Michael BennetFrom: The Australian
February 17, 2010
BILLIONAIRE investor Warren Buffett has had no shortage of fund managers attempt to imitate his strategies.
But why try to replicate when you can invest directly in the “Oracle of Omaha” via his company Berkshire Hathaway, argues JB Global chief executive Justin Beeton.
Mr Beeton, a fan of Mr Buffett since the age of 14, will next week launch a new fund through his Sydney-based investment house to solely invest in the billionaire’s New York Stock Exchange-listed company.
JB is looking to raise at least $40 million by the end of next month to cover costs after Mr Beeton and fellow staff kicked in the initial minimum of $10m.
Mr Beeton expects the JB Global Berkshire Hathaway Income & Equity Accelerator fund to be more popular than the company’s other fund — an ASX 200 vehicle in its fourth series — that recently raised $120m.
“I’ve spoken to a few financial planners that we deal with and they’re all extremely keen as it’s the first time their clients can gain exposure to Buffett without currency risk and — just in case the bloke dies — any capital risk,” Mr Beeton said.
Berkshire’s A-class shares trade at about $US115,000 ($128,417) a share, but Mr Buffett late last month split the company’s B-class shares, also known as “Baby Bs”, 50 to one to make them more accessible to retail investors.
It is these more liquid Baby B’s, which trade around $US75, that JB plans to invest in through tailored over-the-counter options.
Mr Beeton, who formerly worked in capital protection at Macquarie, said the fund would give retail investors access to an investment normally out of reach and have capital protection measures built in.
“In the past I’ve probably fallen victim, like the majority of fund managers who try to replicate Warren Buffett, but why try and replicate when I can buy his shares and get the same deals he does?” he said. “Berkshire Hathaway hasn’t gone up anywhere near as much as its portfolio has so I believe it’s trading well below its intrinsic value.”
Investors can borrow 100 per cent of a minimum of $50,000 through a non-recourse loan facility provided by Royal Bank of Scotland, with $7500 in pre-paid interest to be paid up-front.
Mr Beeton said the loans would be capital protected by Merrill Lynch, the fund would be re-weighted to cash when volatility was high and redemptions paid out in Australian dollars to reduce currency risk. “It’s huge leverage, you’re talking 100 per cent leverage, which gives you a lot of upside and because of the capital protection, you don’t get the negative,” he said.
In return, JB will take a 1 per cent up-front fee of the total funds under management and a 10 per cent performance fee.
“We don’t think our clients mind paying when we’re providing performance. With no real performance I can’t really justify any fees because I’ve added no value,” he said.
JB plans to launch a similar fund to invest in Chinese infrastructure and property in June.
“Throughout Asia I think the best allocation of capital is in that space,” he said.
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