Posted on 03/01/2008 7:23:40 AM PST by TigerLikesRooster
Buffett defends sovereign wealth funds
By Francesco Guerrera and Justin Baer in New York
Published: February 29 2008 23:10 | Last updated: March 1 2008 01:15
Warren Buffett has hit out at rising US opposition to investments by sovereign wealth funds, saying their recent buying spree was a function of misguided trade policies and not “some nefarious plot by foreign governments”.
In his closely-watched annual letter to shareholders, the 77-year-old billionaire investor revealed he had chosen four unnamed candidates to replace him as chief investment officer of Berkshire Hathaway, his conglomerate, when he dies or steps down. Berkshire has a $140bn pool of investments.
Mr Buffett reiterated that he had three candidates, which he has not named, to succeed him as chief executive of the company on his death or incapacitation.
The 22-page document – required reading for investors who follow Mr Buffett’s folksy nuggets of wisdom – also warned that Berkshire’s core insurance business was facing tough times ahead as margins were contracting.
The warning was borne out by Berkshire’s fourth-quarter results, which fell 18 per cent.
Mr Buffett’s intervention in the debate over sovereign wealth funds comes as several members of Congress and presidential candidates have expressed concerns at the lack of transparency of government-controlled investors.
But the “Sage of Omaha” said investments by sovereign funds, which have bought into several Wall Street banks and private equity groups, were a result of the US trade deficit, national debt and weak currency.
“This is our doing, not some nefarious plot by foreign governments,” the letter said.
He said sovereign funds were recycling dollar-denominated debt issued by the US.
“Our trade equation guarantees massive foreign investments in the US,” he wrote. “When we force-feed $2bn daily to the rest of the world they must invest in something here. Why should we complain when they choose stocks over bonds?”
Mr Buffett criticised financial institutions for their role in the current credit crunch, saying the fall in house prices exposed “a huge amount of financial folly”.
“You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.”
Mr Buffett also took aim at corporate America, scolding companies for overestimating the returns their pensions will produce to offset the expected expenses sure to mount as employees retire.
“What is no puzzle, however, is why CEOs opt for a high investment assumption: it lets them report higher earnings,” he wrote.
“And if they are wrong, as I believe they are, the chickens won’t come home to roost until long after they retire.”
Berkshire’s fourth-quarter results showed net earnings of $2.9bn compared with $3.6bn last year. For the full year, net earnings were $13.2bn up from $11bn last year.
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