REG - CT Private Eq Trust - Lead Fund Manager Succession

By Gregory Zuckerman

Charlie Munger owned a house with spectacular ocean views in Montecito, Calif. The Berkshire Hathaway vice chairman had designed the entire gated community, which locals called "Mungerville." At one point, he told a friend he expected to spend his last years there.

Instead, Munger chose to remain in his longtime home in Los Angeles. The place didn't even have air conditioning. During a heat wave three years ago, friends brought electric fans and bags of ice to cool his library.

Munger didn't care. The home was close to people he liked and projects he found stimulating. Rather than a quiet life by the sea, Munger spent his final years chasing gutsy investments, forging unlikely friendships and facing new challenges.

When Munger died two years ago, weeks before his 100(th) birthday, the billionaire investor was among the nation's most beloved businessmen, celebrated for his wit and wisdom — and the role he played helping Warren Buffett build Berkshire Hathaway into a trillion-dollar company.

The unexpected last chapter of Munger's life is less well-known. In the year before his death, Munger made over $50 million from a bet on an out-of-favor industry he had shunned for 60 years. He revved up his real-estate activities, working with a young neighbor to place big, long-term wagers, unusual for a nonagenarian. He faced down health challenges and wrestled with the future.

"Even a week or two before passing away, he was asking questions such as, 'Does Moore's Law apply in the age of AI?'" recalls his friend Jamie Montgomery, referring to whether artificial intelligence would see exponential gains like those experienced in computational power.

Friends and family say Munger's eventful last period offers lessons for investors — and a blueprint for how to age with grace, equanimity and purpose.

"To the day he died, that mind was running," says Munger's stepson, Hal Borthwick. "He never stopped learning."

A graduate of Harvard Law School who co-founded the law firm of Munger, Tolles & Olson in Los Angeles, Munger quit his practice in 1962 to focus on investing. Later, he shuttered most of his investing partnerships, joining Berkshire in 1978 as its vice chairman.

Munger became Buffett's consigliere and sounding board, pushing Buffett to loosen his investment parameters beyond bargain investments to buy high-quality companies.

"Charlie and I are interchangeable in business decisions," Buffett said in 1982.

Buffett declined to comment for this article.

By the last decade of his life, Munger was less involved with Berkshire Hathaway, despite a stake in the company valued in 2023 at $2.2 billion. He spoke with Buffett every week or two. Buffett was based in Omaha, Neb., and Munger lived in Los Angeles, and they both had hearing issues, making communication more difficult.

"They would scream to each other," says Whitney Jackson, the wife of Munger's grandson and a frequent visitor to Munger's home in his last years. "It was likely meant to be confidential, but anyone within a mile's radius could hear them."

Munger turned his attention to other endeavors. He was a board member — and superfan — of retail giant Costco, with a stake valued at about $100 million at his death. He invested in hedge-fund manager Li Lu's Himalaya Capital and smaller investment firms in Boston and Melbourne.

Munger made his own investments, too. Sitting in a recliner in his library, he'd grab green Value Line binders from a nearby desk and pore through data on publicly traded companies.

For decades, he barely looked at coal stocks, friends say, but in 2023, these companies grabbed his attention. Coal usage was in a long-term decline, and investors saw a bleak future for the industry. Yet many producers remained profitable, trading at inexpensive levels. Coal will remain necessary as global energy demand grows, Munger argued to friends and others.

"He read an article that said coal was down the chute," Borthwick recalls. "He said, 'Horse feathers.' "

In May 2023, Munger purchased shares of coal miner Consol Energy. Later in the year, he bought shares of Alpha Metallurgical Resources, which produces coal for steel production. By the time of Munger's death, Consol had doubled in value. Alpha had also surged. Together he scored paper gains of more than $50 million, friends say.

"He made a very large bet, and it turned out really well," Borthwick says.

Consol has since merged with another producer and the stock has fallen. Alpha has dropped, as well. Investor Mohnish Pabrai, a friend of Munger's, says his coal investments would still be profitable if he held them today.

The moves taught Pabrai a lesson, he says: "You don't need to slow down, you just keep going."

Munger made another unusual late-in-life wager. It began in 2005, when Munger was 81 years old and a 17-year-old neighbor, Avi Mayer, knocked on the door of Munger's longtime home in Los Angeles's Hancock Park neighborhood. Mayer presented Munger with a Hebrew volume containing the Five Books of Moses.

"I had read about him and thought he was Jewish," says Mayer, whose grandfather had recently died, leaving a hole in his life. (Munger was not Jewish.)

Mayer was having difficulties in school. He battled ADHD and was discouraged about his future.

