Barron's & Wall Street Journal Discounts

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40% off Barron's magazine (with 4 weeks free)

75% off the Wall Street Journal

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Kleinheinz Capital Says Russia is the Cheapest Emerging Market: Q3 Letter

John Kleinheinz founded Kleinheinz Capital Partners in 1996 and manages the Global Undervalued Securities Fund. He has seen a compound annual growth rate (CAGR) of 26.8% since inception and a total compound return of 3,162%. Given the solid performance, we've added this hedge fund to our portfolio tracking series and today we're detailing Kleinheinz's third quarter letter/market commentary.

Kleinheinz's fund primarily focuses on equities but also invests in emerging market debt. They utilize macroeconomic analysis to identify various investment themes across the globe with solid risk/reward profiles. Prior to founding his fund, he worked in the corporate finance unit of Nomura Securities in Tokyo as well as Merrill Lynch. Kleinheinz graduated from Stanford University with a degree in Economics.

Current Market Commentary

Kleinheinz's fund is up over 18% year to date. Interestingly enough, you can replicate Kleinheinz's portfolio at Alphaclone and investing in their top 5 holdings has returned 31.6% year-to-date and their top 10 holdings 19.7% ytd (get a free membership to Alphaclone here). This past quarter, Kleinheinz has lost money on their puts and hedges as the market practically prices in another round of quantitative easing. Their short positions in the energy sector (specifically in high beta natural gas producers) also hurt the fund.

While talk of an emerging market bubble seems to have increased, Kleinheinz is quick to point out that despite the fierce rallies, these valuations are still "within historical norms and economic fundamentals appear favorable relative to developed market peers." He believes that the formation of a consumer society in these emerging markets will be a key investment theme for them going forward.

Currently, their focus is on the geographies of Russia, Africa, China, and Brazil. In China, they like healthcare, telecom and technology. They also believe Russia is the cheapest emerging market and they're honing in on energy and utilities. Kleinheinz is generally focused on markets "with stable banking systems, under-levered consumers with rising disposable incomes and attractive valuations relative to growth prospects."

Specific Investment: Yahoo (YHOO)

Kleinheinz also dedicates a portion of the letter to talk about Yahoo (YHOO). He feels the market is under-appreciating Yahoo's international assets such as Alibaba Group and Yahoo Japan. He writes, "assuming an average multiple of 8-10x EBITDA for its core U.S. internet assets on a sum of the parts basis, we believe Yahoo could be worth $32 per share, more than double the Fund's acquisition cost and about equal to the price Microsoft was willing to pay for Yahoo during its aborted takeover attempt in May 2008."

Top 10 Positions (as of September 30th):

1. Apple (AAPL)
2. China Mobile (CHL)
3. Research in Motion (RIMM)
4. Baidu (BIDU)
5. LUKoil Holdings
6. Hong Kong Exchange & Clearing (HK:0388)
7. Veeco Instruments (VECO)
8. Google (GOOG)
9. Akamai Technologies (AKAM)
10. Chubb Corp (CB)

Embedded below is Kleinheinz's third quarter letter to investors:

*Update: Letter removed per request of representatives from Klenheinz

For thoughts from more great managers we also posted up Lee Ainslie & Maverick Capital's letter as well as Jeremy Grantham's commentary and Corsair Capital's latest ideas.

What We're Reading ~ 10/29/10

Latest investor letter from Paul Tudor Jones [Dealbreaker]

If you missed it, we posted up Lee Ainslie & Maverick Capital's latest letter [MarketFolly]

Why is Todd Combs bullish on Western Union (WU)? [Rational Walk]

Are there any catalysts for Microsoft (MSFT)? [AbnormalReturns]

Effects of quantitative easing: which companies have pricing power? [Pragmatic Capitalism]

Investment checklist for stock selection [Old School Value]

Case study on AbitibiBowater unsecured bonds [DistressedDebtInvesting]

Bill Hwang's hedge fund Tiger Asia receives SEC subpoena [Bloomberg]

An interview with Meb Faber of the World Beta blog [Abnormal Returns]

Looking ahead to the Combs era of Berkshire Hathaway [WSJ]

