What is the difference between Berkshire Hathaway and Private Equity?

StyleT's picture
Rank: Senior Baboon | banana points 190

Could someone please explain the difference between the two?

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Comments (13)

Jan 7, 2011

I am not sure on the exact legal structure of Berkshire Hathaway, but as far as I understand its not a limited partnership such as most PE firms but a holding company. It owns other companies outstanding stock etc. as opposed to making highly levered private equity investments. BH has traditionally used very little amounts of debt and oversees its investments as subsidiaries of the overall holding agreement. In addition they are incorporated and produce their own stock which can be bought.

Any additional infos? I would be interested as well into more detail

    • 1
Jan 7, 2011

Well, I own KKR stock as well as Blackstone. But I imagine the most different thing is the investment philosophy. Most PE firms probably prowl for firms they can LBO and rip apart in order to sell underlying assets while BH is owned by the Sage, so he's looking for long term profit and wants to own the company.

When Buffet starts investing in railroads it's a good time to buy railroads.

Jan 7, 2011
monkeysama:

Most PE firms probably prowl for firms they can LBO and rip apart in order to sell underlying assets

Maybe in the 80's, but this isn't how most PE funds operate today. In fact, a lot of funds now buy a company as a platform investment and then buy other companies to bolt-on to it, basically the opposite of what you've suggested.

Jan 7, 2011

True on the stock thing, haha that was a bit short sighted on my end (though KKR and BX are gradually developing into different entities than traditional PE firms). I think you are on the point on the whole investment philosophy, leverage and focus on long term vs. short term. I think though also the idea of how BH is set up, incorporated and structures its investments is different from a PE firm.

Jan 7, 2011

What do you think would be a good entry into the type of work that BH does? Im sure there have to be other companies doing the same thing. I mean according to all of the articles i have read about Warren Buffett and BH, It seems like all he did was start an investing partnership after being a stock broker...Correct me if i am wrong.

But the main question is, what would be good entry point to eventually run a company similar to BH? Investment Banking? Asset Management? Something else?

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Jan 7, 2011
ibdafuture257:

Im sure there have to be other companies doing the same thing.

Biglari Holdings (Steak 'n Shake) is currently trying to pursue a Berkshire-like strategy.

Jan 7, 2011

You're pretty much on point. He did start an investment partnership and then when he found BH he started accumulating it's stock and dwindled down its textile production. Now, it is pretty much a holding company and he invests the float from the insurance companies - which he started doing form day one.

His big thing has, and always will be, based upon Graham value investing. He doesn't trade. He buys companies and sells them for absurd profits. When he starts buying stock he intention is to OWN the company.

Roger Lowenstein (author of When Genius Failed) wrote a great biography of him. I suggest you read it if you're interested in Buffet and his background.

Jan 7, 2011

So what do you all think a good entry point would be?

Jan 7, 2011
ibdafuture257:

So what do you all think a good entry point would be?

Start a business, make some dough and start buying out other businesses for the long haul.

Jan 7, 2011

Large family offices will have a strategy similar to BH (i.e. own some private companies, but also invest in stocks, etc.).

A good entry point would be to go to IB or something like that, and transition to a family office or some other holding company-style investor.

Jan 7, 2011
alexpasch:

Large family offices will have a strategy similar to BH (i.e. own some private companies, but also invest in stocks, etc.).

A good entry point would be to go to IB or something like that, and transition to a family office or some other holding company-style investor.

Could you run a hedge fund similar with that investment style? And as your assets under management grow, you increase the size of the investments?

Jan 7, 2011
ibdafuture257:
alexpasch:

Large family offices will have a strategy similar to BH (i.e. own some private companies, but also invest in stocks, etc.).

A good entry point would be to go to IB or something like that, and transition to a family office or some other holding company-style investor.

Could you run a hedge fund similar with that investment style? And as your assets under management grow, you increase the size of the investments?

A hedge fund won't do investments in private companies. You could start out with a hedge fund and then launch a PE fund. There are firms that do both.

Jan 7, 2011