"I was insecure," he says. "My friends were going to college and I wasn't."

Mayer began spending time with Munger.

"He listened to my problems and talked about life principles and personal values," Mayer says.

Munger told others that he appreciated Mayer's intelligence and ambition. The famed investor supported Mayer as he weighed skipping college, saying Mayer could instead attend "Munger University." So that's what Mayer did.

"I watched him in action and learned from him, and he handed me books once in a while," Mayer says. They became close and Munger arranged for kosher food to be delivered to his home so they could dine together.

When Mayer partnered with his childhood friend, Reuven Gradon, to invest in real estate, Munger studied their early moves. A few years later, he offered to back the young men and their company, Afton Properties. "I'm graduating you," he said. Starting around 2017, the three men purchased nearly 10,000 "garden" apartments in Southern California, becoming one of largest owners of these low-rise apartments in the state.

In the years before his death, Munger involved himself in almost every aspect of their business — choosing neighborhoods, assessing construction, even picking paint colors. He had special interest in landscaping details, insisting on low-density building complexes, deciding the company should spend hundreds of thousands of dollars to plant new trees, says Mayer, now 37.

Munger encouraged Mayer and Gradon to take long-term loans — even as other real-estate investors favored short-term debt that could be quickly refinanced — arguing that securing favorable interest rates and holding assets for years was the way to profit.

The moves panned out: Afton's holdings are now worth about $3 billion, according to a person close to the matter. Munger remained involved until the end, helping negotiate the purchase of a building in Santa Maria, Calif., a transaction that closed days after his death. It was across from a new Costco supercenter, making it extra special to Munger.

Munger didn't tell many people, but in the last decade of his life, he had begun to face health difficulties. Back in 1978, a surgeon had bungled cataract surgery, leaving him blind in his left eye. He learned to compensate, installing bright lights around the house. Around 2014, though, Munger experienced a problem in the optic nerve of his right eye. He faced the possibility of going blind — yet he took the setback in stride, says Li Lu, a regular visitor. Munger decided to adjust his life, asking others to read to him and contemplating other steps.

"I'll have to learn Braille," he told one friend. He had studied it after his botched cataract surgery but never mastered it. He was ready to try again.

That turned out not to be necessary. His right eye slowly improved, but Munger's movement became constricted. Around 2016, he lost the ability to play golf, a longtime passion, and relied on a walking stick. Playing bridge with others became difficult. Munger, who had lost his wife in 2010, feared loneliness and irrelevance.

He chose to spend more time with friends, buoying his spirits. Each Tuesday, he met a half-dozen or so business associates and others for breakfast, usually at the Los Angeles Country Club. The group typically arrived at 7:30 a.m. and could go for hours. They discussed investments, traded barbs and shared jokes. Regulars included investors John Hawkins and John Conlin, Uber Chairman Ron Sugar, and later Bobby Kotick, the former Activision chief executive. Robert Bradway, Amgen's CEO, made occasional visits. Munger, at the head of the table, told stories and shared philosophies.

"He'd always say, 'Take out Berkshire's top five investments and its returns are pretty middling,' " says Montgomery, a lesson to the group that success can come from just a few winning moves.

As a younger man, Munger could be cranky and acerbic; now, he was warm and reflective.

"At my age, you make new friends, or you don't have any friends," he told the group.

Munger retained a bit of an edge, though. When a senior Ford executive joined the breakfast club one time, Munger surprised the group by outlining the carmaker's profitability — by product line — over the previous 25 years. Then, Munger hit him with a zinger.

"I don't know why you guys bother making cars," he said, noting that the bulk of Ford's profits came from trucks.

Munger appeared invigorated by the meetings, the last of which took place 10 days before his death.

"We all learned from Charlie, and Charlie liked that he learned from us, " says Paul Major, a local businessman who was another regular.

By Spencer Jakab

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The stock market's thousand-dollar club was worth every penny. When Netflix split its stock 10-for-one last week, it left that exceptional group-members of the S&P 500 with at least four-digit prices. But its shareholders don't have reason to complain: They've made an almost unbelievable 89,000% return since the streaming star's initial public offering in 2002.

There are now 10 such U.S. stocks remaining, and most have been listed for longer than Netflix. An investor who had divided $10,000 evenly among them in January 2000 (including Netflix) would have a cool $1.5 million today, versus just $73,000 for an S&P 500 index fund.

Even the poorest performer, Berkshire Hathaway's Class A stock, trounced the market. It also happens to be the most richly priced, at three-quarters of a million dollars.