Stocks modestly expensive according to Buffett's favorite valuation metric [Pragmatic Capitalism]

Berkowitz's Fairholme to start stock-bond allocation fund [BusinessWeek]

JPMorgan's Highbridge Capital to buy Brazilian hedge fund Gávea [FINalternatives]

Interesting look at how Apple (AAPL) approaches things [BusinessWeek]

Hedge Funds Reduce Risk Assets

Bank of America Merrill Lynch is out with their latest hedge fund monitor report examining various exposure levels. In it we see that overall, hedge funds were reducing risk assets. Across the board, it seems that hedge funds bought 2 year, 10 year and 30 year Treasuries signaling a flight to safety. This is intriguing considering that equity markets have not seen a massive decline since August, the last time we saw a risk-off trade. Are they exiting before a proverbial near-term top?

Long/Short Equity Hedge Funds

Combine the above with the fact that these hedge funds have largely reduced market exposure and now have a very low 21% net long exposure and you can see the caution. On average, L/S hedge funds are typically around 40% net long. It certainly seems as though many funds are braced for a pullback, at least in the short term. Of the equities they do own, they favor growth, large cap and high quality names. This is a trend in hedge fund positioning that we've highlighted for some time now.

Global Macro

It appears as though this fund strategy is largely pursuing inflation based plays. BofA estimates that macro hedge funds are long the S&P 500, Nasdaq 100 and various commodities. On the short side of things, they've been pounding the US dollar. John Burbank of hedge fund Passport Capital at the Value Investing Congress noted that he currently likes commodities & hard assets.

Market Neutral

Turning to MN funds, we see that their exposure has been pretty much stable at around 50/50 long short. In equities, they've favored small cap, growth & low quality names.


Across various markets, there are a few notable crowded longs including crude oil, the Nasdaq 100, corn, soybeans, copper, and the Japanese yen. Conversely, natural gas remains a crowded short position. Embedded below is Bank of America Merrill Lynch's full hedge fund monitor report:



You can download a .pdf copy here.

We also recently took another look at hedge fund exposure levels for those of you seeking more information on the latest positioning of the 'big money.'

Lee Ainslie & Maverick Capital's Third Quarter Letter

Lee Ainslie's hedge fund Maverick Capital is out with their third quarter investor letter and year-to-date for 2010, they're up 8.2% and have now seen 14.1% annualized returns since inception in 1995. Their Levered fund is doing even better this year, up 17.3% and has seen 22.3% annualized since inception. In total, the firm now manages over $12 billion across their various investment vehicles.

These returns are pretty solid but Q4 might be off to a bumpier start considering that one of their larger holdings has been Apollo Group (APOL), the for-profit education play that's down over 23% in the past month. But on the converse side of things, their stake in Commscope (CTV) is up almost 40% over the past month on news of potential buyout talks. At the recent Value Investing Congress, Ainslie said he believed that technology stocks are cheap. The cheapest, he argues, that they've been in 20 years.

Maverick's Exposure Levels

Given this stance, it should come as no surprise that Maverick has a large allocation of capital to technology stocks. At the end of September, Maverick was 11.7% net long technology. And at the Value Investing Congress, he revealed that Maverick has its highest technology exposure ever.

At the end of September, other notable net long exposure include financials at 13% and the consumer sector at 12.6%. In terms of notable net short positions by geography, they are net short emerging market technology, European technology, emerging market industrials, and Japanese media & telecom. Maverick seems to be betting on US companies and hedging it via shorts in foreign companies to some extent.

Maverick's Portfolio

Regarding portfolio construction, Ainslie's firm currently has 67 longs and 80 shorts. Their largest long represents a 4.7% position whereas their largest short is 2.9%. Overall, Maverick's average position size is 2.1%. As we've detailed in our profile of Maverick Capital, Lee Ainslie implements strict position sizing rules and has a solid focus on risk management. The hedge fund's top 10 investments currently represent 29% of the portfolio.

