AI predicts Berkshire Hathaway holdings at risk from hedge funds
AI predicts Berkshire Hathaway holdings at risk from
hedge funds
More than 6% of Warren Buffett's company’s holdings could
be vulnerable to short-sellers, study by UK fintech Irithmics estimates
By Tom Teodorczuk October 29, 2018 Updated: 12:31 p.m.
GMT
A new study of Berkshire Hathaway, Warren Buffett's
investment business, by a UK-based fintech company that analyses how artificial
intelligence technology affects markets, has estimated that more than $10bn
worth of the company’s holdings are potentially vulnerable to activity by
short-selling hedge funds.
Irithmics, which uses deep-learning AI to study market
data and which supplies clients such as the London Stock Exchange with insights
into market behaviour, will publish its analysis of Berkshire Hathaway’s public
holdings later this year. It will highlight the investments that are at risk on
account of hedge fund positions.
According to findings seen by Financial News, Irithmics,
which is based in Bath and which tracks the portfolios of more than 6,000
investment managers, estimates there is a 20% chance that losses to Berkshire
Hathaway caused by bearish short-term trading will exceed 6%. This amounts to
$11.5bn, based on a company filing last August that valued its total holdings
at $193.2bn.
The analysis of trading positions in Berkshire Hathaway
also estimates there is a 20% chance that profits associated with more bullish
shorter-term trading behaviour will exceed 9%.
“Of the positions that Berkshire Hathaway has disclosed
to the Securities and Exchange Commission, AI is able to determine the ones
that are most vulnerable to the activity of hedge funds or short-term traders,”
Grant Fuller, chief executive of Irithmics said. “What Irithmics’ technology is
able to do, by looking at all available market data, is show Warren Buffett and
Berkshire Hathaway that $10bn of the portfolio is at risk due to the activity
of hedge funds. Smart transparency shows that the positions taken by hedge
funds on Berkshire Hathaway stand to potentially impact the company’s [profit
and loss] statement.”
A study by WalletHub, the personal finance website, last
February ranked Berkshire Hathaway as the 19th most popular stock for hedge
funds to own. According to regulatory filings, hedge funds that have positions
in Berkshire Hathaway include AQR Capital Management, Renaissance Technologies
and Cedar Hill Associates. None of the hedge funds responded to requests for
comment.
Hedge funds that have sold Berkshire Hathaway in recent
years include Ray Dalio’s Bridgewater. According to a quarterly filing, it sold
its stake in June 2014.
Buffett has lately been bullish on Apple, becoming the
tech company’s second-biggest shareholder. According to FactSet, the research
group, Berkshire Hathaway owned 239.6 million shares of Apple at the end of the
March quarter. Fuller said: “AI technology has recently been predicting selling
pressure driven from hedge funds in relation to Apple stock.”
Buffett has been sceptical of AI. He is also a staunch
critic of hedge funds, which he views as providing poor value for money and
offering relatively low returns. Last February Buffett won a decade-long $1m
bet for charity that a basket of hedge funds would fail to outperform the
S&P 500 index over a 10-year period.
Berkshire Hathaway did not respond to requests for
comment on the study.
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