Chief Executive Warren Buffett, seeking to discourage speculation, has refused to split the stock. He issued lower-priced "Baby Berkshire" shares in 1996 to thwart promoters setting up a fund that would have given them fractional ownership. Berkshire then split those lower-priced B shares 50-for-one to aid in a 2010 acquisition-a step that also let it into the S&P 500.

There's no mystery why stocks with four or more digits are top performers-they couldn't have got there otherwise. The real head scratcher is why investors cheer when management decides to split a stock (like Netflix, which beat the market by 2.4 percentage points the day after its announcement).

A split doesn't affect the value of an investor's shares, and brokers offering fractional ownership now make splits unnecessary. But there's a longstanding tendency to bid prices up on the news. Analysts at UBS have said the effect has averaged about two percentage points in the session following a split announcement. There was even a gimmicky split-focused fund that shut down in 2017.

Far more common are reverse splits, which reduce shares outstanding. They predominate because most stocks perform poorly (indexes march higher because of a small number of winners).

Companies fearful of delisting, often "penny stocks," do them to bolster their prices. Of the 239 decisions to change shares outstanding on U.S. exchanges since June, 222 were reverse splits, according to LSEG Refinitiv.

With Netflix's departure, the $1,000 club includes companies like homebuilder NVR, retailer AutoZone, asset manager BlackRock, drugmaker Eli Lilly and online travel agent Booking. Conspicuously absent are the "Magnificent Seven."

Apple, Amazon, Alphabet, Tesla, Nvidia and Microsoft would all be well above $1,000 had they not split over the years. Prices of the first five rose following their most recent announcements.

The need to multiply shares outstanding and a really high price are both signs of an illustrious history. Those qualities might be lasting, but investors should remember the mutual fund boilerplate: Past performance doesn't guarantee future results.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

Andrew Bary

Berkshire Hathaway was late in buying Alphabet, but it is scoring nonetheless given the sharp rally in the operator of the leading search engine.

Berkshire bought 17.85 million of Alphabet's voting shares in the third quarter for what Barron's estimates was around $4 billion, or an average price of $225 a share. Recent moves in the stock suggest that Berkshire already is showing a 40% gain on its new investment.

Alphabet stock has been on a tear lately, buoyed by optimism about its use of artificial intelligence in its search business. The voting shares were up 5.7% to $316.65 Monday after hitting a record high in early trading. The stock is up 25% in the past month and over 50% in the last three months.

Alphabet has passed Microsoft to become the No. 3 company in market value in the U.S. stock market, behind Nvidia and Apple.

Berkshire's Alphabet stake is now worth about $5.6 billion, resulting in what Barron's estimates is a profit of more than $1.5 billion.

Berkshire Hathaway CEO Warren Buffett and former vice chairman Charlie Munger praised Alphabet at the 2017 Berkshire annual meeting, when the stock traded around $45, but the company waited until 2025 to buy shares.

Buffett used to provide the cost basis of the top 15 Berkshire equity holdings in his annual shareholder letter, but he stopped doing so without explanation after the 2021 letter. The omission makes it difficult to determine the cost basis of newer Berkshire investments.

Alphabet stock traded in a wide range of $174 to $254 in the third quarter. Barron's estimate of a purchase price of around $225 is based on the average price in the quarter and information in the company's latest 10-Q filing about the change in the cost basis of three groups of stocks in Berkshire's $300 billion equity portfolio.

It isn't clear whether Buffett, or either of the Berkshire investment managers Todd Combs and Ted Weschler, bought the Alphabet stock. Together, they run a total of about 10% of the Berkshire portfolio, with Buffett handling the rest.

Barron's best guess is that it was Combs or Weschler because of the relatively small size of the holding, the price, and the industry. Buffett's investments tend to be larger, at $8 billion or more, while Weschler and Combs' holdings are believed to often be at $4 billion or less. Two such smaller purchases, DaVita and Sirius XM Holdings, are both likely Weschler investments.

If Buffett had been buying Alphabet, he might have bought more than $4 billion of stock, an amount that might begin to move the needle at Berkshire. He is also less comfortable with technology investments than Combs or Weschler.

Buffett will be stepping down as CEO at year-end, making it less likely that he would have made a sizable investment in his final months at the helm

At the 2017 Berkshire annual meeting, Buffett talked about Alphabet's Google business in relation to Geico, Berkshire's auto insurer. "We were their customer very early on with Geico — these figures are out of date, but as I remember, we were paying $10 or $11 a click," he said. "Any time you are paying somebody 10 or 11 bucks to punch a little thing, where you have no costs at all, that's a good business, unless someone will take it away from you."

