According to an article in The Chicago Tribune, Lou Simpson is planning to retire from GEICO at the end of 2010. Mr. Simpson is President and CEO of Capital Operations. Tony Nicely is Chairman, President, and CEO of GEICO’s insurance operations. Like other Berkshire Hathaway insurance subsidiaries, insurance underwriting operations and investment decisions are handled separately with Mr. Simpson having broad autonomy over GEICO’s investment portfolio.
Mr. Simpson is the only manager at Berkshire Hathaway who has authority to make investment decisions without consulting with Warren Buffett. Mr. Simpson’s portfolio is reported in Berkshire Hathaway’s consolidated 13F report (click here for the latest 13F) and, as a result, many of his investments are often confused with the portfolio run directly by Warren Buffett. However, careful observers have noted that certain positions on the 13F report are relatively small (under $1 billion) and are also specifically associated with GEICO.
As an aside, it is almost certain that Berkshire’s newly disclosed stake in Fiserv is one of Lou Simpson’s positions since it is worth approximately $200 million.
Mr. Buffett made the following comments regarding Mr. Simpson’s track record in his 2004 letter (pdf) to Berkshire Hathaway shareholders:
The media continue to report that “Buffett buys” this or that stock. Statements like these are almost always based on filings Berkshire makes with the SEC and are therefore wrong. As I’ve said before, the stories should say “Berkshire buys.”
Even then, it is typically not I who make the buying decisions. Lou Simpson manages about $2½ billion of equities that are held by GEICO, and it is his transactions that Berkshire is usually reporting. Customarily his purchases are in the $200-$300 million range and are in companies that are smaller than the ones I focus on. Take a look at the facing page to see why Lou is a cinch to be inducted into the investment Hall of Fame.
You may be surprised to learn that Lou does not necessarily inform me about what he is doing. When Charlie and I assign responsibility, we truly hand over the baton – and we give it to Lou just as we do to our operating managers. Therefore, I typically learn of Lou’s transactions about ten days after the end of each month. Sometimes, it should be added, I silently disagree with his decisions. But he’s usually right.
On page 17 of the letter, Mr. Buffett includes Lou Simpson’s investment track record from 1980 to 2004. Over the 25 year period, the average annual gain in GEICO’s equity portfolio was 20.3 percent compared to 13.5 percent for the S&P 500. Mr. Simpson trailed the S&P 500 in only seven years. According to the Chicago Tribune article, Mr. Buffett says that the GEICO equity portfolio has outperformed the S&P 500 since 2004.
Opportunity for Li Lu?
Although Mr. Buffett will take over GEICO’s investment operations after December, it is interesting to note that Mr. Simpson’s retirement may present an ideal opportunity to delegate investment responsibilities to new investment managers. In late July, Berkshire Hathaway Vice Chairman Charlie Munger stated that it is a “forgone conclusion” that Li Lu will have an important role at Berkshire in the future. Mr. Buffett has also said on several occasions that he would like to delegate some investment authority to potential successors while he is still leading the company.
Li Lu’s investment style involves concentrated positions and may not be ideally suited for the requirements of GEICO’s equity portfolio which is typically more diversified. However, it is still interesting to contemplate the possibilities in light of Mr. Simpson’s decision to retire.
Disclosure: The author of this article owns shares of Berkshire Hathaway.