Why Warren Buffett is Investing Big in Fintech
Fintech is on the upswing. Its companies have been largely immune from cross-industry drops in investment dollars, with KPMG’s latest The Pulse of Fintech report revealing healthy growth in venture capital, private equity, and mergers and acquisitions deals through Q1 and Q2 2018, exceeding 2017’s totals.
Now, Warren Buffett’s Berkshire Hathaway is entering the space in a big way, with the Wall Street Journal reporting the investment giant has invested $600 million in two fintech companies: Brazil’s StoneCo Ltd (a payment processing service). and India’s Paytm (the “parent company of India’s largest mobile-payments service”).
Traditionally, Buffett and Berkshire Hathaway have focused their investments on legacy companies and industries – the man himself has described tech as outside his purview, and Berkshire avoids investing in unestablished tech startups.
But Todd Combs and Ted Weschler, portfolio managers at Berkshire, are exploring new opportunities and industries for the company to invest its $111 billion in cash. “Todd and Ted bring additional expertise to the table,” David Kass, a business professor at the University of Maryland and a Berkshire shareholder, told the Wall Street Journal. “They’re broadening the perspective of Berkshire and broadening the opportunities where they would look to invest.”
That new perspective includes two fintech companies, but the investments are by no means avant-garde. Each fits traditional Berkshire criteria by dominating markets in their respective countries – Stone is four years old and “already the fourth-largest payment processor in Brazil by volume, according to its securities filings”, and Paytm’s 300 million-plus users exceeds PayPal’s worldwide user base – while also operating in regulated environments.
Buffett has given progressively more autonomy to Combs and Weschler in recent years, trusting their expertise in less-familiar areas and going about their investments in new ways.
Purchasing a significant amount of StoneCo shares in the company’s initial public offering goes against the Berkshire grain – in 2012, Buffett himself told Berkshire shareholders that he couldn’t “recall any time in the last 30 years, at least, that we’ve bought a new issue”, largely because sellers have a distinct advantage in timing the IPO. But the decision to invest has already paid short term dividends, with share prices increasing 30 percent over its first days of trading.
While it is still early days for Berkshire’s relationship with StoneCo and Paytm, the moves are indicative of an evolving Berkshire – and another stamp of approval for fintech, which has already seen $35 billion in venture capital money invested through September 2018. Fintech’s future is now, and companies have the investment dollars to prove it.
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