Berkshire, Munger pointed out, had missed out on buying other stocks earlier. "We blew Walmart, too," Munger said. "It was a total cinch. We were smart enough to figure that out and didn't. Our worst mistakes have been mistakes of omission."

Write to Andrew Bary at andrew.bary@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

Billionaire hedge fund manager Bill Ackman is revving up a long-anticipated plan to hold an initial public offering for his Pershing Square Capital Management, the Financial Times reported, citing unidentified people with knowledge of the matter.

Ackman is talking with advisers and has informed some of his firm’s investors of his intent to seek a listing in 2026 — potentially as soon as the first quarter, the newspaper said. Still, the talks are preliminary and the initiative could get shelved depending on market conditions, it said.

In what would be a unique double IPO, Ackman is looking to simultaneously list a new investment fund along with Pershing Square, the Wall Street Journal reported, citing people familiar with the matter.

A spokesperson for Pershing Square reached by Bloomberg News declined to comment.

Ackman has been laying the groundwork in recent years for what would be a rare market debut of a large hedge fund management firm. Last year, he agreed to sell a stake in Pershing in a private deal that valued it at more than $10 billion and served as a prelude to an IPO — which a person with knowledge of the matter said at the time could take place as soon as late 2025.

Ackman, 59, made a name for himself as an activist investor with an outsize presence on social media and a willingness to take concentrated positions in a relatively small roster of stocks. He has a net worth of $8.4 billion, according to the Bloomberg Billionaires Index.

Most of Pershing Square’s assets are in Pershing Square Holdings Ltd., a closed-end fund that trades in London that holds 15 positions and managed $19.3 billion at the end of October. It generated a return of more than 17% this year through Nov. 18.

Ackman said last year he planned to list a similar fund on the New York Stock Exchange called Pershing Square USA Ltd. He had a target of raising as much as $25 billion, but temporarily pulled the listing after only raising about $2 billion.

In May, Pershing Square struck a deal to boost its Howard Hughes Holdings Inc. stake to almost 47% in a plan to build an insurer and expand the real estate company into a company with controlling stakes in other public and private businesses. He likened the model to what Warren Buffett built at Berkshire Hathaway Inc., which has greatly benefited from using insurance company holdings to provide low-cost capital for other investments.

To the Editor: Aside from buying a whole lot more Berkshire Hathaway stock himself, CEO-designate Greg Abel should stay the course (" Berkshire Without Buffett: What's Next for the Company and the Stock," Cover Story, Nov. 13). Do no harm, and don't try to reinvent the wheel. Once the market corrects from its manic overvaluation and speculative artificial-intelligence fever, Berkshire's performance will outshine once again, just as it did after the dot-com face plant.

Richard Goldstein On Barrons.com

Worsening Disparities

To the Editor: Concierge medicine is just an example of further wasteful spending in medicine that does nothing but increase the cost of medicine for everyone and worsens disparities (" Concierge Medicine Is Booming. Should You Join the VIP Club?" Nov. 12). Ordering additional testing because it "feels right" without any good evidence of improving care leads to further testing and increased costs because all of that further testing is being paid by the insurers or the government — hence everyone. It leaves a much smaller pool of primary-care physicians seeing a much smaller panel of high-net-worth individuals. This result leaves — once again — the younger population, the poor, and the working class without the same level of access and a higher cost of care.

Dr. Louis J. Papa Rochester, N.Y.

Spiking Volatility

To the Editor: We all know that millions of people are going to lose their jobs over the next two to three years because of artificial intelligence (" AI Anxiety Reaches Fever Pitch in the Stock Market. Why It's Still Not Time to Worry," Tech Trader, Nov. 13). Conversely, businesses will see unusually large earnings increases the first few years, which will goose the stock market. At the same time, government jobs numbers will show job losses, and investors will be rightfully confused. Volatility will spike like never before.

Shepard Fargotstein On Barrons.com

Rethinking 60/40

To the Editor: Whether it's fixed income here or abroad, it's still subject to the deleterious effect of profligate fiscal policy worldwide, intermediate and long rates reacting negatively to misguided Federal Reserve policy, and tariffs/embargoes that create inflation (" 6 Global Balanced Funds That Make Sense for This Market," Funds, Nov. 12). The traditional 60/40 asset mix is clearly outmoded in today's investing environment. Instead, consider a 50/25/25 mix of growth stocks, high-yield value stocks with increasing dividends, and gold miners/bullion, which has a better chance of preserving capital, providing growth, and generating a rising income stream.

Mike Meehan Bradenton, Fla.

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This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.