Buffett Plans Derivatives Venture

Warren Buffett’s Berkshire Hathaway Inc. plans to form a venture with former J.P. Morgan & Co. executives Roberto Mendoza and Peter Hancock that will help companies, government agencies and individuals use derivatives.

The venture will be formed through Berkshire Hathaway’s reinsurance unit, General Re Corp. A partnership led by Mendoza and Hancock will buy a majority interest in General Re Securities Holdings, a unit of General Re.

Mendoza left J.P. Morgan, where he was vice chairman, last year to join Goldman Sachs Group Inc. as an investment banker.

Hancock, credited by J.P. Morgan as one of the architects of its derivatives business, resigned as chief financial officer in September, days before the announcement that Chase Manhattan Corp. would acquire Morgan. The $32-billion acquisition was completed Dec. 31.

“Roberto Mendoza and Peter Hancock are the kind of people I want to be in business with,” Buffett said in General Re’s press release issued through Business Wire. “I have great confidence in the business plan and prospects of Gen Re Securities.”

General Re said it will keep a substantial minority stake in General Re Securities.

The venture will provide “derivatives and beyond” to clients, General Re spokeswoman Elizabeth Monrad said, declining to elaborate.

Derivatives are financial instruments whose values are derived from an underlying security or financial instrument. Types of derivatives include stock options, futures and interest rate swaps.

General Re is based in Stamford, Conn., and Berkshire Hathaway is based in Omaha, Neb.