In 2007, Ted Weschler's hedge fund held 15 percent of the shares of chemical maker W.R. Grace & Co. It was six years after the company filed for bankruptcy under the weight of lawsuits from workers who claimed asbestos products manufactured by Grace had caused cancer and other illnesses.
Weschler called Joe Rice.
Rice, a South Carolina lawyer, represented the workers and was at an impasse with the 158-year-old firm when Weschler suggested they meet.
Over a three-hour dinner, the men started a conversation about resolving the case in a way that would be fair to workers and shareholders. Weschler picked up the check. His initiative paved the way for a settlement a year later that has helped Grace's stock climb 40-fold since the bankruptcy — and for an investing record that earned him a job at Warren Buffett's Berkshire Hathaway Inc.
“He understood the issues for my clients weren't all dollars and cents,” Rice said. “He was a catalyst.”
That ability to find value in distressed companies and cut deals helped Weschler, 51, carve out a role at Omaha-based Berkshire that goes beyond the stock-picking job he was hired for. Since joining Buffett's firm in January, he has made a bid for a bankrupt mortgage business, negotiated a transaction that pushed Berkshire deeper into newspaper publishing and consulted with the heads of the company's operating units.
Buffett said in July that Weschler and Todd Combs, Berkshire's other investment manager, each probably would oversee a $4 billion portfolio, up from about $2.75 billion at the beginning of the year. While it's too early to evaluate Weschler's performance, his expanding role and experience show why he could one day be a candidate to run the company that Buffett, 82, built over four decades through stock picks and acquisitions, said Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life.”
“Warren keeps describing him as an investment manager, but the reality is his skills are more comparable to those of Warren himself,” said Schroeder, who's also a Bloomberg View columnist. “He has a background in broad capital management, including private equity, mergers and acquisitions, owning businesses and being directly involved in their management.”
The board probably has another candidate in mind to replace Buffett if an immediate successor is needed, though Weschler could be a longer-term choice if he proves himself, she said.
Parallels between Weschler and his boss come easy. Like Buffett, he was fixated on making money from an early age and has cultivated an investing style that relies on patience, an encyclopedic knowledge of company financials and interest in a range of industries, according to interviews with more than a dozen friends, former colleagues and business acquaintances.
He also amassed a fortune far from Wall Street, spending most of his three-decade career in Charlottesville, Va., where he helped establish a private-equity firm in 1989 and later started a hedge fund. Buffett moved Berkshire to his childhood home of Omaha and kept it there as the company expanded to employ more than a quarter of a million people and its value rose to more than $220 billion. Weschler now splits his time between Omaha and Charlottesville.
Weschler, who declined to comment for this story, may make his biggest mark yet on the billionaire's firm with last week's auction for bankrupt mortgage lender Residential Capital LLC's most valuable assets.
Berkshire Hathaway won, subject to court approval, a portfolio of ReCap loans with a $1.5 billion bid. The portfolio would give Buffett another platform to originate loans and a chance to benefit from servicing real-estate debt as the housing market rebounds. Weschler handled the negotiations for Buffett's firm, according to court filings.
Weschler also helped Buffett on a deal to buy 63 newspapers, including the Richmond Times-Dispatch, from Media General Inc. and refinance its debt.
Buffett asked the investment manager to analyze the ability of Media General's broadcast business to handle its debt if Berkshire bought the print publications, Weschler told C-Ville Weekly, a Charlottesville newspaper, in May. He served as Berkshire's lead negotiator on the newspaper purchases and financing, which included a $400 million term loan due in 2020 that pays 10.5 percent interest, according to Lou Anne Nabhan, a spokeswoman for the media company.
The debt provides some assurance Berkshire will make money on the deal even if the newspapers struggle, said Ken Doctor, an analyst at Outsell Inc., a Burlingame, Calif.-based research firm focused on the publishing industry.
Weschler, a director of Wilmington, Del.-based WSFS Financial Corp., has collaborated on deals with the heads of Berkshire's operating units and helps review possible takeover targets, according to a person familiar with his role.
Behind-the-scenes work is fitting for someone who, according to friends and associates, enjoys privacy. He doesn't seek attention for most of his philanthropy, according to five people with knowledge of his contributions.
He ran his hedge fund, Peninsula Capital Advisors LLC, which had about $2 billion in U.S. stock holdings, from a two-room office above a bookstore in Charlottesville. His work attire often was a short-sleeve shirt and shorts, said Michael David, a former colleague and friend who now runs a hedge fund in Akron, Ohio. And while he has driven BMWs for some time, he keeps the cars for seven or eight years, David said.
