Berkshire Hathaway Inc. (BRK.B), KKR & Co. L.P. (KKR), Siemens AG (ADR) (SI): Warren Buffett’s Not Afraid of This; Why Are So Many Other Companies?

Page 1 of 2

hedge funds vs. mutual fundsWarren Buffett, who turns 83 years old in August and has been at the helm of Berkshire Hathaway Inc. (NYSE:BRK.B) for nearly five decades, isn’t afraid of a little succession planning. While the company’s board is keeping the identify of the successor a mystery for now, we know that there’s a plan in place, which seems to be enough information to keep shareholders content. Besides, they’re not in any hurry to see Buffett step down – shares of Berkshire Hathaway Inc. (NYSE:BRK.B) are up 25% year-to-date.

Things are even less transparent at other companies that could potentially face change-in-the-helm events in the foreseeable future, including private equity firm KKR & Co. L.P. (NYSE:KKR). There, (co-Chief Executives Henry Kravis and George Roberts are both near 70 years of age), succession planning has been a topic of discussion for years. After all, whose going to fill the shoes of its historic co-founders?

Rumor has it that Alex Navab, who has been with the firm since 1993, (and who serves as the co-head of the North American private equity business), is reportedly a candidate for the job. According to reports, Navab suffered a health setback when he collapsed amid an irregular heartbeat, according to the New York Post.  Navab is reportedly back at work, but the scare thrust its succession plan, or lack thereof, back into the spotlight.

Meanwhile, KKR & Co. L.P. (NYSE:KKR), with $75.5 billion in assets under management as of December 2012, suffered a setback of another kind in its most recent quarterly performance. Second quarter net income fell nearly 90% to $15.1 million, down from $146.3 million in the year-ago period. Economic income, which takes into account both realized and unrealized gains and losses from its holdings, fell a less-harsh 74% to $144 million.  The problem? A meager 0.9% increase in the value of its private equity funds versus a 5.1% rise in last year’s quarter.

There were no blockbuster deals this year, and that weighed heavily on results. But the company is sitting on billions in cash, and recently raised a combined $14 billion for a North American-focused buyout fund and an Asian fund. The problem is that with the U.S. stock market on a tear of late, and the major indices in record-setting territory, valuations are lofty and KKR & Co. L.P. (NYSE:KKR) can’t swoop in and acquire as many assets at fire-sale prices. And private equity firms have been taking money off the table of late, cashing in on their own investments.

Shares of KKR & Co. L.P. (NYSE:KKR) recently set a new all-time high and a pullback in recent days may seem tempting. Normally, the uncertainty surrounding any succession plan wouldn’t be reason enough to stay away. But at a time when asset management is in the spotlight and firms like Steven Cohen’s SAC Capital being indicted on charges of insider trading, it becomes that much more relevant. Coupled with its portfolio performance, I would stay on the sidelines for now.

Siemens shuffle

Meanwhile, it’s a fluid situation over at Germany’s manufacturing giant Siemens AG (ADR) (NYSE:SI), but one thing that’s clear is that there’s executive turnover. Chief executive Peter Loescher’s fate was sealed days ago when the company issued a severe profit warning — the second of its kind in 2013 — sending shares lower by about 8%. Siemens AG (ADR) (NYSE:SI) warned that it would not meet its 2014 profit margin target of 12% or better. Loescher blamed weak market expectations, but competitor General Electric was not only able to beat earnings estimates, but also report a record backlog of equipment and services of $223 billion, making Loescher’s argument harder to accept.

Page 1 of 2