Cascade Investment, Bill Gates’ wealth manager

Michael Larson is one of the most powerful men in US wealth management you have never heard of. He is the chief investment officer for Bill and Melinda Gates Investments (BMGI), and as such is in charge of managing Bill’s personal wealth through Cascade Investment, as well as handling the Bill & Melinda Gates Foundation Trust endowment. Despite his high-profile job, he works hard and successfully to stay out of the public eye — Cascade declined to speak for the purposes of this article.

Bill Gates hired Larson 22 years ago to take over the investment of his personal wealth, which was about $5bn at the time. Since then Gates’s fortune has grown to around $80bn (of which he has given away around half) after Larson diversified the funds out of Microsoft, Gates’s software company, and into a broad range of investments.

Cascade is not a family office in the traditional sense and does not like to call itself one. It does not handle logistics, payroll or expenses for the foundation and is purely an asset management firm that invests Gates’s personal wealth. BMGI is an organisation that manages the portfolios of Cascade, the Bill & Melinda Gates Foundation Trust and other entities, but again it does not label itself as a family office.

The way BMGI is structured allows the foundation to separate its programme work from its investments, say people close to the organisation. This has meant that more money has been created to go into the foundation’s mission to fight disease and improve education in the developing world.

Based in Kirkland, Washington, Cascade shies away from media attention. It declined to comment on its investment strategies but it is known to invest globally and across many asset classes. Its five largest publicly disclosed equity holdings are: Canadian National Railway; Republic Services, the waste removal company; Ecolab, the disinfectant maker; Femsa, the drinks group; and Deere, the maker of agricultural machinery.

Cascade has holdings in property and non-technology companies. It holds around a 4 per cent stake in Warren Buffett’s Berkshire Hathaway investment group, owns 47 per cent of the Four Seasons hotel company and about 6 per cent of Bunzl, the distribution and outsourcing group. In August, it increased its stake in Strategic Hotels and Resorts to 9.8 per cent.

Under Larson, Cascade has focused some of its attention on UK-listed stocks. In 2008, it bought a 3 per cent share of Carpetright, the flooring retailer, but has since reduced its stake. It has also invested in Diageo, the distiller, and JJB Sports, the retailer.

Cascade does not publicly disclose its performance results but it has been reported that because of Larson’s relatively conservative strategy, Cascade’s losses in the 2008 financial crisis were smaller than the industry average for the full year. Since 1995, Larson has delivered a compound annual return of around 11 per cent.

Like Cascade, many single family investment firms are moving away from the term “family office”. Catherine Tillotson, managing partner of Scorpio Partnership, the consultancy, says: “A tour around London’s elite wealth management boutiques reveals the growing popularity of the term ‘private investment office’. Once loosely described as family offices or multi-family offices, this linguistic shift aims to put a finer point on their capabilities as independent advisers on family wealth.”

This change is not only happening among high-end investment firms; lawyers and accountants too are coining new phrases. “Family business consulting”, “private company services” and even “strategic philanthropy advice” have joined the lexicon of wealth management for the extremely rich, she says.

What they signal is that family wealth investment management is big business. Across the world, Tillotson believes there are about 79,000 very rich individuals (those with personal wealth greater than $50m) who control roughly $19tn in assets. Many of them are business-owning families or those so-called “financial families”, who have sold operating businesses. When it comes to managing that money, they want to apply the best possible investment advice.

“To this end they are increasingly sharing their experiences with other families via specialist peer networks, events and publications, and with their advisers,” says Tillotson. “So where once the term ‘family office’ was synonymous with the isolated management of an individual family’s wealth, today it perhaps best describes a growing body of professional knowledge and an industry in its own right that includes both specialist and general practitioners.”

The family office market can take many forms, from a single former executive assistant helping a patriarch/matriarch, to a 40-person professional investment organisation that also deals with personal affairs.

Bill Woodson, north America head of the family office group at Citi Private Bank, says: “While family offices take different forms, the challenges they face are very similar and, as a result, the ultimate solutions they adopt as they evolve tend to be similar, although addressed with varying levels of focus, staffing and professionalism.”

He adds that family offices are changing and evolving in a number of fundamental ways. First, an industry has developed around supporting family offices. This allows them to outsource functions previously done in-house.

Second, there are more family offices as a result of the increase in wealth globally and greater information is available about best practice and resources.

This helps family offices “professionalise” earlier than they would have before.

Third, Woodson adds, the generational shift in control of family wealth has changed what family offices focus on and how they are structured.

“Younger family members tend to, at a higher rate than before, focus on pursuing philanthropy earlier and on integrating philanthropy into a family’s investment activities,” he says.