We detailed Maverick's second quarter positions in our newsletter, Hedge Fund Wisdom. The next issue (released in a few weeks) will detail Ainslie's third quarter portfolio holdings. In the mean time, we know Maverick has been long Commscope (CTV), Marvell Technology (MRVL), and Adobe (ADBE). Dell (DELL), Intel (INTC), and Microsoft (MSFT) were others he recently talked about. Be sure to subscribe to our newsletter to see what top hedge funds are investing in once our next update comes out.

Bond Market Inflows/Equity Market Outflows

Embedded below is Lee Ainslie and Maverick Capital's third quarter 2010 letter to investors. In it, Maverick's Steve Galbraith talks about the potential bond bubble where he argues that government bonds are essentially trading at a P/E equivalent to 40x. He also addresses a noticeable change in investor sentiment as they prefer bonds to stocks in a knee-jerk reactionary maneuver:

"Since 2007 over seven hundred billion dollars has flowed into fixed income funds while nearly two hundred billion dollars has left equity funds. These flows are staggering; they suggest the (potentially lethal) combination of driving 100 miles per hour while looking through the rear view mirror because the scenery just past looks so good (bonds outperformed stocks by record levels in part of this period), but also being too afraid to look forward in fear that, well, there is no there there."

Here's the letter:



You can download a .pdf copy here.

Be sure to also check out Lee Ainslie's presentation from the Value Investing Congress just a few weeks ago for some more of his recent thoughts. To see what stocks Ainslie owned in Q2 (and in Q3 in our upcoming issue), head to our Hedge Fund Wisdom publication.

Jeremy Grantham: Overweight High Quality Companies, Heavily Underweight Low Quality

GMO's Jeremy Grantham is out with his latest market commentary entitled, 'Night of the Living Fed.' In his previous pieces, Grantham has advocated buying high quality stocks. Oaktree Capital's Howard Marks shares this sentiment and many other hedge funds own large cap blue-chips. What's his stance nowadays?

Equities

This time around, Grantham again extols the benefits of quality US companies which he deems "still cheap in an overpriced world." He likes being long high quality and underweight low quality stocks. Regarding emerging market equities, Grantham feels investors should be moderately overweight while moderately underweight the rest of the world.

Grantham also mentions that stocks as a whole are currently overpriced. At the same time, he notes that bonds are even less attractive. The debate of buying overpriced stocks versus even more overpriced bonds is one he plans to address further in the future. Lastly, he advises extra cash reserves, citing a volatile market with insecure fundamentals.


Federal Reserve

In his latest commentary, Grantham shifts his focus to the Federal Reserve. He pens a decisively anti-Fed piece that critiques and criticizes the various maneuvers they've made. Some of his more salient points include:

- Low interest rates almost always transfer wealth from debt owners/retirees to corporations and the financial industry.

- Quantitative easing, he says, is more of a desperate move than just a low interest rate policy.

- At the same token, these lower rates encourage speculation in markets (emphasis on speculation rather than investment).

Embedded below is Grantham's latest piece from GMO which we recommend reading in its entirety:



You can download a .pdf copy here.

We've posted a ton of additional great market commentary as of late including Lee Ainslie & hedge fund Maverick Capital's latest letter, Corsair Capital's latest investment ideas, as well as East Coast Asset Management's take on the joys of compounding. Like Grantham, many of these managers are finding compelling opportunities in select equities.

Hedge Fund T2 Partners' Largest Long & Short Positions

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners recently held their quarterly conference call and in it we get some meaningful updates to their portfolio. For the year, they're up over 13% versus a 7.9% return on the S&P 500. Most notably, they reveal their "fairly sizable" short position in Capital One (COF) as they feel the company will see putback risk in their mortgage portfolio from the GreenPoint acquisition a couple years ago.

Here are T2 Partners' largest short positions:

1. Capital One (COF)
2. DineEquity (DIN)
3. GameStop (GME)
4. A basket of for-profit education plays
5. Lululemon Athletica (LULU)
6. Homebuilders via exchange traded fund XHB
7. Moody's (MCO)
8. MBIA (MBI)
9. St. Joe Company (JOE)
10. OpenTable (OPEN)
11. Rosetta Stone (RST)
12. VistaPrint (VPRT)


Of these short positions, we just this morning posted up a potential short thesis on OpenTable (OPEN). David Einhorn's hedge fund Greenlight Capital has also been short two of the same stocks. We've detailed Einhorn's short thesis on Moody's: Curse of the Triple-A and most recently his bearish presentation on St. Joe (JOE) from the Value Investing Congress.

