This Man's Job: Make Bill Gates Richer

Secretive Money Manager Michael Larson Helped

Microsoft Co-Founder's Fortune Balloon to $82 Billion
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By
Anupreeta Das and
Craig Karmin
CONNECT
Sept. 18, 2014 10:30 p.m. ET

Photos: Investments That Helped Make Bill Gates Richer

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In 2013, Mr. Gates and other buyers paid $161 million for the Ritz-Carlton in San Francisco. The hotel is now valued at about $200 million,
positioning Mr. Gates for a profit if he decides to sell. John Sutton

Invitations to a dinner party from Bill and Melinda Gates at their mansion near Seattle in
February included an unusual request: Wear pink or platinum. Spotlights installed for the
occasion bathed the room in a pink glow.

Mr. Gates raised his glass to toast the guest of honor, Michael Larson, who sat nearby
wearing a pink button-down shirt, his favorite color. The Microsoft Corp. MSFT +0.44%
Microsoft Corp. U.S.: Nasdaq $46.88 +0.20+0.44% Sep 19, 2014 1:52 pm Volume
(Delayed 15m) : 39.21M P/E Ratio 17.63 Market Cap $384.64 Billion Dividend Yield 2.64%
Rev. per Employee $677,570 47.2547.0046.7546.5010a11a12p1p2p3p

09/19/14

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co-founder

said Mr. Larson has his "complete trust and faith," according to people who were there.
"Melinda and I are free to pursue our vision of a healthier and better-educated world
because of what Michael has done" for the past 20 years, Mr. Gates told about 40 dinner
guests. Because of Mr. Larson, the world's richest man said, he sleeps well at night.

Related

Breaking Down Bill Gates's Wealth

The arrangement is simple: Mr. Larson makes money, and Mr. Gates gives it away. Since
1994, the 54-year-old Mr. Larson has managed Mr. Gates's investment empire, mostly
through a firm called Cascade Investment LLC.
Few people know much about Mr. Gates's assets or Mr. Larson's tacticsand the two men
want to keep it that way. Real-estate investments, which range from the fancy Charles Hotel
in Cambridge, Mass., to a 490-acre ranch in Wyoming once owned by William F. "Buffalo
Bill" Cody, are often cloaked in nondescript names to make it harder to trace the deals back
to Mr. Gates.
Cascade's headquarters are in an unmarked building in the Seattle suburb of Kirkland. Mr.
Larson is so protective of his boss that he used to be nicknamed "the Gateskeeper," says
someone who worked with him. Employees who leave often sign confidentiality agreements
barring them from talking about Cascade, people familiar with the matter say.
Mr. Gates's net worth has swelled to about $82 billion from $5 billion since he hired the
former bond-fund manager and gave him autonomy to buy and sell investments as he sees
fit. In addition to Cascade, which holds most of the billionaire's personal fortune, Mr. Larson
oversees the Bill & Melinda Gates Foundation's $41 billion endowment.

Michael Larson in July Getty Images

Cascade doesn't publicly disclose its performance results, but people familiar with the firm
say it usually churns out steady annual gains. Because of Mr. Larson's relatively
conservative strategy, Cascade's losses when the financial crisis hit in 2008 were smaller
than the 27% drop by the Dow Jones Industrial Average for the full year, people familiar with
the results say.
Since 1995, Mr. Larson has delivered a compound annual return of 11% for the Gates
Foundation and two predecessors, outperforming the S&P 500 stock index by more than
one percentage point.
Mr. Gates, 58, would be worth about the same if he had kept all the Microsoft stock he got
after starting the company in 1975. Mr. Gates owned a 45% stake when Microsoft went
public in 1986. The shares are now worth about $150 billion, excluding dividends. Microsoft
shares have nearly tripled in the past five years.
But Mr. Gates has sold nearly $40 billion of Microsoft stock since 1994 as part of an effort to
diversify his investments. The Gates Foundation also has given $30 billion to charitable
causes.
Messrs. Larson and Gates declined to comment on their relationship, but people who know
them say it has evolved into a bond that is crucial to the billionaire's philanthropy. Mr.
Larson's many profitable investments on behalf of Mr. Gates and sales of some of his
Microsoft shares have increased the size of donations by Mr. Gates and his family to the
Gates Foundation.

