Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg daybaq At podcast, available every morning on Apple, Spotify or wherever you listen. It's Monday, the twenty sixth of February in London. I'm Caroline Hipka.
And I'm Stephen Carroll. Coming up today. Why the world's most profitable hedge fund bet is facing a new era of risk.
Bercher Hathaway's cash pile jumps to a record one hundred and sixty eight billion dollars as Buffett bemoans a lack of opportunities.
And from globalism to protectionism. What this week's WTO summit tells us about the risks of a changing world order.
Let's start with a roundup of our top stories.
The most successful hedge fund strategy of twenty twenty three is facing a more complicated future. A new era of risk is threatening the models that insurance insurance link to securities dominated by catastrophe bonds rely on. Bloomberg's Tea Ada Bio has the details.
So called cat bonds issued by insurers to shield from losses too big to cover. They transfer the risk to investors who lose it for pre defined catastrophe hits and gain big if it doesn't. But calculating catastrophic risk is getting more difficult because of a growing concentration of property in areas prone to weather events like destructive thunderstorms. They're now outpacing the number of once in a generation natural
disasters which cat bonds are designed for. Climate change is amongst the factors behind the shift, fueling uncertainty in the cat bond market, which investors are currently unprepared for. In London, Tea Ated, Baio, Bimberg, Radio.
Berkshire, Hathaway's cash pile jumped to a record one hundred and sixty seven point six billion dollars in the fourth quarter as the conglomerates struggled to find deals at attractive valuations. CEO Warren Buffett use his annual shareholder letter to decry a lack of meaningful deals that he said would give
the firm a shot at eye popping performance. The company also reported a jump in fourth quarter operating earnings of eight point four eight billion dollars, helped by an increase in insurance underwriting and investment income.
Ukraine's president vladimyr Zelenski says his country has lost thirty one thousand soldiers since Russia's full scale invasion began two years ago. He added that there is a lack of precise data on civilian casualties, though the figure is in the tens of thousands. Ukrainian president also stressed the need for military support from American allies as a congressional decision on sixty billion dollars worth of aid for the country looms.
US National Security Advisor Jake Sullivan agreed, urging the House to approve measures.
Ukraine can go further in retaking territory that Russia has occupied, ensuring Russia fails, and ensuring Ukraine prevails, but it can only do so if it has the tools that it needs, and that is why the United States needs to deliver the aid package that passed on a massive bipartisan vote in the Senate.
The House needs to step up and pass that bill. Jake Sullivan was speaking as President. Zelenski also claimed that some plans for Kiev's counter offensive last year were leaked to Russia.
When it comes to the conflict in the Middle East, Benjamin Letnia, who says that he will have a plan of action for evacuating civilians in Rafa soon. The Israeli Prime Minister revealed that those sheltering in the southern city would be directed north where fighting has finished.
We agree on this, I mean, we don't have to be plodded it.
We're on the same page with the US oners because that's how we do it.
Benjamin Lettanier, who's speaking there. He also said that his plans will include how to dismantle remaining Hamas battalions.
The UK government is trying to revamp the way it handles business investment. A new panel made up of senior ministers and government officials aims to coordinate between departments to bring in large projects. It was one of the key plan thanks of Richard Harrington's review of the UK's FDI slump. He spoke to us when the review was published last November.
Up to now, we've been very reactive in government in London or in the regions. If a company comes to us and they're interested in investing here, it's slow and it's cumbersome, and often they have to go through different departments, but actually eventually a package is brought up with the other countries are better organized. They have a concierge service, they have an investment minister at very senior level.
At Harrington told Bloomberg he's pleased with progress so far, but some question if a concierge service can compete with the US and it's Inflation Reduction Act investment plan.
The Conservative Party is facing accusations of racism after a high profile Conservative MP was suspended for suggesting that the mayor of London was controlled by quote Islamists. Lee Anderson was a deputy chairman in the party until he refused to apologize for the remarks, but Deputy Prime Minister Oliver Dowden has refused to call the comments racist.
