Working for Warren

The master of risk

A few years after Ajit Jain went to work for Warren Buffet, the legendary investor wrote to his parents in New Delhi, asking if they had one more son like him at home. “Of course I knew the answer before writing. There isn’t anyone like Ajit,” Buffet recalled in his annual letter to shareholders in 2007. ( More articles on Ajit Jain Jain’s parents were naturally overjoyed. “To my absolute embarassment, they framed that letter and put it right in the middle of the living room. I had to put my foot down and get that out because it was kind of awkward,” 59-year-old Jain, among the most successful business executives to be born in India, told ET.Buffet, the world’s most successful investor and currently the third richest man on earth, has been showering high praise on Jain in his famous letters to investors year after year. “Even kryptonite bounces off Ajit,” he wrote in 2010, describing the outsize achievement of the Orissa-born executive, who heads Berkshire Hathaway Reinsurance Group , a giant business that is at the heart of Buffet’s sprawling empire.Jain, the Superman of Buffet’s world, has for years been considered a leading contender for the ultimate prize at Berkshire Hathaway, indeed anywhere in the business world today—the job of the CEO of the diversified $136 billion group, succeeding 80-year-old Buffet.“I truly believe I have the best job under the sun,” says Jain, whose friendly and unassuming manner can lull you into underestimating his wisdom, stature, and achievement. In New Delhi preparing for Buffet’s first visit to the capital, Jain was remarkable for the complete absence of the usual retinue of assistants, PR folk and protocol that surround many CEOs. In fact, Jain happily hitched a ride with ET reporters, as the cab driver he had hired didn’t know the way to his next destination. “Why don’t cabs here use GPS?” he asked enroute. We assured him it’s catching on.If little is known about Jain’s achievements in his home country, it is perhaps because he is reluctant to talk about himself. “The real story is about Berkshire and our insurance business, but ok...” he said, relenting to ET’s queries about the life and times of a towering business figure.He says he has been extremely fortunate to be working with Buffet. That is why he hasn’t budged from the reinsurance division he joined in 1986. “The opportunity to work for Warren is like winning a giant lottery. Quite honestly, no amount of money can substitute for working for a boss for whom you have the utmost respect, almost to the extent of worshipping him. Who has treated you more than fairly, who you have learned a lot from,” he said, letting us in on why nobody in America has been able to poach away Buffet’s prized warhorse.How does he react to the praise the world famous investor heaps on him? “He is very kind with his words. I wish I do something to deserve it some day,” Jain says, in a manner that is plainly sincere.Jain was born in Orissa, but his roots are in Rajasthan. He graduated from IIT Kharagpur in 1972. Having the IIT name on his resume opened a lot of doors initially, he says. For his first job at Tata Steel Company, and then in securing admission at Harvard Business School for an MBA.But he says he wouldn’t recommend any 16-year-old spends five years growing up at an IIT. “It’s tough work, good discipline to train your mind early on,” he says. “But IIT Kharagpur was a godforsaken place in those days, with no women and terrible food,” he says, laughing.Subsequent to HBS, Jain worked at McKinsey, where his boss was one Mr Goldberg, who moved to Buffet’s firm, Berkshire Hathaway. “Mr Buffet told him to find some people to join the new insurance business he was planning to enter. Goldberg, being a lazy guy, instead of doing a proper search, called his flunkey at McKinsey who had been useful in carrying his bags. That’s how I went to work at Berkshire,” Jain says.That operation would grow to become one of the largest insurance businesses in the world.Jain says Buffet, his boss for quarter of a century, is an easy and flexible person to work with. “You get what you see. He is a very simple, down to earth person with very simple tastes. He loves what he does, enjoys his work, loves where he lives... He is just happy where he is.”Buffet looks for managers with a solid track record, Jain says. “He is looking for managers who love their businesses and love their work more than they love the money. People who have delivered over a meaningful period of time.” Buffet especially watches out when he buys companies, Jain says. “When he buys businesses, he looks out for this. Because when someone sells a business to him, he gets a big cheque. If he loves the cheque more than the business, that manager is gone, and Mr Buffet is not getting what he thinks he is buying.”Jain says he doesn’t worry about the succession issue one bit. “If you watch Mr Buffet, he has more energy at his age than I have now. So I don’t worry about the succession issue because I don’t think about it at all,” he says.For a company that works in a ruthlessly competitive industry globally, Jain says they have a system with no targets. “There is more than one way to get to heaven,” he says, explaining the rationale and benefits of a target-less system.Jain says the target-centric system build in perverse incentives in the risk-taking business.“The problem with target, from my perspective, is that people focus so much on targets, that they very often sacrifice rationality.” In a business that exposes a large amount of capital to risks, that would be a recipe for disaster.While the lack of targets might keep his colleagues happy, it causes Jain a lot of stress about the company becoming “fat, dumb and happy”.Without targets, how does his company identify the performers? “We don’t have a compensation system that is tied to targets. The easiest way to solve that problem is to hire the right people and you set the right example, it filters down. Whether we do an adequate job of that or not, there is no way of knowing.”Because his unit works without targets, he says, there is no telling if they have excelled. “I often wonder if we should have achieved a lot more than what we have achieved given our potential, access to capital, our brandname and Mr Buffet’s name,” he says. As of date, Buffet seems to differ.Jain is so central to Buffet’s business because of the cash generated by the reinsurance division he heads. Buffet, who used to be a value investor in the stock markets, has been increasingly buying companies whole and the cash comes handy. Another factor that endears Jain to Buffet must be a shared understanding of risk, a quality all investors value immensely.The soft-spoken Jain is as removed from the popular image of a big shot risktaker—an abusive, high rolling stock trader—as possible. But Jain conquers big risks for a living, and does it calmly.In the dizzyingly complex world of insurance, there is a niche area that few dare to tread. It’s called mega-catastrophe insurance. Broadly, it is about insuring against Black Swan events—events with very low probability and very high impact. If a marquee building like the Sears Tower, once the tallest building in the world, wants to buy insurance, an insurer has to take on a huge deal of risk. Or if a massive sporting event, like the 2002 Winter Olympics wants to buy insurance, a year after 9/11 (the biggest Black Swan event of them all), you need to structure an extraordinary policy.If a high-profile baseball player like Alex Rodriguez wants to insure his health for the next ten years, days after signing the biggest contract in the history of the sport, most insurers would be at a loss. Jain has structured, and signed off, on these, and many more complex and unusual policies.It’s an esoteric world inhabited by the elite few of the financial services industry. The risks are enormous, and the rewards are commensurate. Jain is the emperor of that rarified world.He has been able to stare coldly into the terrifying eyes of risk, and use his mastery over the beast to generate billions in profits for Berkshire Hathaway. His business unit controls some 70 insurance companies around the world.“From a standing start in 1985, Ajit has created an insurance business with float of $30 billion and significant underwriting profits, a feat that no CEO of any other insurer has come close to matching. By his accomplishments, he has added a great many billions of dollars to the value of Berkshire,” Buffet wrote in 2010 in his letter to investors.With that kind of a track record, and impressive recommendations from a man admired by investors and businessmen everywhere, Jain seems set to take on any job, and any risk, in the world.