I recently had a conversation with a friend of mine who invests client funds in BRK as a "private equity" investment for clients whose net worths do not qualify for the big "private equity" funds available. I had to chuckle at first, because the CEO of BRK holds "private equity" funds in such low estimation, but it did cause me to revisit the question of what kind of company is BRK?
Given the size of the insurance operations and its increasing importance as BRK expands into municipal bond insurance and various derivative operations, I could make an argument that BRK is trully a diversified insurance company with an unusually wide breadth of investments and excess capital capacity. Within this viewpoint, BRK's balance sheet is the means of service.
On the other hand, BRK could be considered a vast closed end mutual fund which invests in public and private investments and is leveraged through the generally low cost of borrowing in the insurance operations as well as various derivative operations. Within this viewpoint, BRK's balance sheet is the service. So the question can be posed "is BRK's balance sheet the means of service or the service?"
BRK's 2008 annual report supports the latter interpretation. The CEO states "Berkshire has two major areas of value" (pg.5). He goes on to describe these two areas. The first is the investments in stocks, bonds and cash which are partially made available by the insurance operations. So it might be appropriate to simply value these assets and then subtract the debt, if the debt has cost, from these assets. The second area is the 67 "non-insurance," thus as my friend noted, "private equity" companies. He describes these companies not by value, but by earnings.
No comments:
Post a Comment