I see from my own constituents where Jewish people are fearful of walking the streets showing symbols of their own religion, where we have hate on marches, where the actual conduct of Parliament is apparently being influenced by threats of violence and intimidation.
Unlike Dowden, the mayor of Lonton City Cahn't, said that the claim was islamophobic, racist and stokes anti Muslim hatred. Anderson's suspension comes as MPs are seeing increasing threats of violence, with The Sunday Times reporting that three female MP's have been assigned bodyguards.
In the United States, even a home state advantage couldn't give Nicki Haley her first winner of the Republican presidential primaries. Donald Trump won South Carolina bout twenty points over the weekend. That's despite Haley being the former governor there. The news has spurred one of her biggest donors to withdraw their campaign fund with more Hairs bloombergs at Baxter.
This of course comes after her disappointing loss in South Carolina, and now the Charles cokebacked Americans for Prosperity Action will cut funding. It has spent millions of dollars since the fall on advertising and voter outreach efforts, but it says now, given the challenges in the primary stage ahead, well, it says it doesn't think it can make a substantial difference.
The pack says it will continue to endorse her, but we'll focus on funding where it can make a difference at Baxter Bloomberg Radio.
Now, at a moment, we'll dig into the day's results from Berkshire Hathaway and look at some of the big issues at stake at the wto Summus in Abu Dhabi. But another story that caught our eye this morning. Freddie Mercury's Kensington home is going on the market. It's being sold by his friend Mary Austin, who inherited from him when he died in nineteen ninety one. She's been speaking exclusively to our colleague Sarah Rappaport from Bloomberg Pursuits. It's
a fascinating conversation. The house itself is stunning in many many senses of that word.
Yeah.
I walked past Sarah's desk last week when she had got the brochure of the how I mean fabulous, absolutely amazing. It had pictures of the dressing room Eddie Mercury, Yeah, amazing, as.
An FM carved into the marble of the after the main bedroom, as well as an eight bedroom house tucked away in Kensington. It's I mean, it still contains many of the original design features that he put in place when he when he bought the house. Sarah talks about having a strong sense of personality.
Come on, well, thirty million pounds is it right? Okay, Well we'll see who snaps that up. Very interesting story. Sarah Rappaport from Bloomberg Pursuits. Of course, one of the best jobs in the building with that story.
For us, let's get more now on one of the big stories in the investing world, hedge funds. Piling inter sector's top strategy from twenty twenty three investing in these insurance linked to securities or catastrophe bonds. But the risks get associated with them are getting harder to calculate, bimbricks. Charlie Willes joins us now for more Morning to you. Charnie, tell us a bit more about then this cat bond strategy they're prot such a big winner for hedge funds
last year. Is it still such a good bet?
Yeah?
Well, I mean this is a really fascinating story because it gets at how climate change is changing, how finance needs to assess risk. And so last year cat bonds as they're known, with these catastrophe bonds were the best performing asset class for hedge funds. They brought a nearly twenty percent return. And the deal here is interesting, right, So they these cat bonds are used by insurers to
kind of insure against the big ones. So these losses that are just kind of too big to cover, they securitize those losses and investors, you know, bet that you know the catastrophe won't come. But what's been increasingly happening
is these sort of secondary perils tend to happen. So there's a lot of property in areas where there might be more floods, more wildfires, more sort of you know, not huge ones, but smaller ones, and those are actually you know, reassessing, forcing investors and insurers to reassess how they calculate risk. And there's more investors come to the strategy, it actually could make it less profitable and just a lot more difficult to invest on.
Yeah, absolutely, the changing picture when it comes to climate. You've also been looking then at the earnings of Berkshire Hathaway. Cash was king. I mean this is also something that Warren Buffett has talked about before, the lack of deals out there for him.
