One of the problems he sees with the private equity scene is that the incentive structure encourages managers to put money to work, even at sub-par rates of return, so they can collect their fat base rate and incentive fees. Unlike an owner of a business, if they let their cash sit around, they can’t approach their investors and start another fund, generating even more fees. The goal here, it would seem for many people, is to amass assets, not perform for the investors.
In Berkshire’s case, the situation has caused asset prices to rise, making some common stocks appear less attractive. However, the company is finding situations where it can put large sums of money to work and is hoping to work through the $46+ billion cash hoard that has built up over the past few years. In fact, Buffett is looking for an acquisition somewhere in the $40 to $60 billion range that could cause him to sell some of the company’s investments.
