Trott “has been a good bloodhound” for Buffett, “there is no chance that Byron Trott would be the CEO successor,” Tilson said. “That’s going to be one of his existing operating managers.”
Still, Trott’s years of advising Buffett give him an edge, said Schroeder, who spent hundreds of hours interviewing Buffett for the book. He’s not the type of person who would “try to put his stamp on the company,” she said.
“He understands how Warren thinks about capital management and he understands the business,” she said. “He sees them through Warren’s eyes because he’s got so much experience looking at them the way Warren looks at them.”
Gates and Decker
When Buffett meets with Berkshire’s board of directors, which includes Microsoft Corp. co-founder Bill Gates and former Yahoo! Inc. President Susan Decker, “we spend at least half our time” talking about who will be the next CEO, Buffett said.
“It’s the most important issue there is,” Buffett said in an interview with Bloomberg Television at Berkshire’s headquarters this month. “There’s nothing more important. Nobody knows on any given day where I’ll be the next day.”
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