A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for wealthy investors and consumers. Register to receive future editions, straight to your inbox.
In 1989, Byron Trott was working at Goldman Sachs in the private wealth management division when he visited Jack Taylor, the founder of Enterprise Rent-A-Car Company.
“Jack was there with his son, Andy, who ran the business,” Trott said. “And they told me, ‘Sport, I don’t know who told you we had money, but we have 10 to 1 leverage in our company.’ Today, 36 years later, it is one of the world’s model companies, with a significant cash surplus. And the next generation will not only maintain the legacy of mobility from Enterprise, Alamo and National Enterprise, but also the legacy of building wealth outside of business. »
Part banker, part psychologist, and part entrepreneur, Trott has helped many of America’s largest family-owned businesses transform from cash-starved start-ups to financial titans. The Walton, Koch, Pritzker, Wrigley, Pulitzer, Heineken and Mars families all turned to him for advice and guidance. Warren Buffett once called him “the rare investment banker who puts himself in his client’s shoes” and added that “it pains me to say this: he earns his fees.”
As the ultimate wealth whisperer, Trott built one of the most valuable banking networks. And he is at the center of a revolution in private wealth and finance. As the fortunes of business owners like the Taylors have skyrocketed and their family offices have become sophisticated investment firms, wealthy families are buying, selling and building larger and larger businesses. The world’s 500 largest family businesses generated $8.8 trillion in overall revenue and employ 25.1 million people, according to EY.
Trott and his recently expanded company, BDT & MSD Partners, are quickly becoming the trusted partners of today’s rapidly diversifying families. Born from the 2023 merger of investment bank Trott with Michael Dell’s spinoff family office, MSD Partners, BDT and MSD Partners help family businesses invest in each other, raise capital and diversify their fortunes into other sectors.
The firm advised Patagonia founder Yvon Chouinard on the transfer of the company to a special, non-profit trust. He represented Shari Redstone in the $8 billion merger of Paramount Worldwide with David Ellison’s Skydance Media. And he advised Wyc Grousbeck on his record $6.1 billion sale of the Boston Celtics and David Rubenstein’s purchase of the Baltimore Orioles.
“The big advantage we have is that we’ve been doing this for so long, for a lot of these families and business owners,” Trott told Inside Wealth. “It allows us to really learn through them, their challenges, their goals, and solve the problems they want to solve.” If you add that up over three or four decades, it allows us to be more influential advisors to the next family that comes to us for our advice. »
Gregg Lemkau, co-CEO, adds: “We always see ourselves as long-term investors in a short-term world. Public markets focus on a quarter, or even a few quarters. Family capital focuses on decades and generations, and that’s how they invest in their companies.”
With companies staying private longer rather than going public, the patient capital of wealthy families has become more sought after than ever. BDT & MSD were part of a funding round for Kim Kardashian’s Skims, when it reached a $5 billion valuation. Transactions are common between BDT and MSD clients, with one family investing in another’s business or lending its expertise for co-investments.
In addition to advisory, the firm manages approximately $70 billion, spread across private equity, private credit and real estate. At least 95% of its investors are active business owners, family offices or foundations.
With Dell as chairman of the company’s advisory board and the largest investor in its funds, BDT MSD has also quickly become a force in the technology space. She recently launched a technology fund that raised more than $800 million in just three months and closed in September. Its network of clients and technology partners includes Daniel Ek of Spotifythe Collison brothers of Stripe, Ryan Smith of Qualtrics and Joe Gebbia of Airbnb.
The blend of young tech founders and America’s most famous dynasties has created a new type of cultural and financial alchemy.
“There’s real magic in these two worlds coming together,” Lemkau said. “Next-gen tech founders are very curious about how these companies have been able to last and be sustainable and create families around that. And families are so focused on what’s happening in tech.”
High-net-worth families also turn to the firm for advice on setting up and managing their family office. Having seen different family office models over the decades, including the success of Dell, Trott and Lemkau said the best family offices share one common trait: a clear goal.
“The key is to have real clarity on the purpose of the family office,” Lemkau said. “And then it’s about putting incentives in place so that the team that runs that family office aligns with those goals.”
The hottest trend for family offices is direct investing, or purchasing stakes or businesses directly rather than with a private equity fund. This situation also carries many perils, as many family offices do not have the due diligence or professional teams needed to evaluate private companies. BDT&MSD, which specializes in direct transactions, said families should first learn about direct investment from a leading fund and then gradually progress to direct transactions.
“Direct investment is not easy,” Trott said. “The core principles that we tend to live by are that you have to have great people with great integrity and experience that matters.”
However, at the heart of all the biggest family businesses and deals are families, usually complicated ones. Advising them on matters of succession, inheritance, raising rich children, transmission of values and philanthropy, this is where BDT & MSD’s decades of experience bear fruit.
Trott and Lemkau said the dominant trend among the next generations of wealth holders is the importance of values-based or social impact-based investments and careers. While families who own large businesses expected, even demanded, that their children take over the family business, many of today’s new generation of heirs want to chart their own path.
“Before, you were raised to take over the family business,” Trott said. “What’s great about this generation, the rising generation, is that they care deeply about impact. They want to make an impact on the world. It’s very consistent across all families.”
The firm also holds regular client meetings for children and parents, where families can confide and share their experiences, successes and failures. Common questions include how much to leave to your children and when to start teaching them about investing and even whether children should be able to travel on a private plane or be required to fly on a commercial plane.
Trott said the secret to successful family wealth lies not in material things, but in values.
“It’s not the house they live in, or the jets, or the planes, or the cars that they drive,” he said. “It’s the people in the house and in those cars that teach them to have high integrity, a North Star.”