Oregon’s Public Employees’ Retirement Fund has reduced its stake in Berkshire-Hathaway by a 40% in reaction to B-H’s lacklustre performance. From Barron’s:
Warren Buffett isn’t close to beating the market this year, and a giant pension fund has cut its investment in Berkshire Hathaway , the investment juggernaut that Buffett helms.
Class B shares of Berkshire Hathaway stock (ticker: BRKb ) have only managed a 0.9% gain so far in 2019 through Friday’s close, in sharp contrast to the S&P 500’s 18.7% rise.
We’ve noted that Buffett suffered “a reputational and financial black eye†earlier this year as Berkshire took a $1 billion paper loss when Kraft Heinz stock (KHZ)—one of its larger investments—tumbled. Years ago, Buffett backed the combination of H.J. Heinz and Kraft Foods Group that created the company.
Oregon’s Public Employees’ Retirement Fund slashed two-fifths of its Berkshire stock investment by selling 141,822 Class B shares in the second quarter. OPERF, as the pension is known, made the disclosure in a form it filed this week with the Securities and Exchange Commission. OPERF, which recently was counted as the 42nd largest public pension in the world by assets, now owns 222,763 Class B Berkshire shares.
The reality is that they had to. The fund’s assumption is a 7.2% return. With such a large stake in B-H the company’s low returns threatens the fund’s entire structure. Look for a lot more of this especially from pension funds with higher assumptions. They will encourage greater risk-taking which inevitably will mean more losses.
As I’ve noted before, IMHO alternatives allocations are starting to exceed prudent levels to chase yield, and positions are being jettisoned just for window dressing. Buffet isn’t a nice guy but his long term investment track record is undeniable.
Greater risk-taking does not necessarily lead to greater losses. It often leads to greater gains, except in places like Vegas, where the house always wins.
James – If I may.
Risk in finance means volatility of return outcomes. Definitionally, greater risk is rewarded by higher return……..if, one has a well diversified portfolio. And, if you have a sufficient time horizon.
The problem arises when you must liquidate holdings during a negative period. Pension systems have withdrawal requirements. Therefore they must have a sufficient allocation to liquid and less volatile assets, to avoid untimely loss taking. Excess exposure to illiquid and volatile assets might, or might not, work out in any given case. But statistically it’s a loser.
It’s no different than the difference between a prudent asset allocation for a 20 yr old vs a 60 yr old vs an 80 yr old.
Here’s a teaser: The odds of hitting the Power Ball numbers are the same every draw. But the bigger the pot the greater the expected value. Who’s up for pension administrators taking all their inflows and buying Power Ball tickets?