View Graphics

That means more money can be plowed into the foundation's mission to fight disease and
improve education in the developing world. Bill and Melinda Gates plan to donate 95% of
their wealth to the foundation, the world's largest philanthropic organization. In addition to
$28 billion from Mr. Gates, its endowment includes $12 billion in gifts from Berkshire
Hathaway Inc. BRKB -0.32% Berkshire Hathaway Inc. Cl B U.S.: NYSE $140.83 -0.45
-0.32% Sept. 19, 2014 1:08 pm Volume (Delayed 15m) : 3.72M P/E Ratio 16.43 Market Cap
$348.26 Billion Dividend Yield N/A Rev. per Employee $625,182

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's Warren Buffett.

"They're not two buddies, for sure," says Steve Walsh, former chief executive of Legg
Mason Inc.'s Western Asset Management unit, about Messrs. Gates and Larson. They
rarely mingle socially, people close to them say.
Mr. Walsh says he was struck by how much effort Mr. Gates put into the dinner party for Mr.
Larson at the former Microsoft chief executive's 66,000-square-foot mansion on the edge of
Lake Washington. The reference to platinum on the invitations was a nod to the metal's
20th-anniversary symbolism.
"It was almost tenderand endearing," says Mr. Walsh, who has known Mr. Larson for
decades.

The Wall Street Journal pieced together a snapshot of Mr. Gates's investments from
interviews with more than two dozen people familiar with Cascade, securities filings that
detail some holdings of the firm and real-estate records. Few of Cascade's investments
have been publicly announced.
The Wyoming ranch is part of a bet by Cascade on the steep rebound in real-estate prices
since the financial crisis. The firm owns at least 100,000 acres of farmland in California,
Illinois, Iowa, Louisiana and other statesor an area seven times bigger than Manhattan.
Cascade also owns more than $24 billion of shares in companies such as Canadian
National Railway Co. CNR.T -1.13% Canadian National Railway Co. Canada: Toronto
$
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, AutoNation Inc. AN -0.02% AutoNation Inc. U.S.: NYSE

51.71 -0.01-0.02% Sep 19, 2014 1:51 pm Volume (Delayed 15m) : 433,543 P/E Ratio
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and Republic Services Inc. RSG -0.19%

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Rev. per Employee $277,606 39.4039.3039.2039.1010a11a12p1p2p3p

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The holdings reflect Mr.

Larson's value-conscious, buy-and-hold philosophy, mirroring Mr. Buffett, a close friend of

Mr. Gates. Canadian National shares are up 207% in the past five years.
While much of Mr. Gates's money is in stocks, Mr. Larson has plowed smaller chunks into
private equity and other types of adventurous, so-called alternative assets, according to
people familiar with the matter. Sizable bets on the bond markets have been reduced
recently.
Some investments have been duds. In 2007, Cascade and other investors bought a 13%
stake in PlanetOut Inc., the publisher of Out magazine and a cruise-line operator targeting

gays and lesbians. The company's shares soon sank, and it sold some assets and was
acquired by another firm in 2009.
Surprisingly, Mr. Gates has few technology-related investments. As of June 30, he held a
3.6% stake in Microsoft, worth about $13.9 billion based on Thursday's closing stock price.
Mr. Gates makes his own tech and biotech investments, which aren't held by Cascade. He
started digital-image company Corbis Corp. in 1989. Smaller investments include stakes in
nuclear-reactor developer TerraPower LLC and meat-substitute maker Beyond Meat.
Mr. Gates is updated on all the other investments every other month. "At the end of the day,
all decisions go through Michael," says Mike Jackson, chairman and CEO of AutoNation,
who considers Mr. Larson a friend. Mr. Larson is a director of the auto retailer, and Cascade
owns a 14% stake in AutoNation valued at about $841 million.
Mr. Gates decided to hire Mr. Larson after the Journal reported in 1993 that the
entrepreneur's money manager at the time had previously been convicted of bank fraud. Mr.
Gates was a close friend of the money manager and already knew about the conviction, the
Journal said, but began looking for someone new after the uproar.
After an extensive screening process, a recruiter invited Mr. Larson to meet Mr. Gates. The
money manager had worked for a mergers-and-acquisitions firm and run bond funds for
Putnam Investments, now a subsidiary of Canadian insurer Great-West Lifeco, GWO.T
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Inc.,

before striking out on his own.

