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By Jeremy Glaser | 05-03-2013 06:00 PM

Miles: Berkshire Can Still Do Big Deals After Buffett

Berkshire's permanent capital base and long-term outlook should allow Buffett's successors to keep pursuing major transactions, says Bob Miles.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We are here at the Value Investor Conference ahead of the Berkshire Hathaway Annual Meeting. I had a chance to sit down with Warren Buffett expert, Bob Miles, to talk about how Buffett's new lieutenants are performing and also if Berkshire should be paying a dividend.

Bob, thanks for joining me today.

Bob Miles: Thanks for inviting me.

Glaser: One of the hot Berkshire topics is always who is going to succeed Buffett after he leaves, and we’ve gotten a little bit more information there with Ted Weschler and Todd Combs taking over part of the portfolio. Talk to us a little bit about how you would rate their performance in their relatively short tenure so far?

Miles: Well, short-term performance has been outstanding for them to beat the S&P 500, I think, by about 8 percentage points. But it's a very short period of time, and their compensation is really based on a rolling three-year average. And their outperformance of the S&P 500 is how they're compensated. Warren’s looking at it over three years.

Glaser: Do you see them as being good stewards of that role of the investment side of the business? It seems like that's working out so far.

Miles: Yeah, I think they are continuing what they did before they joined Berkshire: small, concentrated portfolios in industries that are scalable that they can put a lot of money to work. They're beating their boss and their predecessor, Lou Simpson, who basically resigned creating the position for Ted and Todd. He beat his boss over 25 years by a 6.8% margin.

Glaser: So if we look at one of the biggest deals that Buffett made this year was Heinz, and there were some discussions that maybe [Weschler and Combs] also had some role in that. But it was a little bit different, [with Berkshire] teaming up with a private equity firm, getting Heinz preferred shares. These kind of unusual deals have cropped up a lot for Berkshire since the financial crisis. Would you expect more of those going forward versus kind of straight-up buyouts?

Miles: Yeah, I think that's the advantage that Warren has, and now Ted and Todd have. They have cash available as permanent capital. So, they have a combination of insurance flow, which is up to $73 billion and climbing, as well as a corporate structure where when the market goes down, the capital doesn't flee. They still have to allocate, I think, it's up to $60 million a day into some investments.

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