Gates Split takes a stern look at $ 170 billion fund manager
(Bloomberg) – For nearly three decades, Michael Larson has quietly stirred one of the world’s greatest fortunes with one main priority: keeping his fabulously wealthy bosses out of the headlines.
The conservative bets, the indescribable office, the generic sounding name of the investment firm; they’ve all been carefully crafted to shield Bill Gates and Melinda French Gates from criticism and produce stable, if seemingly unimpressive, returns.
The announcement of the couple’s divorce last month has cracked the organized image. Unflattering details have been leaked, including a report that Larson harassed and intimidated some employees.
On Monday, a spokesperson said that Bill and Melinda Gates Investments – the 100-strong team led by Larson who oversaw their personal wealth and the endowment of their namesake foundation – changed its name to Cascade Asset Management Co.. The nickname is very similar to Cascade Investment, which has always been the part of BMGI that manages the personal wealth of the Gates.
The rebranding is the latest milestone in the ongoing story of what will happen to one of the world’s biggest fortunes when Gates and French Gates finalize their divorce. Larson was hired by billionaire Microsoft Corp. in the mid-1990s to oversee this wealth.
The sprawling portfolio of his jurisdiction, estimated by Bloomberg News to be around $ 170 billion, has over the years generated returns above the entire stock market by about a percentage point, according to financial documents and people familiar with it. with the subject.
The brief illustrates the priorities of the highest strata of the ultra-rich, where investment horizons span generations and the riskiest bets often don’t outweigh the value of a good reputation. Part of Larson’s job was to help Bill Gates defend his image as a wacky billionaire dedicated to solving global challenges, rather than taking bold action that might grab attention.
“The price some of these guys are willing to pay for staying out of the news is high,” said Tayyab Mohamed, co-founder of family office recruiting firm Agreus Group.
The divorce and recent revelations about Cascade’s corporate culture, reported by The New York Times, raise questions about Larson’s future and the fortune he oversees. A spokesperson for Cascade said BMGI was changing its name “to reflect the changing needs of the Gates family and their philanthropic work” and that the group’s investment strategy and organizational structure would not change.
French Gates, whose name was added to BMGI in 2014, has been the center of attention after Cascade transferred holdings to him worth more than $ 3 billion, which led some into the industry to speculate that it was claiming even greater control from its part of the rich. Their combined wealth stands at over $ 140 billion, according to the Bloomberg Billionaires Index.
Larson, 61, admitted he sometimes used harsh language in response to The Times reporting, but denied mistreating staff. A representative for Cascade said the cases had been reviewed and did not warrant his dismissal. A representative for Gates did not respond to a request for comment.
Mohamed said it was not surprising that Larson stayed in his role after the allegations, given his decades-long tenure with Gates and the loyalty he likely engendered.
“If Larson hadn’t had the professional impact he has had, it would be a simple yes he should step down,” said Mohamed, whose company helps family offices fill leadership positions.
Larson, often dressed in a pink shirt, shuns the spotlight and rarely attends conferences for family office professionals. A former bond fund manager, he earned Gates’ loyalty by delivering consistent returns and instilling in employees the idea that their main goal was to protect the reputation of their benefactor, according to people familiar with Cascade, who asked not be named when talking about the company. inner workings.
The manager had a lot of leeway over Gates on investment decisions, they both said. French Gates rarely attended meetings at the start of Cascade outside of the annual in-person meeting, and when she did, she tended to be a passive participant, according to one of the people familiar with the company.
She was unaware of most of the allegations involving Larson “given her lack of ownership and control over BMGI,” her spokesperson Courtney Wade said in a statement.
It’s unclear where French Gates keeps her money, including the more than $ 3 billion that has been transferred from Cascade, and whether she is setting up her own family office. She also runs Pivotal Ventures, an investment and incubation company founded in 2015 that focuses on gender and racial equality and employs around 90 people.
Being the chief investment officer for one of the world’s largest family fortunes can seem like an enviable job for an investor thinking about creative bets. Fundraising, customer withdrawals or onerous regulations are virtually no problem. But it’s often more about keeping wealth stable.
Besides distracting the Gates’ attention, Larson’s main tenure has been to invest conservatively – trying to maximize returns but not lose money, one of the people said.
This reflects the investment approaches typical of large family businesses and foundations, said Raphael Amit, professor of management at the Wharton School at the University of Pennsylvania.
“Goal # 1 is capital preservation,” he said, adding that is why family office portfolios are so diverse, comprising not only public stocks but also fixed income securities. , raw materials and assets such as art.
In a Fortune story from two decades ago, Larson explained that much of his strategy comes down to countering fluctuations in Microsoft stocks. At the time, the Gates’ foundation and personal money portfolios consisted mostly of bonds, with a few bets on private equity, commodities, Florida real estate, and UK hotels.
This has changed. Today, Cascade owns approximately $ 57 billion in public stocks, ranging from farm equipment maker Deere & Co. to railroad operator Canadian National Railway Co. to waste management company Republic Services Inc. – businesses rooted in the physical world of making, moving and selling goods and cleaning things up.
Cascade also owns about 270,000 acres of land, enough to make it the largest owner of American farmland, according to the Land Report. The company has also been involved in currency and commodity trading, venture capital, and the development of a real estate complex in downtown Tampa.
The foundation’s most recent tax returns also show $ 804 million in corporate bonds and $ 5.8 billion in other investments such as mortgage-backed securities, bank loans and sovereign debt.
Cascade does not disclose its overall investment performance, but the foundation’s financial reports do offer clues. The foundation’s assets under management have averaged around 8.6% per year since 2001, according to a person familiar with the matter, beating the S&P 500 Index’s average annual gain of 7.5% over the past two decades. . This balance sheet is broadly representative of Cascade’s overall performance, another person said.
Cascade’s assets have been periodically increased by the proceeds from the sale of Microsoft shares in Gates. And Warren Buffett, the billionaire founder of Berkshire Hathaway Inc., has periodically donated billions of dollars in shares of the conglomerate to the foundation. Buffett is one of three board members of the Gates Foundation alongside Gates and French Gates, but has no involvement in the foundation’s investment decisions, according to the foundation.
A remarkable feature of the wallet is how little it changes. Of the 15 stocks listed in the foundation’s latest filing, which discloses positions traded on US stock exchanges, 10 of them were in the portfolio ten years ago.
The holdings do not align uniformly with the Gates’ charitable efforts or priorities, which include global health and, more recently, climate change.
Cascade held investments in oil and gas companies until 2019. He was long the largest owner of Signature Aviation Plc, the world’s largest operator of private jet bases, before joining a consortium that privatized the company this year. And it is the largest shareholder of Republic Services Inc., which for years has quarreled with the International Brotherhood of Teamsters union, whose members are employees.
Gates has at times made it clear that Larson has broad discretion in making investment decisions. During an “Ask Me Anything” event in March on Reddit, a user asked about his farmland purchases. His response: “My investment group chose to do it. “
Two decades ago, Larson put it more bluntly.
“When people find out Cascade has invested in something, it’s not Bill Gates,” he said in the Fortune interview. “I wish everyone understood this.”
(Add details on French Gates and BMGI in 10th paragraph.)
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