Wall Street Titans Aim to Emulate Berkshire Hathaway: The Quest for Permanent Capital
The world of finance is abuzz with the ambitions of Wall Street heavyweights like KKR, Brookfield, and Apollo Global Management. These firms are striving to emulate the legendary Berkshire Hathaway model, made famous by Warren Buffett. The essence of Berkshire Hathaway’s success lies in its ability to amass and deploy "permanent capital" through its insurance float, allowing for long-term investments without the pressure of short-term returns. This approach has made Berkshire Hathaway one of the most envied financial empires in history. Now, KKR, Brookfield, and Apollo are attempting to carve out their own versions of this winning strategy.
Berkshire Hathaway: The Blueprint for Success
Warren Buffett’s Berkshire Hathaway is a testament to the power of patience and discipline in investing. What began as a struggling textile mill has evolved into a global conglomerate with a market cap exceeding $1 trillion. Central to Berkshire’s success is its insurance businesses, such as GEICO and National Indemnity. These insurers generate a "float"—the difference between premiums collected and claims paid out. Buffett has masterfully used this float as a source of permanent capital to fund stock investments and acquisitions. This strategy eliminates the need to raise external capital, allowing Berkshire to operate with unparalleled freedom and patience. The company’s decentralized structure, with autonomous subsidiaries, further enhances its ability to manage a vast portfolio without micromanagement. As Buffett himself noted, "We delegate almost to the point of abdication," freeing him to focus on high-level capital allocation.
KKR’s Ambition: A Mini Berkshire in the Making
KKR, the private equity giant, is taking a page from Berkshire’s playbook. Co-CEOs Joseph Bae and Scott Nuttall have outlined an ambitious vision for KKR’s new Strategic Holdings division, which they hope will evolve into a "mini Berkshire Hathaway." This division is designed to hold significant stakes in 18 businesses deemed highly defensive with strong growth potential, aiming to own them "literally forever." By leveraging its $650 billion in managed assets and the $190 billion managed by its life insurer, Global Atlantic, KKR plans to expand its reach across private equity, infrastructure, and other sectors. Bae emphasized that the firm’s strategy will focus on long-term compounding, mirroring Berkshire’s proven approach. KKR’s goal is to build a legacy that endures well beyond the current leadership, much like Berkshire Hathaway.
Brookfield’s Vision: Insurance at the Core
Brookfield, another Wall Street titan, is also betting big on the Berkshire model. CEO Bruce Flatt has highlighted the central role of insurance in Brookfield’s ambitions, envisioning a future where its insurance business could own the firm’s $1 trillion asset management arm. Flatt believes this structure would closely resemble Berkshire Hathaway’s business model. Brookfield’s unique advantage lies in its $150 billion of deployable capital, which can be used to grow its insurance business, fund stock buybacks, or invest in other divisions over the next two decades. "The attraction to investing inside an insurance company is the zero cost of float. It is effectively a margin account with zero interest," noted Bill Smead of Smead Capital Management. This zero-cost float allows Brookfield to invest in long-duration, illiquid assets, such as infrastructure and private credit, which are ideally suited for compounding on the balance sheet.
Apollo’s Strategy: Emulating Berkshire’s Insurance-Fueled Growth
Apollo Global Management is another firm drawing inspiration from Berkshire Hathaway’s playbook. In 2021, Apollo acquired Athene, a specialist in annuities and life insurance, to fuel its growth. Marc Rowan, Apollo’s CEO, has explicitly acknowledged the influence of Berkshire’s model, stating, "There are elements of Berkshire Hathaway" in Apollo’s approach. Joshua Harris, Rowan’s cofounder, has referred to Apollo as an "asset-light Berkshire Hathaway," emphasizing its access to a massive pool of permanent capital. Apollo’s takeover of Athene has provided it with a steady stream of insurance float, enabling the firm to invest in long-duration assets without the pressure of short-term returns. Like Berkshire, Apollo aims to build a financial empire capable of enduring for generations.
The Challenges of Emulating Berkshire: Patience, Discipline, and Trust
While KKR, Brookfield, and Apollo are formidable firms with significant resources, replicating Berkshire Hathaway’s success is no small feat. Adam Mead, author of "The Complete Financial History of Berkshire Hathaway," cautioned that "it’s one thing to buy forever. It’s quite another to buy and leave largely alone like the Berkshire model." Buffett’s ability to trust his subsidiary CEOs and resist the urge to meddle is a key aspect of Berkshire’s success. Mead expressed skepticism that these firms can adopt the same level of delegation and patience, noting, "I’d be surprised if these ‘newcomers’ to the Berkshire way of buying for keeps can resist meddling with management or business models."
The Future of Permanent Capital: A New Generation of Financial Empires?
As Buffett approaches the end of his career, a new generation of investors is stepping into the spotlight. KKR, Brookfield, and Apollo are leading the charge in building financial empires modeled after Berkshire Hathaway. Their strategies are centered on amassing and deploying permanent capital, leveraging the power of insurance float to invest in long-duration assets, and maintaining a disciplined, patient approach to capital allocation. While the road ahead will be challenging, these firms have the resources and ambition to potentially create their own versions of Berkshire Hathaway. Whether they can match Buffett’s legendary track record remains to be seen, but one thing is clear: the world of finance will be watching closely as these titans attempt to build enduring legacies in the world of permanent capital.
