Warren Buffett's right-hand man, Charlie Munger, has invested in a limited partnership with Australian investment holding company Stonehouse.
If you haven't heard of Stonehouse, the company explains, "We invest our committed equity capital into businesses that wish to benefit from our permanent ownership approach."
Stonehouse seeks to acquire quality businesses for the long haul, valued from $20 million to $150 million. The business model is in line with Warren Buffett's Berkshire Hathaway, where Munger has long served as vice chairman.
Why is Warren Buffett's right-hand man investing in Stonehouse?
Munger is well-known for his long-term value investing approach. And Warren Buffett's Berkshire, with a market cap north of US$620 billion, has made its mark by investing in quality companies at fair value and holding them for many years.
Addressing how Stonehouse popped up on his radar, Munger said (quoted by The Australian Financial Review):
I got interested in one Australian because I think he's very much like the kind of people that are in Berkshire. Berkshire and Jennings are quite similar. He's picky and manages things well. He has a mindset very much like ours. Business fundamentalism and relentless rationality and doing business in a very high-grade way.
Munger sees Australia as offering more potential acquisition opportunities than the US, where he says buyout competition is more intense. And he sees Stonehouse's kindred philosophy as one that could pay off down under.
According to Munger:
Berkshire often buys something because the seller wants a good home and knows that Berkshire will be a good place for his employees who are transferred with the business will be fairly treated.
Jennings is operating the same way. He's seeking a good home for these Australian businesses. It's the Berkshire playbook all over again. You can see where I recognise the kindred spirit.
As the AFR reported, Stonehouse's focused investment approach has seen the company own only three businesses since it launched in 2012: Goldners Horse Transport, EvaKool and Prestige Plants.
Munger noted the similarity, though on a smaller scale, with the company he co-chairs with Warren Buffett:
He owns radically different businesses, which is a Berkshire-type thing. He's got just three big businesses in 12 years. Berkshire's top 40 deals in its whole history amount for most of our achievement. Life is a game where you work very hard and deal only occasionally.
It's very hard to acquire unrelated companies, earn a higher return on capital and pay market prices for them. Most people who try and do that, fail. And the only reason that Berkshire and Stonehouse succeed is that we don't do it very often, and we're pretty careful.
"We're simply looking for great businesses to acquire," Jennings added. "We want business owners to know there is a good, credible, long-term buyer available to them."
Working with his investment idol
Like Munger and Warren Buffett, Stonehouse founder Jennings was educated in the United States, though he's now an Aussie.
He said as a teenager in the 1990s he attended Berkshire's annual shareholder meetings in Omaha, Munger's and Buffett's hometown.
According to Jennings, "Having Charlie become involved in our business has been surreal. I've admired him my whole life, and he's now become a business partner."
