A Warren Buffett Favorite Goes Public

There are two investor letters that Warren Buffett reads as soon as they are released.

The first is the annual shareholder letter from Jamie Dimon, the chairman and CEO of JPMorgan Chase (NYSE: JPM  ) . In an interview last year, Buffett told Bloomberg that "Jamie Dimon is a fabulous banker, and probably writes the best annual report in America." And in his most recent letter to shareholders, Buffett took the opportunity to explicitly recommend it to Berkshire Hathaway shareholders.

The second are the letters by Howard Marks, the founder and chairman of Oaktree Capital Group (NYSE: OAK  ) , an alternative investment company that specializes in distressed assets. Buffett stated, "When I see memos from Howard Marks in my mail, they're the first thing I open and read. I always learn something, and that goes double for his book [The Most Important Thing: Uncommon Sense for the Thoughtful Investor]."

Oaktree goes public
Although investors have had the opportunity to invest with Jamie Dimon for some time now, Howard Marks' company only had its initial public offering this week. Given Buffett's feelings toward him, is Oaktree a new issue that investors should buy?

If the market's reception to Oaktree's initial public offering on Wednesday night is any indication, the answer appears to be "no." According to reports, the company had originally intended on selling 10.3 million shares in a range of $43 to $46 a share. When all was said and done, however, it was only successful at pricing 8.84 million shares at $43, raising an estimated $380.3 million. Because the offering represented about 6% of the company's outstanding shares, this values Oaktree at $6.5 billion.

While it certainly didn't help that the market had been down this week on fears from Europe and a dismal March jobs report, the lack of interest in Oaktree's offering is more likely related to the line of business it's in. Namely, because of the convoluted structure of private equity firms, public market investors struggle to value the performance fees in their funds. And it's for this reason that shares in many of Oaktree's peers have performed abysmally since going public.

For example, shares of Blackstone Group (NYSE: BX  ) , the world's largest private equity firm, have lost more than half their value since listing in the summer of 2007. And in the one year that it's been public, Apollo Global Management's (NYSE: APO  ) shares are down 23% -- though, in both cases, the companies have consistently paid dividends. Indeed, the only major private equity company to see its shares rise since going public in recent years is Kohlberg Kravis Roberts (NYSE: KKR  ) , which listed on the New York Stock Exchange in 2010.

At the end of the day
If investing were like horse racing, then it'd be foolish to pass up the opportunity to invest in a company led by a man that Warren Buffett holds in such high regard. However, as the market's reception of Oaktree demonstrates, there's clearly much more to it than simply picking a horse, if you will. It's business performance that matters most.

It's for this reason that I encourage you to check out one of our newest free reports: "The Stocks Only the Smartest Investors Are Buying." In it, you'll find the name of a major financial institution that Warren Buffett recently invested in, as well as the identity of a smaller firm that he would have likely purchased in his earlier years. To find out what companies I'm referring to, click here now -- it's free.

Fool contributor John Maxfield owns shares in Bank of America. The Motley Fool owns shares of JPMorgan Chase and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (26)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 13, 2012, at 7:27 PM, sikiliza wrote:

    Why would an investment firm that was doing well go public unless they couldn't raise funds anymore or they were cashing out to go live in Costa Rica?

    This is probably one of the reasons why Oaktree's IPO performed so badly. Can you imagine the fallout if Ray Dallio's Bridgewater Associates announced that it was going to go public? Everyone would be calling their dealer to find out if they had any kind of parallel exposure and then exiting those positions.

    Howard Mark's decision to go public was ill-advised.

  • Report this Comment On April 15, 2012, at 9:56 PM, jnevis wrote:

    regarding your letter about the one share of Buffett stock that went for $4,000. When and how can you ever buy 1 share of stock??? I may sound dumb, but whenever I tried to do this, they always put me with a group of stockbuyers and I had to wait until the stock went up from the time I wanted to buy it. Very discouraging, to say the least.

  • Report this Comment On April 17, 2012, at 5:40 PM, wessew wrote:

    Private firms such as these go public in order to establish a currency and a public value for the shares. This provides potential liquidity and and objective price for partners to diversify their holdings, sell their investment upon retirement, etc. The only other outlets would be internal and private placement without a public market for the shares. Many of these firms were started 10 to 20 years ago by principals in their forties. They are beginning to want to diversity and also groom the next level of management for eventual succession. Going public with a smaller percentage of the value of the company publicly trading is an excellent way to do this.

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