Buffett’s Berkshire Hathaway Invests $500 Million in Nubank — What’s Their Strategy?

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Warren Buffett’s Berkshire Hathaway made a $500 million investment in Brazilian digital bank Nubank, the company announced this week, in a move that could seem surprising at first glance, but makes sense from a strategy perspective, some experts say.

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The digital bank was recently recognized as one of the most influential companies in the world by TIME and one of the most innovative by CNBC, according to the statement.

Cathy Siefert, VP and equity analyst at CFRA Research, tells GOBankingRates that the stake in the fintech company reflects a couple of recent strategies and trends at Berkshire Hathaway.

First, the company has two relatively young and engaged investment professionals — Ted Weschler and Todd Combs. Second, this investment comes against the backdrop of Berkshire’s investment and acquisition strategy. “A barbell between tech and financial holdings, so this is a good way to diversify across all sectors,” Siefert says. “It’s a very decent company and they don’t want the burden of getting into companies that are highly regulated.”

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Berkshire is also heavily weighted in Apple, which already gives them significant exposure to tech stocks, she says, and this move might announce an incremental addition in this area.

Last month, Berkshire disclosed that it had largely eliminated its remaining holding in Wells Fargo, a move that made sense as there were “some complaints about governance issues,” Siefert says.

With Combs and Wexler at the helm of portfolio management, the management is more active, as opposed to the company’s historically buy and hold strategy, she says.

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“While the portfolio turnover remains low, we’ll start to see that if a position is not working out or if there’s an issue with corporate governance or regulatory concerns, they won’t shy away from selling,” she adds.

As for Nubank, it also said it had received a second contribution, from a group of funds that includes former investors, totaling $250 million.

“As a result, the total investment of the so-called Nubank G Series grew to $1.15 billion and the series becomes the largest investment round ever carried out by a private technology company in Latin America,” Nubank said in a statement.

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“It’s amazing to see everything we’ve been able to do in these eight years with the company. No one thought it was possible to change the financial system, but we were always convinced that there was room for disruption and innovation and, more importantly, that customers deserved better service,” founder and CEO David Vélez said in the statement. “There is still a lot to be done. Around 50% of the population in Latin America still does not have a bank account. Credit card penetration is, on average, 21%, while in the United States this number is over 70%. This new funding will help us to keep democratizing access to financial services across the region,” he added.

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Vélez said a public listing isn’t in Nubank’s plans for now, although “we will go public at some point,” according to The Wall Street Journal.

“The recent Nubank deal highlights that established institutions are in no way safe from technological disruption,” Juliana Hadad, product manager at Devbridge, tells GOBankingRates. “Traditional banks reliant on legacy systems and inefficient customer support have no space in a market where one can open a bank account in one day.”

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Last month, Buffett announced that Greg Abel, CEO of Berkshire Hathaway Energy, would be his successor. He also noted that the other front-runner for the position, Ajit Jain, who is the Vice Chairman of Insurance Operations for Berkshire Hathaway, would be next in the line of succession.

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Last updated: June 9, 2021

About the Author

Yaël Bizouati-Kennedy is a former full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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