Did Ajit Jain sell his Berkshire Shares to exit from investment and employment?

Ajit Jain sells 54% of his stake in Berkshire Hathaway! This was a headline news in all newspapers. Ajit Jain’s sale was 200 Berkshire Class A shares of which 104 shares were personally held by Jain and 96 held by his family trusts. The sale realization is $139.08 million. In Indian rupee terms it is Rs. 1,170 crores. It is a decent amount even for a CXO level employee. However, the news is for different reasons, hinting many curious aspects including the following.

Are Greg Abel the Chairman designate at Berkshire Hathaway and the Vice Chairman Ajit Jain not in complete harmony? Is Ajit Jain leaving Berkshire? Is Ajit Jain retiring from employment? Is Ajit Jain planning to involve full time in his Jain Foundation leaving Berkshire? Is Ajit Jain returning to India? Did Ajit Jain find a better investment avenue, that he liquidated more than half of his shares in Berkshire? Is Warren Buffett limiting his role to participate only in AGMs leaving substantially all decisions to the deputies? Is Berkshire losing its ability to make alpha? Are Berkshire shares priced higher to book profits?

Whether the news hint towards the above questions directly or indirectly, the instance justifies reasoning certain aspects. ?

Ajit Jain is born on 23rd July 1951 in Sundargarh in Odisha. His schooling was in Odisha. He passed B.Tech in Mechanical Engineering from IIT Kharagpur, India in year 1972. ?He took a sales manger job in IBM from years 1973 to 1976. As IBM had to leave India due to Government’s policy, Ajit went to US and completed MBA from Harvard University in year 1978. From year 1979 to 1985 he served McKinsey with a brief gap in between for his marriage. In year 1985 on invitation by his superior who left McKinsey and joined Berkshire, Ajit joined Berkshire’s insurance business.

Since his joining, Ajit’s contribution has been the lifeline for Berkshire in mobilizing huge float with lower cost of capital. The lucrative investment opportunities that required long term investments were lapped up by Berkshire due to the near zero cost of capital long term source of funds mobilized by Ajit Jain.

Although 73 years old, Ajit Jain is still strong both mentally and physically. His meticulous yet prompt decision making and agility in facing challenging situations remained intact. Moreover, Warren Buffett being 94 years old, Charlie Munger who died close to his 100 years, and Greg Abel being 63 years old, Ajit Jain is young enough to have at least another 2 decades leadership role.

Several times, both Warren Buffett and late Charlie Munger acknowledged (appreciated) Ajit Jain’s contribution. Ajit Jain has been the 3rd most important leader in Berkshire for 40 years. If had he shown any bit of interest, he could have stepped into Warren Buffett’s shoe as Chairman & CEO of Berkshire.

The shares sold by Ajit Jain are not received freely or in Employee Stock Option Program (ESOP). Those shares are bought by him in year 1985 when he joined Berkshire. Buffett expects (requires) his senior management team to have most of their wealth invested only in Berkshire shares. Even the residual savings from the salary income is expected to be used to purchase Berkshire shares from the stock market. This is a policy stipulation at Berkshire meant to ensure alignment of CXO’s personal interests with those of the company.

The 200 shares sold by Ajit Jain on 12th September 2024 are at an average price of $695,418 per share. The same class BRK A shares are repurchased by Berkshire company in May 2024 at a price of $626,686. BRK A shares touched all time high of $741,971 in the recent past. The present sale is about 6.25% discount to the highest price. This may imply that Ajit Jain may have thought BRK A shares may not command further higher prices and may have intended to liquidate half of his investment to avoid losing value. However, the insider trading policy and management stipulations at Berkshire require prior approval of the Board for the seniors before they sell their shares. The approval process involves evaluating the need for their sale as well.

There is a possibility that in few months, the US may see tax changes of increase in capital gains tax from existing 20% to 28%. This alone may not be the reason at least only to Ajit Jain to sell his shares in Berkshire.

Ajit may not be keen in helming full time at his Foundation has activities in medical field as Ajit may not find it interesting at least to involve full time. Ajit is in regular touch with his Indian relatives. But, after his marriage in year 1982 and after not finding opportunities in India good enough, they went back to the USA within a short time. Since then, they became part of Berkshire, and the US with active involvement in several initiatives. Gradually they became practically inseparable with the US and its culture and may not be able to leave US for good.

If Ajit intends to leave Berkshire, he will lose annual salary income of a little over $20 million that he receives from Berkshire. Worldwide, Ajit is 7th highest paid professional executive in the insurance industry. But his contribution to his company is even greater for about 40 years. The top 6 remunerations of this industry range between $20 million to $75 million, and median being $25 million. Since Ajit has never been after money, the loss of salary may not hold him back if he intends to leave Berkshire.

There are few other changes ensuing at Berkshire including the change of Chairmanship from Warren Buffett to his son, CEO role from Warren Buffett to Greg Abel, the 53-years old Todd Combs and 63-years old Ted Weschler who are presently deputies escalating to the main leadership, and formation of a dedicated team to handle the AGM and investor relationships, etc.

In conclusion, since Berkshire requires its CXO team to stay invested in Berkshire, the present sale of Berkshire shares by Ajit Jain could be a precursor to shortly leaving Berkshire. However, he may continue to remain suitably associated with Berkshire.

The silver lining is Ajit Jain, who was successful in ensuring good successions at several Berkshire companies, may have lined up a competent successor to him as well.

Still, if and when he exits, this humble natured, frank spoken, never assuming, hardworking, super intelligent, multi skilled, and composed personality will leave great history and some vacuum at Berkshire.

Disclaimer: Dr. Kishore Nuthalapati is an Economist, and is the CFO of BEKEM Infra Projects Pvt Ltd, Hyderabad, India. Views are his personal and do not reflect those of any of the organizations he is or was associated with.