‘Be like Buffett’ mantra takes on new meaning

American idols. It’s not just the masses flocking to Berkshire Hathaway’s annual investor confab in Omaha, Nebraska who look to boss Warren Buffett for advice. Financial masterminds like Blackstone’s Steve Schwarzman and KKR’s Henry Kravis have followed the Sage’s example, accruing huge pools of permanent capital that enable them to invest without raising new funds. The irony is, since the New York-based crew plunged into these initiatives, their stocks have bested Berkshire’s. As the guard changes in Omaha, those firms may now overshadow the master.

Blackstone, KKR and their fellow private equity giants once looked very different from Berkshire Hathaway. Schwarzman’s and Kravis’s firms are deal machines, traditionally using privately-raised funds and loads of leverage to take control of companies and flip them, hopefully, for a profit. Conversely, Buffett takes cash from public investors and its insurance businesses, makes both public and private investments in companies, and often holds them for long periods as a passive investor.

But New York-based asset managers feeling the pinch of fundraising have looked, in recent years, to something like Berkshire’s model to build a more stable war chest. KKR bought into insurance company Global Atlantic Financial in June 2020, while Apollo Global Management merged with insurer Athene in 2022. Blackstone raised a real-estate fund from small-dollar investors with no set expiration date to return capital.

That’s not to say Buffett hasn’t used his own pre-eminent reputation to score plum deals, much like the Schwarzman crowd. For instance, in 2019, he bailed out Occidental Petroleum boss Vicki Hollub’s ambitious deal for Anadarko Petroleum in exchange for preferred shares that have ultimately become very lucrative.

Still, whether it’s Berkshire, Blackstone, or any other asset manager, the share price is a reflection of how good they are at making money off of others’ money. In that sense, those chasing Buffett have actually done better than him of late. Stock returns for Blackstone, KKR, and Apollo have outpaced Berkshire over the past five years.

Last month, KKR’s co-CEOs compared the direction they’re moving their business to Berkshire in an interview with Bloomberg. In particular, they highlighted a plan to use their balance sheet to buy and hold companies that throw off dividends, which could then be used to grow. Buffett, meanwhile, on Saturday sat at his company’s annual meeting for the first time without trusty sidekick Charlie Munger, who passed away late last year. As others find success in his model, Berkshire’s future depends on Buffett handing his expertise – and reputation – down to a new guard. Buffett is confident they are well prepared to take over. When they do, though, they may find they’ve already been eclipsed.