Warren Buffett’s firm invests millions in fintech

Move a departure from usual penchant for blue-chip companies in steady businesses

Warren Buffett’s Berkshire Hathaway Inc. is hopping on the fintech bandwagon.

Berkshire invested around $600 million (U.S.) in recent months in two big financial-technology companies focused on emerging markets: Brazilian payment processor StoneCo. Ltd. and the parent company of India’s largest mobile-payments service, Paytm.

Both investments were spearheaded by Todd Combs, one of Berkshire’s two portfolio managers. Berkshire is best known for investing in blue-chip companies like Coca-Cola Co. and owning steady businesses like utilities and insurance companies. The company generates the majority of its revenue in the U.S. Mr. Buffett, Berkshire’s chairman and CEO, has historically said technology investments are outside his area of expertise.

But Mr. Combs and his counterpart, Ted Weschler, have cast a wide net for potential investments and are pushing the conglomerate in new directions. Mr. Buffett has spoken frankly about Berkshire’s need to find new places to invest its large pile of cash, which stood at $111 billion at midyear. “Todd and Ted bring additional expertise to the table,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business and a Berkshire shareholder. “They’re broadening the perspective of Berkshire and broadening the opportunities where they would look to invest.”

Berkshire bought a roughly $300 million stake in Paytm in August and bought Stone shares in the company’s initial public offering this week.

Both Paytm and Stone fit the mold of typical Berkshire investments in at least two ways: They dominate their local markets and operate in regulated industries.

Stone, which launched in 2014, is already the fourth-largest payment processor in Brazil by volume, according to its securities filings. Paytm says it has more than 300 million users, more users than PayPal Holdings Inc. has around the world.

Berkshire’s investments demonstrate the maturity of the financial-technology industry, which has grown from a curiosity in Silicon Valley in the wake of the financial crisis to a sector that has attracted nearly $35 billion in venture capital globally in the first nine months of 2018, according to preliminary data from Dow Jones VentureSource. Berkshire doesn’t typically invest in early-stage startups.

While Mr. Buffett still oversees the bulk of Berkshire’s investments, he has given increasing responsibility in recent years to Messrs. Combs and Weschler and to Berkshire’s two recently promoted vice chairmen, Ajit Jain and Greg Abel. Mr. Combs is the only one of the four who lives in Omaha, Neb., where Berkshire is based.

In addition to the Stone and Paytm deals, Mr. Combs led Berkshire’s involvement this year in a project with JPMorgan Chase & Co. and Amazon.com Inc. to lower the companies’ health-care costs. The project is still in the early stages and hired a CEO this summer.

Stone shares rose 30% to $31.09 on its first two days of trading this week. Berkshire indicated an interest in buying up to 14.2 million shares in the company at the offering price of $24, making its investment worth as much as $440 million as of Friday’s closing price. Goldman Sachs Group Inc., another Berkshire investment, led the offering.

Mr. Combs was introduced to Stone by fellow shareholders Madrone Capital Partners, an investment firm affiliated with the heirs to Walmart Inc. founder Sam Walton, and T. Rowe Price Group Inc., according to a person familiar with the matter.

“We saw Berkshire as a very long-term investor,” said Thiago dos Santos Piau, Stone’s CEO, in an interview.

Mr. Buffett declined to comment on the Stone deal. “It’s entirely Todd’s,” said Debbie Bosanek, Mr. Buffett’s assistant, in an email. “He never comments on anything that Todd or Ted do. They have total autonomy.” Mr. Combs didn’t respond to a request for comment.

Berkshire watchers said the deal is the first time they can recall Berkshire buying shares in an initial offering.

Mr. Buffett was critical of investing in IPOs at the Berkshire annual meeting in 2012. “I can’t recall any time in the last 30 years, at least, that we’ve bought a new issue,” he said. “Out of thousands and thousands and thousands of businesses in the world… it can’t be the most attractive thing,” because sellers have the advantage of choosing when to enter the market, he said. In the case of Paytm, Mr. Combs met the company’s founder and CEO, Vijay Shekhar Sharma, through Paytm board member Mark Schwartz, Mr. Sharma said. Mr. Sharma traveled to Omaha for a 3.5hour meeting with Mr. Combs in February.

“We talked a lot. We talked about India. We talked about business, we talked about people who we like, what happened in life and so on,” Mr. Sharma recalled.

Mr. Combs has particular expertise in the banking and payments industries. Before joining Berkshire in 2010 he ran a hedge fund, Castle Point Capital Management LLC, that focused on financial companies. Mr. Combs also sits on JPMorgan’s board and joined the Paytm board after Berkshire’s investment.