If you've followed T2's short positions on MarketFolly.com, you'll notice that their short positions in Netflix (NFLX) and InterOil (IOC) are not listed as some of T2's largest shorts. However, they do still hold a short position in these names. On NFLX in particular, T2 feels that the company's valuation is extreme at 67x trailing earnings and their transition to a streaming video company is a less desirable business model.


And here are Tilson & Tongue's 10 largest long positions:

1. Automatic Data Processing (ADP)
2. Microsoft (MSFT)
3. CIT Group (CIT)
4. Berkshire Hathaway (unclear which share class, either BRK.A or BRK.B)
5. BP (BP)
6. General Growth Properties (GGP)
7. Iridium (IRDM)
8. Liberty Acquisition (LIA & warrants)
9. Resource America (REXI)
10. Kraft (KFT)

Of these positions, we recently detailed T2's bullish case for Automatic Data Processing (ADP). Additionally, their recent presentation at the Value Investing Congress laid out their stance on BP (BP) and Liberty Acquisition (LIA).

Tilson and Tongue commented on their thesis and relative information regarding their positions in their in-depth conference call. You can hear a replay of the call via the embedded audio player below (email readers will need to come to the site to hear it):

The Short Thesis on OpenTable (OPEN)

Valuehuntr has posted up a quick short thesis on OpenTable (OPEN). We wanted to highlight this because a few hedge funds have been short this stock so it's always good to take a better look at the thesis behind it. In particular, Whitney Tilson's T2 Partners has mentioned their short in OPEN publicly numerous times.

Taken from Google Finance, Open Table is "provides solution that forms an online network connecting reservation-taking restaurants and people who dine at those restaurants. Its solutions include its Electronic Reservation Book (ERB), for restaurant customers and www.opentable.com, a restaurant reservation Website for diners. The OpenTable network includes approximately 12,000 OpenTable restaurant customers spanning all 50 states, as well as select markets outside of the United States."

In short (no pun intended), Valuehuntr suggests that OpenTable is trading at a very rich multiple and is trading at more than 2x their market size. The analysis outlines an extreme set of expectations for the stock in an industry with no real barriers to entry. OPEN currently trades at around $60 and Valuehuntr theorizes that the company is more realistically worth between $15-20 per share, leaving ample room for downside.

As with any short, there are also risks which they identify as a dramatic increase in their online userbase, potential out-performance in their upcoming earnings report, as well as a possible increase in market capacity.

Embedded below is the short thesis on OpenTable, courtesy of Valuehuntr:




You can download a .pdf copy here.

We would mention not to place too much emphasis on the section comparing OPEN to other companies as there's no true comp for the stock. Their analysis compares it to internet travel companies while OPEN is an internet dining reservation company, so it's difficult to determine relative valuation. Overall though, outright over-valuation for the specific company's prospects seems to be the driving force behind this short thesis so we'll have to see if there's any major catalyst behind it.

For potential hedge fund theses on other short positions, we recently highlighted David Einhorn's short position in St. Joe (JOE). You can also scroll through our coverage of other hedge fund shorts here.

Send Us Hedge Fund Letters

Market Folly readers: Now that various hedge funds are sending out their third quarter letters, we need to ask you a huge favor. This site has become largely what it is today due to the generosity of readers willing to share resources. So, we have one simple request: send us hedge fund letters!

Rest assured that every contribution will be treated as anonymous and confidential. Your privacy is our top priority. If there are watermarks or other identifiers on the letter, we will remove them & summarize the letter instead. The more people that share, the more resources we can provide.

Thank you for sharing with the Market Folly community! Click here to send us an email.

Corsair Capital Bullish on Innophos (IPHS): Q3 Letter

Jay Petschek and Steven Major's Corsair Capital Management is out with their third quarter investor letter and they are up 6.9% net year-to-date. Since inception in 1991, Corsair has seen an impressive 15.1% annualized return so let's dive into their latest market commentary.

