Markel’s investment strategy looks long term
- September 28, 2010
Markel’s investment strategy “increasingly defines the company,” says one analyst, and the man charged with steering those investments is Thomas S. Gayner.
One of three presidents named in May, Gayner has led Markel to a higher-than-average concentration in equities (about 17 percent of total investments) in comparison to other property and casualty insurers. While equities carry higher risks than fixed-income securities, they also have offered Markel better returns than its peers, says a report by Wunderlich Securities analyst Elizabeth Malone.
Over the past two years, the total investment return on Markel’s equity portfolio dropped 34 percent in the 2008 market crash but rebounded 25.7 percent last year. The returns on its total portfolio (including fixed-maturity investments) were -9.6 percent in 2008 and 13.2 percent in 2009.
During the first half of 2010, the company had a total return of 2 percent on its investment portfolio. Equities declined 0.9 percent at a time when the S&P 500 was down the 6.5 percent. Fixed income securities rose 4.1 percent. In a conference call with analysts after second-quarter results were released, Gayner said he planned to increase investments in equities because fixed-income yields were too low.
An admirer of Warren Buffett —they both serve on the Washington Post board — Gayner describes his strategy as buying into profitable businesses with high value run by people with talent and integrity. He, like CEO Alan Kirshner, stresses that Markel looks at the long term in its dealings; and with equity investments, the focus is not on quick profits but building good businesses, getting good returns and redeploying the capital.
For an example, he points to a deal struck this spring. Markel Ventures, which invests in privately held companies, became a partner in a Richmond-based private equity fund that buys distressed real estate projects. Markel/Eagle Asset Management has pumped money and energy into efforts such as West Broad Village, a mixed-use project in western Henrico County.
“We have boots on the ground of people who are in the business, so we’re not doing this from a spreadsheet in the office,” Gayner says.