Buffett Reveals ‘Outrageous’ Acts That Lifted College’s Endowment to $2 Billion

(Bloomberg) -- A tiny Iowa college can credit some of its endowment’s gains to what Warren Buffett considers fun: buyouts and arbitrage plays.

In a new book, Buffett reveals his delight investing on behalf of Grinnell College, largely because of his partnership with fellow trustee and friend Joe Rosenfield. He and Buffett, who hosts Berkshire Hathaway Inc.’s annual meeting this weekend, helped turn the endowment into one valued at $2 billion, behind some of the richest liberal arts colleges such as Williams, Amherst and Pomona.

“The more outrageous the act might seem for a college endowment, the better Joe and I liked it,’’ Buffett recounts in the forward to “Mentor: Life and Legacy of Joe Rosenfield,’’ a biography by former Grinnell President George Drake. “Every investment move was always entertaining for us and always (well, almost always) profitable. In fact, we truly had more fun making money for the college than we did in making investments for ourselves.’’

Colleges hold about $600 billion in assets, riches that have come from unique sources. The University of Rochester owes its early endowment wealth to donations from George Eastman of Eastman Kodak. A chunk of Emory University’s money came from holdings in hometown employer Coca-Cola Co.

The reverberations of the Buffett-Rosenfield partnership still resound today in Iowa for the school’s 1,700 students. Rosenfield, who was a college trustee for 59 years, graduated from Grinnell in 1925. He died in 2000 at the age of 96.

“We conspired to have the college buy convertible debentures in a startup (Intel); shorted securities in a ‘can’t-lose’ arbitrage (AT&T); made a leveraged buyout of a network television station (WDTN in Dayton); and the list goes on,’’ Buffett, chief executive of Berkshire, writes in the book, published by Business Publications Corp.

Rosenfield, an attorney whose family owned Younkers department stores across Iowa and the Midwest, saw building the endowment as a way to ensure Grinnell’s survival. He enlisted Buffett after being introduced to him by a cousin, who was friends with the now billionaire.

The two men often shared ideas during late-night phone calls, Buffett writes.

“I can’t recall any committee assignments in my lifetime in which I experienced such pleasure,” Buffett said. “When Joe would call me at night to discuss some action that would swell Grinnell’s coffers, his enthusiasm was that of a kid in a candy shop. I couldn’t help but share it.”

The TV station purchase is a good example. In 1975, Buffett called Rosenfield to tell him that stations in Cincinnati and Dayton were up for sale. Buffett was a director of the Washington Post but the media company couldn’t pursue a purchase since it had reached the then federal limit of five stations.

Buffett, now 88, told Rosenfield if the purchase would be good for him, it would be good for Grinnell, recounts Drake.

The board decided to invest $11 million in the Dayton station after “an extensive presentation from Joe and Warren Buffett, who had colluded before the meeting,’’ Drake, a historian, writes in the book.

It was a smart move: The station’s value had more than quadrupled by the time it was sold in the mid-1980s, he wrote. It’s unclear whether Grinnell invested in Buffett’s Berkshire. A spokeswoman for the college declined to comment.

Contacted by Bloomberg News this week, Buffett reflected further on his bond with Rosenfield.

“He was an extraordinary friend and one of the people I admired most in the world,” Buffett said in an email.

To contact the reporters on this story: Janet Lorin in New York at jlorin@bloomberg.net;Katherine Chiglinsky in New York at kchiglinsky@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alan Mirabella, Dan Reichl

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