Warren Buffett works for free. There are very few people in finance, money management especially, who work for free. (This is why he pays no taxes, right? If we all worked for free, and sold stock when we needed cash, we'd pay very low tax rates too, but I digress...)
With great fanfare, Berkshire has hired Weschler and Combs as money managers. Who knows what they're getting paid right now. We do know two things for certain:
- They aren't working for free
- Their now spectacular credentials ("Yes, Warren hired me to manage Berkshire's money...") mean that their market price is the lion's share of a hedge fund fee: 2% management fee and 20% performance share.
Fundamentally, Berkshire's compensation model must shift from altruist investor to commercial fund-of-funds. Yes, right now Warren Buffett is hiring managers much like a fund-of-funds invests in hedge funds. This new model may work, but it certainly has far higher embedded costs of operations than the current operation.
The succession planning challenges faced by the board have become real. They will have real costs.