Weschler lives with his wife, Sheila, and two children on a 104-acre farm outside Charlottesville that he bought in 2004 for $5.5 million, according to county property records. He sold another house in the city for $1.2 million in April.
Friends and associates said Weschler, a native of Buffalo, N.Y., whose father was an A&P grocery-chain executive, long had a desire to make money. In his middle-school yearbook, he said he wanted to be a millionaire, said Chris Hagerty, director of advancement at Cathedral Prep. And in high school, Hagerty said, he sold cigars to classmates traveling to watch their basketball team compete for the state championship.
Weschler, who completed marathons in New York and Boston, has a competitive streak. When he managed Peninsula, he would vie with his friend Mark Schoeppner to see who could produce the best returns at their respective funds. Annual results were posted on a plaque in the winner's office. Weschler closed his fund before joining Berkshire.
Like Buffett, Weschler sought an edge by studying company filings and dozens of publications. He once told David that he didn't make an investment unless he had spent 500 hours studying the idea.
The passion for data is shared by Buffett, who has quipped that he follows regulatory filings like some men read Playboy.
Shapiro said Weschler usually won their friendly competition to see who could get into the office earliest to look at the quarterly filings of Dish Network Corp., which both held in their funds.
That approach may have helped Weschler land his role investing a portion of Berkshire's $86.2 billion equity portfolio. It didn't hurt that he won charity auctions in 2010 and 2011 for meals with Buffett, bidding $2.63 million each time. The anonymous donations were disclosed after he got the job.
Some of Weschler's hedge-fund holdings have shown up among Berkshire's investments, including stakes in Liberty Media Corp. and DaVita Inc. Both companies' shares are up about 45 percent this year, triple the Standard & Poor's 500 Index's 14 percent advance.
The origins of some of Weschler's most successful bets as a hedge-fund manager can be traced to the 1980s, when he worked at Grace after earning a bachelor's degree at the University of Pennsylvania's Wharton School.
The DaVita holding was informed by one of his first Grace assignments, working on the 1984 acquisition of National Medical Care Inc., a provider of kidney-dialysis services.
During due diligence for the deal, Weschler caught the attention of Terry Daniels, then vice chairman of Grace, for the way he asked questions of a top National Medical executive, said Ed Harvey, an ex-Grace executive.
Weschler's role in that deal led to a two-year stint as assistant to J. Peter Grace, who ran the firm for more than four decades. Weschler accompanied the industrialist at meetings evaluating capital requests from health care, restaurant, retail, natural resources and chemicals operations, Daniels said.
“It was a tremendous learning experience,” Daniels said. “You got to see executives and how they responded.”
When Daniels started a private-equity firm now called Quad-C Management Inc. in 1989 focusing on buyouts of midsize firms, Weschler joined him. In addition to working on deals, Weschler oversaw the portfolio that included distressed bonds and equities.
He left Quad-C in 1999 to start Peninsula. Like Buffett, Weschler concentrated his investments in a handful of companies, many of which he held for years. At the end of the second quarter last year, before Berkshire announced Weschler's hiring, his fund's U.S. stock portfolio was spread across just nine firms, filings show. Peninsula had five of those stocks three years earlier. The fund gained more than 1,000 percent from 2000 to 2011, a period in which the S&P 500 Index fell.
Grace was among the largest contributors to Peninsula's returns. The 3.74 million shares Weschler personally owned as of last December, according to a regulatory filing, would be worth about $228 million at the Oct. 19 closing price.
Opportunistic, distressed investing would help “round out the role” of a future Berkshire CEO, Schroeder said.
Takeovers are increasingly important to Berkshire, she said. The company generated more than $12 billion in free cash flow last year and doesn't pay dividends.
“Unless Berkshire becomes an enterprise that simply distributes its cash flows, if it's going to continue growing, they need someone who has the ability to make acquisitions, negotiate deals, evaluate where acquisitions would fit in the broad context of Berkshire,” Schroeder said.
As CEO, Buffett has served as Berkshire's chief capital allocator and advised managers of the company's more than 70 operating units on major acquisitions and projects. Weschler's experience suggests he could succeed Buffett in that role, said Tom Russo, a partner at Lancaster, Pa.-based Gardner Russo & Gardner, which oversees about $6 billion and counts Berkshire shares among its largest holdings.
“Ted's probably pretty good at that because he has valuation skills and he has deal skills,” Russo said.
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