[Global Focus] The 'Buffett Era' Ends... Berkshire Launches the Abel Regime

Caught Buffett's Eye in the Mid-1990s
The Challenge of Managing 518 Trillion Won in Cash... Will He Inherit the Investment Philosophy?

On January 1 (local time), Warren Buffett, known as the "Oracle of Omaha," stepped down as CEO of Berkshire Hathaway after 60 years, and Vice Chairman Greg Abel assumed the role of the new CEO. As Abel takes the helm following Buffett, who is widely regarded as the most respected investor in history and leaves behind a cumulative return of 6,100,000%, the weight of responsibility on his shoulders is heavy. The market is closely watching his future investment moves.

In an interview released by CNBC on January 2, Buffett expressed his deep trust, saying, "He might accomplish more in a week than I could in a month," and "I would prefer Greg to manage my money over any other top investment advisor or CEO in the United States."

However, despite Buffett's confidence, on Abel's first trading day as CEO, January 2, Berkshire Hathaway's Class A shares closed down 1.41% and Class B shares fell 1.15%. This reflects the so-called "Buffett premium" being priced out. Now, CEO Abel must usher in a new era of growth for Berkshire without Buffett at the helm.

Who Is Greg Abel, Buffett's Successor?

In 2021, Buffett named Abel as his successor, stating, "If something happened to me tonight, Greg would take over management tomorrow morning." The late Charlie Munger, who was known as Buffett's "right-hand man," also commented that "Abel will carry on our culture well."

CEO Abel is from Edmonton, Alberta, Canada, and grew up in a working-class neighborhood as the son of a salesman. He majored in commerce at the University of Alberta and, after graduating in 1984, worked as an accountant at PricewaterhouseCoopers (PwC). In 1992, he joined geothermal company CalEnergy, which later became MidAmerican Energy and was acquired by Berkshire in 1999, forming his connection with Buffett. However, according to CNBC, even before MidAmerican Energy was acquired by Berkshire, Abel had already caught Buffett's eye in the mid-1990s with his outstanding performance during the acquisition of a British power company.

He later led Berkshire's energy business as CEO of Berkshire Hathaway Energy, and in 2018, he was appointed Vice Chairman of Berkshire's non-insurance operations, overseeing companies such as Kraft Heinz and other non-insurance businesses.

Unlike Buffett, who enjoyed engaging with the public by appearing in company ads dressed as a rocker or making cameo appearances in popular dramas like "The Office" and "All My Children," Abel rarely makes public appearances before the media or investors. The Wall Street Journal (WSJ) has described CEO Abel as a "sharp dealmaker."

Abel's Challenge: Where Will the 518 Trillion Won Go?

With Abel's appointment, the WSJ and other foreign media outlets, as well as Wall Street, are most focused on how Berkshire will manage its $358 billion (about 518 trillion won) in cash reserves. This is the largest amount in the company's history, exceeding the combined market capitalization of Home Depot, Procter & Gamble (P&G), and General Electric (GE). Ahead of Buffett's retirement, Berkshire secured this vast cash pile by recording net stock sales for 12 consecutive quarters.

Industry experts interpret this cash hoard as a signal that Buffett found current stock prices too high to find attractive investment opportunities. However, others analyze that it was also a preparation for his successor. At last May's annual shareholders meeting, CEO Abel described the massive cash reserves as an "enormous asset" that would serve as a buffer for Berkshire during a market downturn.

CEO Abel can use this cash for share buybacks, acquisitions of other companies, or dividend payments to shareholders. However, Berkshire has not repurchased its own shares for the past five quarters, and since Buffett became CEO, the company has paid a dividend only once, in 1967. Notably, there have been few major acquisitions in recent years.

Alex Morris, founder of TSOH, said, "Buffett, as a legendary investor, could amass cash and still receive generous evaluations from Wall Street and Berkshire shareholders, but CEO Abel is unlikely to receive the same treatment," adding, "It will be difficult to find a solution to this issue."

Whether Abel will follow Buffett's investment philosophy is also of interest. In recent years, even as technology stocks such as artificial intelligence (AI) soared, Buffett remained cautious about investing in tech companies other than Apple. However, in an unusual move last November, Berkshire sold a large amount of Apple shares and invested $4.3 billion in Alphabet, Google's parent company.

Investors are paying close attention to who made this decision. It may have been Todd Combs, the portfolio manager who recently moved to JP Morgan, or Ted Weschler, another portfolio manager, but given the size of the deal, it is likely that Buffett or CEO Abel was involved. Since Buffett was still using a flip phone until early 2020 and has consistently stated that technology companies are not his area of expertise, the market speculates that CEO Abel made the decision. If CEO Abel did lead the Alphabet investment, it could signal that Berkshire is now willing to make bold investments in technology companies.

Investors are also watching for Berkshire's next annual shareholder letter. Buffett, who has written the annual letter every February, announced that he will no longer do so starting this year. Investors are eager to see what future vision CEO Abel will present in this year's letter.

Greg Abel, New CEO of Berkshire Hathaway. Reuters Yonhap News

Berkshire Assembles Its 'Post-Buffett' Leadership Team

In anticipation of Buffett's retirement, Berkshire's management underwent a major reshuffle last month, marking a full-fledged transition from the Buffett era to the Abel era. This also offers clues about Berkshire's future direction.

With the departure of Combs, who was CEO of Berkshire subsidiary GEICO, Nancy Pierce, Chief Operating Officer (COO), will take over. Mark Hamburg, Chief Financial Officer (CFO), who worked with Buffett for about 40 years, has decided to retire on June 1 this year. Charles Chang, Senior Vice President of Berkshire Hathaway Energy, will become the next CFO.

Another notable change is the creation of a new General Counsel position, which will be filled by Michael O'Sullivan, formerly of Snap. In addition, Adam Johnson, CEO of NetJets, will serve as president of Berkshire's consumer, services, and retail businesses. Business Insider noted these leadership changes and stated that CEO Abel is expected to be more actively involved in management than Buffett. Unlike Buffett, who valued the autonomy of subsidiaries, Abel is known to prefer direct management.

However, even with CEO Abel at the controls, Berkshire is unlikely to make sudden moves such as investing in virtual assets. Although Buffett is stepping down as CEO, he will remain as chairman of the board and continue to work in the office five days a week, ensuring continuity in management. Furthermore, at last year's annual shareholders meeting, CEO Abel stated that Buffett's investment philosophy and approach over the past 60 years would remain unchanged and that he intends to uphold them going forward.