Yeah exactly. I mean, look, Berkshire Hathaway famous for its insurance businesses as well, and yes, that was a record cash pile that they reported this weekend with their annual letter as well as their results, one hundred sixty seven point six billion dollars in cash, which is a lot. And I mean, look, this is something that Berkshire has long done, right because of their insurance business, they have
to keep a lot of cash on hand. They invest, you know, one of the most famous value investors in the entire world, but you know, in a higher rate environment. And I think having a lot of that cash on hand is bringing a lot less scrutiny than I think it probably would otherwise.
These earnings are always very closely watched as being a proxy for US economic health because it's such a diverse business as well. What sort of signals did we get then from this report about the wider economy?
It was interesting. So operating earnings, which are the metric that Buffett prefers because they don't take into account the unrealized losses and gains on his investment portfolio. At Berkshire Hathway, they were up from last year in the same period, so eight point four to eight billion versus the same period last year six point six three billion, and you know,
on trend this morning. They were aided by insurance, so the insurance companies in the Berkshire Hathway portfolio were able to increase premiums, but the claims were lower at some of the businesses, but they were dragged down the earnings overall by some difficulties in rail and some difficulties in utilities. Those were mentioned in Buffett's annual letter, which is you know,
famously parsed by investors. He interestingly meant some difficulties with regulation and wage negotiations at rail, which is a little bit unusual for Buffett because he tends not to criticize some of the regulatory moves coming from Washington.
Okay, that's interesting. It was also the first annual letter since berusha's vice chairman, Charliemonga passed away, so also very interesting moment in terms of change at Berkshire Hathaway. Thank you so much shat Charlie Wells for being with us then taking us through the latest on hedge funds and the results from Berkshire Hathaway.
Now, global trade ministers are gathering in Abu Dhabi for the World Trade Organizations Summit, amid a tide of trade protection and questions over the WTOS relevance. Our trade reporter Eric Martin joins us now from Abudabi. From Morgan morning to you, Eric, how big are the stakes then at this meeting? Does the organization still have the power and the cloud to be able to secure global agreement?
Well, that absolutely is an open question. You know, we've seen the WTO kind of losing a slowly voting relevance over really the last more than decade. It's been more than ten years since the Doha Development Round bailed in twenty eleven, and we've seen a real absence of global agreements through the WTM since then. What we have seen is more regional agreements, things like are set in Asia or like the CPTPP, also in the Indopacidic, which of course Donald Trump withdrew the US from in his first
days in office in twenty seventeen. But so the WTO really is under pressure to show that it can still produce global agreements or even preserve the status quo in terms of preventing greater fragmentation in trade.
Yeah.
Absolutely, So what do you think the key issues then will be that they will try to focus on and find some some agreement and momentum on.
Well, one key test will be whether in a WTO can renew what's called the e commerce moratorium. This is a prohibition on countries applying tariffs on digital trade. So think of a movie that you would download in Bali from Netflix, or a book that you would would download
when you're abroad right now. All of these kinds of digital trans first are prohibited from facing duties customs duties, but some countries like Indonesia as well as some indication from India and South Africa, that there's interest in being able to raise revenue from these kinds of sales in
this kind of trade. So that's one key thing to watch is whether this will be preserved and rolled over, renewed as it always has been every couple of years since nineteen ninety eight, or whether we're going to finally see a breakdown in that consensus there. Remember, WTO operates by consensus. It only takes one out of one hundred and sixty six members to prevent agreement on any topic. So, especially in today's charged geoplitical world and rivalry between US and China and fragmentation, that.
Is a tall arnor Yeah, that's a really interesting point actually, because the WTO is a sort of a forum for these geopolitical differences. We were hearing from China's Commerce ministry only today disputing claims from the US that it's flouting WTO rules.
Absolutely. This is a report that we saw on Friday from the US Trade Representative talking about how in the US view, China continues to have practices that allowt the WTO requirement that member nations be market based economies and saying wto excuse me, China continues to be non market economy, and we.
Saw strong pushback from Beijing.
Saying that it is not in violation of global trade rules from in their opinion, of course, the US maintains tariffs one hundreds of billions of dollars of Chinese exports annually, and so certainly we see spillover from this rivalry and list tension between the world's two largest economies into the rest of the UK WTO.
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