Like many investors we've highlighted on the site, Corsair points to equities as more attractive than bonds in the current environment by writing, "many stocks are currently trading at 11-12 times next year's expected after-tax earnings. This equates to approximately 8-9 times pre-tax earnings or (calculated inversely) an earnings yield of 11-12% which is looking more and more attractive in a 3.8% 30-year Treasury bond world."

Petschek and Major also note that the Fed's low interest rate environment has forced investors (and even savers) to chase yield and take on more risk, a potential reason for the market's recent rally. In terms of Corsair's specific portfolio, their letter features an in-depth writeup on their investment in Innophos (IPHS) which they believe will see P/E multiple expansion as it recently restructured debt and cut interest expense in half.

Opining that mergers and acquisitions (M&A) activity will pick-up, the hedge fund manager points to their stake in Globe Specialty Metals (GSM) as a position poised to benefit from this trend. They feel higher silicon metal prices are to come as the industry has high barriers to entry and tight supply.

In their first quarter letter, Corsair Capital Management previously laid out their bullish case for Expedia (EXPE) and this time around they continue to hold it as their TripAdvisor service continues to be a high quality asset. Additionally, Corsair again re-visited their investment in LyondellBasel (LYB), a post reorganization equity. The stock recently listed on the NYSE under the ticker LYB and they expect institutional investors to finally 'discover' the stock again, leading to inflows of new investment. In the past, we've also highlighted how Jamie Dinan's York Capital had been fond of LyondellBasel.

Embedded below is Corsair Capital's Q3 letter to investors:



You can download a .pdf copy here.

To read Corsair's previous letter, we've also posted their bullish case for Aon (AON) as well. For more manager commentary, scroll through the collection of hedge fund investor letters we've posted recently.

Jeff Saut Expects Near-Term Pullback, Sees It As Buying Opportunity

It's been a while since we checked in on Jeff Saut, Chief Investment Strategist at Raymond James, so let's dive into his latest market commentary. Over the past few weeks, Saut has started to advocate a neutral/cautionary stance, pointing to various near-term overbought signals in the market. Saut now feels that stocks are "searching for some kind of trading peak between now and the FOMC meeting."

The market strategist believes that the Fed will announce quantitative easing round two and that the Republicans will take back the House. While these should be stock-market friendly events, he feels that they could already be discounted. That said, Saut also highlights that portfolio manager anxiety could possibly build amongst those who are materially underweight equities. If stocks were to take off, there would seemingly be a wave of new money behind it as performance anxiety sets in.

On any upcoming pullback, Saut presents the following list of stocks to look into as they've recently beaten earnings estimates and guided higher for the next quarter: Polaris Industries (PII), Select Comfort (SCSS), Stanley Black & Decker (SWK), Tempur-Pedic (TPX), Chubb (CB), UnitedHealth Group (UNH), and Altera (ALTR), the last of which was named as an analyst best pick for 2010 and is up over 33% year-to-date.

Specific sectors that tickle Saut's fancy include technology and energy. At the Value Investing Congress, Lee Ainslie of Maverick Capital said technology stocks are cheap. Overall though, Saut is cautious in the near-term as he points many technical indicators signaling a near-term top. While he feels a dip will occur in the next few weeks, he thinks it is a buying opportunity.

Lastly, the market strategist offers bank loans as an enticing place to park some cash as per recommendations from numerous respected portfolio managers. At the Value Investing Congress, Harch Capital's Michael Lewitt also advocated bank loans as an attractive investment. Saut offers the Pioneer Floating Rate Fund (FLYRX) and the Mainstay Floating Rate Fund (MXFAX) as ways to play this.

Embedded below is the latest market commentary and investment strategy from Jeff Saut:



You can download a .pdf copy here.

For more insight from the strategist, head to Saut's risk management principles as well as his outline of the businessman's risk portfolio.

Odey Discloses Short Position in Provident Financial (LON: PFG)

Crispin Odey's hedge fund firm, Odey Asset Management, has disclosed a new short position in Provident Financial (LON: PFG). Per regulatory disclosures, we learn that Odey is short -0.64% of Provident's total shares outstanding due to trading on the 21st of October. Last week, we highlighted another new short position Odey disclosed as well.

