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Berkshire meeting offers glimpse of post-Buffett leadership

New York

BERKSHIRE Hathaway Inc's annual shareholder meeting often features questions about the challenges and strategies of whoever succeeds chief executive officer Warren Buffett. This year, investors got to see the likely candidates in action.

When confronted on a question about succession, Mr Buffett pointed out that deputies Greg Abel and Ajit Jain were there and available to take questions. The pair ended up fielding multiple queries on energy investments and insurance.

Mr Buffett, 88, and vice-chairman Charlie Munger, 95, still grabbed the vast majority of the speaking time during the more than five hours of question and answers, and both gave no sense of wanting to step back from their roles in the sprawling conglomerate they've built. But the appearances offered shareholders a bit more familiarity with two executives that took direct oversight of the company's primary operating units last year.

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"The truth is Charlie and I are afraid of looking bad, those guys are better than we are," Mr Buffett told shareholders. "They know the businesses better, they work harder by far, and you are absolutely invited to ask questions to be directed over to them at this meeting."

Where Mr Buffett and Mr Munger often bring answers back to their central philosophies on investing and managing companies, Mr Abel and Mr Jain offered some more on-the-ground specifics. Mr Abel, 56, laid out the timeline for some of the firm's clean energy initiatives and the competitiveness of its rates in Iowa, while Mr Jain, 67, rattled off how Berkshire's Geico unit compared to key rival Progressive Corp on profitability metrics.

Mr Abel, who runs all of Berkshire's non-insurance operations, is seen as the more likely CEO successor because of his younger age and broader remit. Mr Buffett has repeatedly said that Mr Jain has probably made more money for shareholders than he has.

Mr Buffett received several questions on his stake in Kraft Heinz Co, which had to be excluded from Berkshire's first-quarter earnings because Kraft Heinz still hasn't filed its annual report for 2018 amid regulatory investigations.

Mr Buffett said he and partners 3G Capital overpaid for Kraft Foods Group Inc in its 2015 merger with H J Heinz, which Berkshire and 3G had bought two years earlier. The company is performing well operationally, but has faced stiffer competition from newer brands, he said. Mr Buffett and Mr Munger also defended 3G and said they could work with the Brazilian private-equity firm again.

Mr Buffett has historically shunned investing in technology companies, but with the world's five most valuable corporations now hailing from that sector, the billionaire was asked whether that should change.

He and Mr Munger expressed regret that they missed several stocks that exploded in value, including Google. Mr Munger offered that perhaps the company's recent investment in Apple Inc, which has yielded more than US$10 billion in gains, atones for some of the missed opportunities.

Mr Buffett said several tech companies, including Amazon, could be evaluated in a way that wasn't too far from the value investing framework he's long espoused. But he said he wouldn't be drawn into investing in businesses he didn't understand.

Operating profit rose 5 per cent in the quarter to US$5.56 billion as the company benefited from gains at its railroad BNSF, its energy empire, and the manufacturing and retail businesses.

Berkshire's net income surged to US$21.7 billion from a loss of US$1.1 billion a year earlier as the firm's US$190 billion stock portfolio accrued value. Unrealised gains and losses in the portfolio are counted towards net income under new accounting rules, which Mr Buffett said introduces unnecessary volatility into the results.

Mr Buffett has long been a critic of hedge funds and their fee structures, and on Saturday he expanded the aspersions to private-equity firms. He criticised how some funds present their performance and said that debt covenants had "really deteriorated" which could lead to more risk.

While Mr Buffett said "we don't salivate over buying" the firm's shares at current prices, Berkshire repurchased more stock in the first quarter than in all of 2018, when it relaxed its policy on buybacks. There could be quarters when the company is much more aggressive in buying back stock, he said. BLOOMBERG