Buffett and Griffin: Last Buyers Standing?

As the LBO premiums unwind and the buyout firms try and figure out how they can do blockbuster deals with uncooperative debt markets there is at least one buyer out there who can still do deals with a flick of a pen: Warren Buffett. Warren is sitting on a war chest estimated at some $50 billion that he would love to spend, but just hasn't found enough opportunities at the right prices. But, as the credit crunch claims more casualties and equity prices creep lower Buffett's time may be nearing. This is the latest from the WSJ:

The bond market has seized up, stocks are in turmoil, private-equity funds are sidelined and hedge-fund managers and lenders are hosting fire sales.

These are happy days for Warren Buffett.

"I can spend money faster than Imelda Marcos when things are right," he says, referring to the former Philippines first lady and renowned shopper.

For the past three years, Mr. Buffett's traditional bargain-hunting investment strategy has been partly stymied as debt-fueled private-equity funds and hedge funds drove asset prices out of his value-investing orbit.

The result: Today he's sitting on a war chest of nearly $50 billion in cash.

Now, with the shakeout in the subprime-mortgage market forcing the end of easy money and the distressed sale of assets -- such as Thornburg Mortgage Inc.'s sale yesterday of $20.5 billion of its top-rated mortgage-backed securities -- many see Mr. Buffett, the 76-year-old chairman of the giant Berkshire Hathaway Inc. holding company, as one of the last buyers standing.

But, Buffett isn't the only investor who stands to gain from the fallout in the markets over the next few years. There is one investor who started out as a convertible arbitrage specialist with just $4.2 million under management in 1990 who has grown his firm into one of the best alternative investment companies in the business, managing somewhere in the neighborhood of $15 billion in assets. His firm bought Amaranth's energy portfolio during its distress last year. He also bought Harvard-backed hedge fund Sowood Capital Management's credit portfolio when that hedge fund collapsed earlier this year. Most recently he bought some assets of struggling cash management firm Sentinel Management Group and even scooped up shares of embattled home builder Beazer Homes. His name? Ken Griffin. His firm? Citadel Investment Group. The name "Citadel" was chosen to suggest strength in times of volatility, which I guess is fitting in light of their recent activities.

As more and more hedge funds get themselves into trouble in the weeks and months to come I expect Ken Griffin will be busy snapping up assets at firesale prices and generating those 25%+ annual returns that the investors in his Kensington fund have come to expect.