Interestingly enough, Blackrock's Absolute Alpha hedge fund also disclosed a short in Provident of -0.36% total shares outstanding due to trading on the same day as Odey. Provident Financial specializes in providing loans to people on low incomes. It's possible that hedge fund are shorting Provident under the assumption that the stringent welfare cuts being implemented by UK's conservative government will hit their customer base particularly hard.

We can track short positions in UK companies that have been deemed "financial companies" by the Financial Services Authority (FSA). To see how this can be done, see our primer on the disclosure of short positions in the UK here.

Taken from Google Finance, "Provident Financial plc is a financial services company engaged in the provision of personal credit products for consumers in the United Kingdom non-standard lending market. The Company has four business segments: Consumer Credit, Vanquis Bank, Yes Car Credit and Central. Its Consumer Credit segment provides small loans, home credit loans and large loans for consumers. It provides home credit products through the Provident Personal Credit and Greenwood Personal Credit brands, as well as larger loans than traditional weekly collected home credit through its Real Personal Finance brand. Its Vanquis Bank segment operates in the non-standard sector of the United Kingdom credit card market and provides credit cards for consumers. It holds a banking license and takes retail deposits. Its Yes Car Credit segment has been transferred to central activities following closure of the collections operation in 2009. Its Central segment operates its business through Provident Investments plc. "

For more from this particular hedge fund, you can head to manager Crispin Odey's past market commentary.

Todd Combs of Castle Point Capital Joins Berkshire Hathaway as Investment Manager

Warren Buffett just announced that Todd Combs of hedge fund Castle Point Capital will be joining Berkshire Hathaway (BRK.A) as an investment manager at the end of the year. Buffett and Charlie Munger have been tracking Combs for three years and Combs has been running his hedge fund for the past five years.

We'd hypothesize that in the intermediate term, Combs has been brought on as a replacement for Lou Simpson since Combs is said to take control of part of Berkshire's investment portfolio. Simpson, who manages the investments for Berkshire's subsidiary, GEICO, is set to retire at the end of 2010 (the same time when Combs is set to start). On the notion that Combs could manage all of Berkshire's investments, Buffett said, "He’s got the best chance of being the successor, but if we find the right guy or gal, we’d take that person, too."

In the past, many have questioned Berkshire Hathaway's succession plans and this year there has been much talk of Li Lu joining as an investment manager. However, Buffett has just revealed that Lu will be staying with his own fund. Buffett also emphasized that Berkshire's succession will include one person handling the CEO role, and then multiple individuals could still act as investment managers in a multi-pronged approach.

Why Todd Combs?

This is the question many people are asking as he doesn't seem to be particularly well-known. Here are some potential reasons for the hire:

First, his focus on financials. Given the recent financial crisis, Combs' familiarity with these companies and niche focus on the sector gives him an advantage. In an increasingly complex financial world (derivatives, etc), Combs' expertise will come in handy considering Berkshire owns very large stakes in financials including: Wells Fargo (WFC), American Express (AXP), US Bancorp (USB), Moody's (MCO), and M&T Bank (MTB).

Second, his risk management skills. Buffett apparently described Combs' performance during the crisis as, "pretty good." According to Bloomberg, Castle Point returned +6.2% in 2009, -5.7% in 2008, +19% in 2007, and +13.6% in 2006. In Berkshire's 2007 shareholder letter, Buffett discussed the topic of hiring investment managers. In it, he said that this person needs to be, "genetically programmed to recognize and avoid risk, including those never before encountered." Given this stringent requirement, it's obvious that Buffett and company feel Combs possesses a risk management skill-set that is beyond satisfactory. (And speaking of risk, Buffett recently talked about his worst trade).

Third, his personality blends with Berkshire's culture. According to the New York Times, Buffett said that, "He’s always been enamored with Berkshire. I know he’ll be good, but he’s the right type of guy. We don’t want someone who’s trying to figure out if they can make $100 million with us, or $200 million with the next guy." And, this ties somewhat into the next reason.