The two men hit it off. Mr. Gates was impressed by Mr. Larson's self-assured yet low-key
personality, people familiar with Mr. Gates's thinking say.
After taking the job, Mr. Larson decided to go "off the radar," says Roger McNamee, a cofounder of Elevation Partners, a Silicon Valley firm that was an early investor in Facebook
Inc. He says Mr. Larson believed a low profile was the best way to approach such highprofile investing following the bad publicity about his predecessor.
Mr. Larson farms out more than $10 billion in assets at any given time to roughly 25 outside
money managers, partly as a way to drum up new investment ideas. The outsiders aren't
told any nonpublic details about the size of Mr. Gates's portfolio or its holdings, people
familiar with the matter say.
A news release announcing last year's acquisition of the Ritz-Carlton in San Francisco, a
neoclassical gem in Nob Hill, identified only Cascade's co-investor in the $161 million

purchase. A publicist for the Charles Hotel said she had no idea Mr. Gates is a co-owner of
the hotel.
"It's an extraordinary tribute to Michael that if you think about Bill Gates and his reputation,
you never hear about Cascade," Mr. McNamee says.
Married with three children, Mr. Larson prefers Levi's jeans and dark pink shirts. Some
current and former employees say he can be brusque and controlling, even deciding the
seating chart for the investment firm's annual holiday party.
James Floyd, chief investment officer at Claremont McKenna College, a liberal-arts school
in California from which Mr. Larson graduated in 1980, says he is "brutally honest, but in a
refreshing way. You know exactly where you stand with him." Mr. Larson advises the
college's investment committee.
Cascade employees are expected to be frugal. Even though Mr. Gates owns nearly half of
the Four Seasons Holding Inc. luxury-hotel chain through Cascade, the investment firm's
executives stay at less-expensive hotels, even when traveling on Four Seasons business.
The $3.8 billion acquisition with Saudi Arabia's Prince Alwaleed bin Talal came in 2007 near
the real-estate market's peak.
"There's a symbolic value to continually reminding their partners that Four Seasons is a
financial investment, not an ego investment," says Philip Maritz, co-founder and president of
hotel investment firm Maritz, Wolff & Co. He sold the Four Seasons in Houston to Cascade
last year.
Mr. Larson also is known as a golf nut who enjoys networking more than working on his
backswing. People who know him say he puts immense value on personal relationships,
cultivating them with an intensity that can feel tiring.
He attends Allen & Co.'s big-name conference in Sun Valley, Idaho, with Mr. Gates.
Bill and Melinda Gates also attend Mr. Larson's daylong round-table discussion held every
December in Cascade's conference room. Invited high rollers from the finance and
corporate worlds discuss themes and topics for the year ahead. Recent guests include
Liberty Media Corp. Chairman John Malone, TPG co-founder David Bonderman and
Edward Lampert, the hedge-fund manager who is CEO of Sears Holding Corp.
Cascade has grown to roughly 100 employees, compared with 1,200 at the Gates
Foundation. Mr. Larson likes to hire recent Claremont McKenna graduates. Employees are
discouraged from using Facebook, Twitter, LinkedIn and other social mediaand from
sending email from their work accounts to outsiders who aren't business partners.
In 2009, Mr. Larson dispatched a 25-year-old Cascade employee to negotiate the purchase
of multimillion-dollar mansions in Jupiter Island, Fla., hoping the firm could squeeze
bargains out of homeowners burned by Bernard L. Madoff's massive Ponzi scheme, people
familiar with the matter say.

The employee was told to say he worked for a Cascade subsidiary called Front Range
Investment Holdings LLC, not Cascade or Mr. Gates, these people say. The employee
nailed down the purchase of one mansion for $5 million, real-estate records show. It was on
the market for $12 million in 2008.
Front Range is described on the deed that recorded the purchase as a Colorado limited
liability company, and other public records include an address at a post-office in Kirkland,
Wash., where Cascade is based.
Online real-estate firm Zillow Inc. estimates that the four-bedroom, nearly 12,000-squarefoot "European villa" with a private dock is now worth $6.4 million. The mansion is for sale
for about $5.3 million. Cascade is willing to walk away with a small profit.
Write to Anupreeta Das at anupreeta.das@wsj.com and Craig Karmin at
craig.karmin@wsj.com