When Michael Larson began working for one of the world’s wealthiest families, his first duty was to make sure that his affluent bosses didn’t appear in the news.
Who’s the ‘money butler’ for the Gates family?
To protect Bill Gates and Melinda French Gates from criticism, the cautious wagers, the inconspicuous office, and the investment firm’s generic-sounding name were all put in place. They were all created to obscure Gates’ business dealings and garner solid, though somewhat unexciting, profits.
When the divorce was announced last month, it completely demolished the crafted image. Details about Larson, who was reported to have harassed and tormented several of his employees, got out.
On Monday, a spokesperson said that Cascade Asset Management Co., a team of 100 members managed by Bill and Melinda Gates Investments, had changed its name to Bill and Melinda Gates Investments. While the name of the firm may seem similar to the Gates family name, it doesn’t correspond to Cascade Investment, which is a portion of BMGI that handles the Gateses’ personal fortune.
One of the world’s greatest fortunes is about to change hands when the French Gates divorce from Bill Gates is completed. The Microsoft millionaire recruited Larson in the 1990s to monitor his money.
Bloomberg News reports that his estimated $170 billion portfolios, which includes investments in companies across the U.S. and around the world, has produced returns that outperform the broader stock market by roughly a percentage point.
It showcases the goals of the topmost strata of the ultrarich, where long-term investment horizons and the risk/reward of wagering are present, but speculative investments don’t have the same return. Bill Gates’ image as a quirky millionaire committed to addressing the world’s problems needed to be supported, and this was part of Larson’s duties.
Tayyab Mohamed, co-founder of the family office recruiting agency Agreus Group, stated, “Many of these employees are prepared to pay a hefty price to be out of the news.”
Cascade’s working atmosphere is called into question by a recent New York Times story, which also reports on the couple’s recent divorce. “To accommodate the changing requirements of the Gates family and their charitable work,” explained a spokeswoman for Cascade, “Cascade has renamed itself to BMGI, while maintaining its investment strategy and organizational structure.”
In 2014, the BMGI board made French Gates, whose name had been added to the group in that year, the public face of the company as they transferred ownership stakes worth over $3 billion to her. This led some industry professionals to speculate that she was seeking even greater control of her BMGI equity. A combined total of more than $140 billion is held by the world’s wealthiest people, according to the Bloomberg Billionaires Index.
Larson, who has publicly confessed to using foul language in the Times story, has vehemently disputed the allegations, insisting that he never mistreated his employees. Cascade’s spokesperson has claimed that the incidents were investigated and that he was not fired. There was no response from the spokesperson for Gates.
Despite the claims, Mohamed believes Larson will continue in his position due to his long-term work with Gates and the loyalty that it has undoubtedly created.
In order for it to be “an easy yes,” Mohamed added, had Larson not had the professional influence he had, it would be a simple answer to his question, Larson should retire.
Larson seldom attends conferences for family office specialists because he hates the attention. He had previously been a bond fund manager, and during his tenure at Cascade, he won Gates’s loyalty by consistently returning investments and teaching employees that their focus was to protect the name of their benefactor, according to people familiar with the company, who chose to remain anonymous when discussing it.
The management had a great deal of latitude when it came to investment decisions, both Gates and the manager have acknowledged. Cascade’s early days were characterized by few in-person meetings and one of the persons acquainted with the business said that French Gates tended to be a passive participant in these sessions.
In general, she was ignorant of most of the claims surrounding Larson since she did not own or operate BMGI, according to her spokesperson, Courtney Wade.
Whether she is setting up a family office of her own is unclear, as well as where she is storing her money, which includes the more than $3 billion that has been moved from Cascade. A non-profit named Pivotal Ventures was formed in 2015 with the stated mission of encouraging and advancing social equity and diversity by employing 90 individuals.
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A well-deserved mandate
Just the fact that you’re an investment manager for one of the world’s greatest family fortunes may seem like a very appealing position for someone pondering innovative investments. When there’s no fear of fundraising, customer withdrawals, or onerous laws, you have nothing to worry about. But in many cases, it’s really about holding on to riches instead.
Beyond being a distraction to the Gates family, Larson’s major goal has been to invest cautiously, maximizing profits while minimizing losses, according to many sources.
That is reflective of the large family offices and foundations’ traditional investing strategies, according to Wharton professor Raphael Amit.
He stated the most important goal is preserving wealth, and this is why family office portfolios include such a wide mix of investments, including securities not just in the public markets, but also fixed income, commodities, and a variety of other assets such as art.
Fortune Magazine in the mid-1990s quoted Larson saying that the bulk of his business strategy boiled down to correcting the Microsoft stock price movements. At the time, the foundation and Gates’ personal money holdings were primarily invested in bonds.
That has changed significantly. Today, Cascade has a total public equities portfolio worth roughly $57 billion, including the likes of farm equipment producer Deere & Co., train operator Canadian National Railway Co., and waste management business Republic Services Inc.
According to the Land Report, Cascade owns over 270,000 acres of farmland, enough to make it the single largest agricultural owner in the United States. Additionally, the organization has been involved in the trading of currencies and commodities, venture capital, and the construction of a commercial complex in downtown Tampa.
As a result of the current financial statements, the organization’s investment portfolio consists of $804 million in corporate bonds and $5.8 billion in other types of assets, such as mortgage-backed securities, bank loans, and governmental debt.
Excellent long-term returns
Financial reports from the foundation give indications about the foundation’s overall investment success. An employee acquainted with the company said that since 2001, the foundation’s assets under administration had returned an average of 8.6% each year, surpassing the S&P 500 Index’s average annual 7.5% return over the last two decades. As far as Cascade’s total return, that track record is roughly representative, according to a different individual.
When Gates’s Microsoft shares are sold, a portion of the revenues will enhance Cascade’s assets. Another example of Warren Buffett, the founder of Berkshire Hathaway Inc., has contributed tens of billions of dollars to the foundation through his ownership of the company. In addition to Bill Gates and French Gates, the Bill & Melinda Gates Foundation includes two other board members, Warren Buffett and French Gates, who handle different aspects of the foundation’s investments, although Buffett has no role in investment choices, according to the foundation.
The portfolio has one notable feature: It changes very infrequently. The foundation trust’s most recent report reveals that of the 15 equities it owns, 10 of them were included in its portfolio over a decade ago.
However, its charity activities and goals, which include global health and climate change, have not aligned with the company’s holdings.
In his latest book on climate change, Bill Gates revealed that Cascade retained assets in oil and gas firms until 2019. Until 2018, Signature Aviation Plc was the world’s largest private-jet base operator, as well as Signature’s single largest owner. The largest shareholder of Republic Services Inc. is Republic Services itself since the two have feuded for years.
Gates has made it apparent from time to time that Larson has a great deal of discretion when it comes to making investment decisions. When questioned about his recent farmland purchases in March’s “Ask Me Anything” Q&A on Reddit, a member asked: “My investing group made this decision.”
When Larson said this 20 years ago, he said it much more plainly.
He told Fortune in the interview that “It’s not Bill Gates when people find out that Cascade has invested in something.” “It would be great if everyone realized that.”