Fourth, his age. Given the fact that Berkshire's leading men Warren Buffett, Charlie Munger, and Lou Simpson are getting older, Berkshire wants to bring in younger talent that can add longevity to the company. At the young age of 39, Combs can slide into Berkshire's organization and stay there for many decades, just as Buffett has. And, based on his personality, it appears that Combs is in it for the long haul. Combs received his degree in finance and multinational business operations from Florida State University. He has experience working for Florida's comptroller as well as Progressive Insurance.

Castle Point Capital's Portfolio

Given Berkshire's stamp of approval, it's only appropriate to look under the hood at Todd Combs' hedge fund to see what he's invested in. The following were Castle Point's long equity holdings as of June 30th, 2010 according to their most recent 13F filing with the SEC. The new disclosures reflecting their Q3 portfolio will be released in the middle of November.

Keep in mind that you can see what Berkshire Hathaway and prominent hedge funds are investing in via our newsletter, Hedge Fund Wisdom. But for the time being, here's Castle Point's $279 million in reported assets:

New Positions
CIT Group (CIT)
Broadridge Financial (BR)
Leucadia (LUK)
Hartford Financial (HIG)
PNC Financial (PNC)
Wells Fargo (WFC)
Chatham Lodging (CLDT)

Increased Positions
Blackrock (BLK): Increased by 78.5%
Aercap (AER): Increased by 78%
Mastercard (MA): Increased by 70%
State Street (STT): Increased by 60%
Genworth Financial (GNW): Increased by 53%
Charles Schwab (SCHW): Increased by 43%
Annaly Capital (NLY): Increased by 43%
Western Union (WU): Increased by 36%
US Bancorp (USB): Increased by 27.5%
Chubb (CB): Increased by 27.5%

Reduced Positions
JPMorgan Chase (JPM): Reduced by 39%
MB Financial (MBFI): Reduced by 21.5%
Goldman Sachs (GS): Reduced by 18.4%

Sold Out of Completely
Assurant (AIZ)
Signature Bank (SBNY)
Reinsurance Group America (RGA)
TD Ameritrade (AMTD)
First Citizens Bancshares (FCNCA)
Two Harbors Investment (TWO)

Top 25 Positions

1. US Bancorp (USB): 8.2% of reported assets
2. Mastercard (MA): 7.3%
3. State Street (STT): 6.8%
4. Western Union (WU): 6.5%
5. CME Group (CME): 5.1%
6. Renaissance Re (RNR): 5.1%
7. Pennymac Mortgage (PMAC): 4.6%
8. Chubb (CB): 4.6%
9. Starwood Property Trust (STWD): 4.5%
10. Annaly Capital Management (NLY): 4.4%
11. CIT Group (CIT): 4.3%
12. Progressive (PGR): 4.1%
13. JPMorgan Chase (JPM): 4.0%
14. Goldman Sachs (GS): 3.8%
15. Charles Schwab (SCHW): 3.6%
16. Broadridge Financial (BR): 3.5%
17. Aercap Holdings (AER): 3.4%
18. MB Financial (MBFI): 3.4%
19. Genworth Financial (GNW): 2.9%
20. United America Indemnity: 1.9%
21. Blackrock (BLK): 1.8%
22. Leucadia National (LUK): 1.8%
23. Hartford Financial (HIG): 1.6%
24. PNC Financial (PNC): 0.8%
25. First Financial (FFBC): 0.8%

As you can see, Castle Point's portfolio is very financial-laden. And, they share the same large position in US Bancorp (USB) as Berkshire Hathaway. We'd also point out Combs' preference for payment processors & money transfer services such as Mastercard (MA) and Western Union (WU). These types of companies have been long favored by hedge funds we track. The last takeaway here is that he runs a somewhat concentrated portfolio as well.

So, at least one of Berkshire's future investment managers seems to be in place. Li Lu appears to be out of the running. The question that remains is, will there be more managers added? Only time will tell. You can view Buffett's past comments on succession plans here as well as a video that examines potential Berkshire successors here.

For more on Berkshire's new hire, Carol Loomis at Fortune penned an article here.