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Warren Buffett's Partner: "Foregone Conclusion" Chinese Investor Will Take Key Role at Berkshire

Charlie Munger has told the Wall Street Journal that "in my mind, it is a foregone conclusion" that Chinese investor Li Lu will become one of Berkshire Hathaway's top decision makers on investments.

Based on hints in the article from Buffett himself, that could happen sooner rather than later, and well before Buffett's eventual departure.

Munger's endorsement puts Li high on the list of people who could become part of a team that succeeds Warren Buffett and is the "first time a name has been identified to fill the investment part of Mr. Buffett's legendary role."

Li Lu
Karchang888/Wikimedia Commons
Li Lu

With big help from an early bet on Chinese electric car maker BYD, Li's hedge funds have an annualized compound return of 26.4% since 1998 versus a 2.25% gain for the benchmark S&P 500 stock index, according to the Journal.

While Buffett consistently says he has no plans to step down, he has indicated that after he leaves, Berkshire will probably split his job into CEO and investing components.

In the Journal article, Susan Pulliam writes that Buffett "envisions a team approach in which the Berkshire investment officials would be 'paid as a group' from one pot" because he doesn't want them to compete with each other.

And Buffett indicates that Berkshire may not wait until he's gone to start building that team. "I like the idea of bringing on other investment managers while I'm still here."

According to the Journal:

Mr. Li fits the bill in some important ways, Mr. Buffett says. "You want someone" who "can think about problems that haven't yet existed before," he says. Mr. Li is a contrarian investor, loading up on BYD shares when they were beaten down. And he's a big fan of Berkshire, which may also help his cause. "We don't want them unless they have special feelings about Berkshire," Mr. Buffett says.

Li, who was one of the student leaders at the 1989 Tiananmen Square protests, is 44 years old and a close friend of Munger's. He is the person who got Munger interested in BYD, the Chinese electric car company that has been a very successful investment for Berkshire over the past two years with an estimated gain of $1.2 billion.

BYD has also fueled Li's gains as a hedge fund manager. According to the Journal, he bought shares of the "fledgling" battery company in 2002 just after its Hong Kong IPO, and continued to add to his position.

But the Journal notes that Li's "big bet on BYD is his only large-scale investing home run. Without the BYD profits, his performance as a hedge-fund manager is unremarkable."

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