Berkshire’s Huge Cash Pile and the Hunt for “Elephants”
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Charlie Munger, the late vice-chairman of Berkshire Hathaway, revealed that the Omaha-based conglomerate is still on the lookout for a massive deal that would fully utilize its $160 billion cash reserves. In a recent CNBC special interview shortly before his passing at the age of 99, Munger expressed his confidence that Berkshire Hathaway, with its immense cash resources and credit rating, is well-positioned to make significant investments in the future.
Record-Breaking Cash Reserves
As of September, Berkshire Hathaway held a record $157.2 billion in cash, indicating a significant potential for a substantial transaction. Despite previous acquisitions such as the $11.6 billion purchase of insurer Alleghany Corp. and the nearly $10 billion acquisition of Dominion Energy’s natural gas assets, both Warren Buffet and Munger were still looking for a “big fish” to fully utilize the resources at hand.
The Search for the “Elephant” Continues
Buffett had previously emphasized the need for an “elephant-sized acquisition”, indicating the necessity of a substantially large deal to make an impact on Berkshire Hathaway’s overall value. However, its most recent deals were not enough to meet such high expectations with the company’s market value nearing $800 billion.
Looking to the Future Generation
Munger suggested that the search for a significant deal may fall to the next generation of leaders within Berkshire Hathaway. He hinted at the possibility of key figures such as Greg Abel, vice chairman of Berkshire’s non-insurance operations, or Ajit Jain, vice chairman of insurance operations, stepping up to make strategic decisions. Additionally, Munger did not discount the potential contribution of Buffett’s two investing lieutenants, Ted Weschler and Todd Combs, or even other yet-to-be identified individuals.
Cash Pile as an Asset
Despite concerns about Berkshire’s huge cash reserves, particularly when interest rates were low, Munger saw its substantial return potential, with short-term rates now exceeding 5%. He emphasized the virtue of waiting for the right opportunity, stating that “there are worse situations than drowning in cash, and sitting, sitting, sitting.”
Ultimately, Berkshire Hathaway’s $160 billion war chest remains an asset, giving the conglomerate the financial strength and flexibility to tackle substantial investment opportunities in the future.
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