Warren Buffett, whose investment prowess has made him the world's second richest person, is making a $14 billion (€11.53 billion) long-term bet on global stock markets - without putting any money down.
Berkshire Hathaway, the insurance and investment giant run by Mr Buffett, has sold unnamed clients insurance protection against a drop in four equity indexes with a maximum exposure of $14 billion. If the indices, three of which are non-US, fall by 30 per cent, Berkshire would incur a pretax loss of about $900 million.
The contracts, revealed in a regulatory filing, are unusual not just for their size, but also their duration.
"These contracts generally expire 15-20 years from inception," the filing states. Mr Buffett is known for taking a long view and for using Berkshire Hathaway's huge balance sheet to offer insurance against large - but very unlikely - risks.
Berkshire Hathway is one of the world's largest providers of insurance on catastrophes such as earthquakes and hurricanes.
Analysts said the purchasers of the index contracts were probably pension funds that wanted to increase their potential long-term returns by holding more equities but needed protection in case of a stock market meltdown.
There were few - if any - other places they could go to for such long-term cover, the analysts said. In the filing, Berkshire Hathaway did not disclose any more detail about the contracts, including the premiums it would receive or the level the indexes must fall to before it paid out.
Mr Buffett and Charlie Munger, his long-time associate, are well known for taking big market bets. Mr Buffett has been betting against the dollar in recent years, a position that has made Berkshire Hathaway a great deal of money overall, although it resulted in a $955 million loss last year as the dollar strengthened.
He has also taken short-term bets on the market including the purchase of "put options" on the Standards & Poor's 500 index in 2002 that he said made Berkshire $60 million when the market fell.- (Financial Times service)
