August 21, 2014

Cascade Investment LLC – The Secret Holding Company of Bill Gates

When you hear the name Bill Gates, what do you think?  Microsoft.  At least, that is what comes to mind for most people.  It makes sense.  After all, Bill Gates owns 620,973,551 shares of Microsoft.  At today’s market price of $24.38 per share, this puts the pre-tax value of his holdings in the software giant at $15,139,335,173.  It alone – $15 billion – would get someone near the top portion of the Forbes 400 list.

Bill Gates and Melinda Gates Cascade LLC

Cascade Investment LLC is the private holding company of Bill Gates and his wife Melinda Gates. Image from Wikimedia Commons and made available through attribution license by Kjetil Ree.

Bill Gates has also given away more than $23 billion, mostly to the Bill & Melinda Gates Foundation.  It is estimated that it has saved more than 5 million lives from malaria, other diseases, and HIV thanks to its prevention and education initiatives.  Five million people who would be dead are now alive because of that gift.  It is awesome in every way.

But, with Gates having an estimated net worth of $51+ billion, where is the other $36 or so billion dollars of his wealth?  It must be invested somewhere, as you learned in the article on where rich people park their money.

Virtually all of it is held within a firm known as Cascade Investment LLC, which is the successor to Dominion Income Management, the former private holding company of Bill Gates.

What Is Cascade Investment LLC?

Cascade Investment LLC Headquarters in Kirkland, Washington

Cascade Investment LLC Headquarters in Kirkland, Washington

Put simply, Cascade Investment LLC is the secretive private holding company of the software mogul.  Nearly every day the stock exchange has been open for 20+ years, Bill Gates has sold off as much Microsoft stock as he can without lowering the price of the stock, paid the taxes, and transferred a portion of the proceeds to this holding company.  Michael Larson, a well respected, successful value investor manages it on a full-time basis from the Kirkland, Washington headquarters.

In some ways, Cascade Investment LLC is a bit like a smaller version of Berkshire Hathaway, only with Bill Gates and his family as the primary shareholders.

In fact, Cascade Investment LLC owns hundreds of millions of dollars worth of Berkshire Hathaway shares!  At the time I wrote this post, Bill Gates himself sat on the board of Berkshire Hathaway.

A Glimpse At Some of the Known Investment Positions of Cascade Investment LLC

Some of the Wikipedia contributors have gone through the disclosure documents filed with the SEC by Cascade Investment LLC and come up with a list of its investments in public companies:

  • Berkshire Hathaway
  • Canadian National Railway
  • Carpetright
  • Dante Giovanni Corporation
  • Coca Cola Femsa SAB de CV – 20% stake
  • Cox Communications
  • Microsoft Corporation
  • FEMSA (Mexican brewer) – $364 million (Dec. 2007) – 1.2 percent of FEMSA capital through “B” shares. Cascade might thus own 10.81 million of Femsa’s New York-traded American Depositary Shares, about 3 percent of Femsa, the world’s second largest Coke bottler and Mexico’s second-largest brewer.
  • Four Seasons Hotels and Resorts – 42.5 percent
  • ICOS
  • Newport News Shipbuilding
  • Otter Tail Power Company
  • Pan American Silver Corporation
  • Republic Services, Inc – U.S. waste management – 20% estimated[6]
  • Sapphire Energy
  • Schnitzer Steel Industries
  • Scient
  • Televisa
  • Wisconsin Central Transportation

The Role of a Private Investment Holding Company

Once you have sufficient assets, it is incredibly easy to establish a private investment holding company. In most cases, due to certain tax rules that penalizes reinvesting earnings in regular corporations, modern investors prefer limited liability companies.

All it takes is some paperwork filed with your secretary of state, a few hundred dollars in filing fees, and a good operating agreement. Then, you can open brokerage accounts in the name of your limited liability company, create subsidiaries to hold real estate investments, such as to build an office complex in your hometown, or to hold your collection of rare art.

Of course, you will have to figure out how to grow the net worth of your private investment holding company to $36+ billion.

  • Frat Man

    Hey Joshua. Is there any chance you could do a post sometime on the nuts and bolts of starting a holding company (I’m assuming LLCs are the predominant avenues used to construct them? Or do you know of any good resources for reading up on them?). I mean, does Joshua Kennon LLC have any actual tax benefits as opposed to you operating as a regular citizen with a brokerage account? or is it just a good form of insurance to prevent someone from taking you to the cleaners in a lawsuit?

    I discussed walmart ethics again in class on Friday, building on the argument that “we” are the real problem, not walmart, because we willfully and voluntarily choose to patronize them. however, my teacher likened walmart to someone “handing a suicidal person a gun,” because obviously if you can buy the same product for 1/2 the price or whatever it is, it preys on our human nature to go there. I don’t know what to make of that argument- she makes a fair point, but it’s good to remember we’re not “obligated” to shop anywhere. you have to make the product. it still doesn’t solve how to compete with a business that uses “morals you wouldn’t in order to create a better product you have to compete with,” which is really what I’m going to be interested in when you post it.

    thanks for this article. when you write stuff like this, it’s really clear that you’re above the other financial writers out there (although I liked getrichslowly and thesimpledollar back in the day, before J.D. outsourced the site and trent started writing about efficient use of toilet paper squares. but i digress). well done, as usual!

  • Kwame

    I agree with the Frat Man i think it will be nice if you could give us little glimpse into that world. It will help to hear it form someone like you.
    I have been thinking in a similar direction(the LLC way of thinking) but rigth now i am a long way of building my first company i hope it all turns out well.

    thank you Josh

    • Joshua Kennon

      I hope your first company, whenever you do get around to building it, is an enormous success.  

  • Nalron

    This is exactly what I’m trying to achieve  one day with my holding company. Although I’m start with my $600 brokerage account and two gold coins.  I wonder as a single member LLC now, would  it be wise to incorporate in the future or add members for management?
    Great article, also since it’s a LCC would this be a conglomerate for the Gates?

    Thanks any advice would help

    • Joshua Kennon

      Do not despise the day of small beginnings.  My first real business generated only $500 a month pre-tax, or a little more than $16 per day.  Every giant tree began as a tiny seedling.  Some things just take time and cultivation.  That is my advice.  

      As for how you structure your affairs, keep things simple.  Don’t add a lot of complexity unless there is a compelling need.  One of the simplest structures I know involves a friend who is a retiree who has a seven-figure portfolio that generates six-figures of income each year. The rents and interest income are direct deposited into his bank account each month.  There are no holding company structures or trust funds.  These are only tools to achieve specific objectives.  Never add them just for the sake of adding them.