In June, the curtain went up on Act III, or what might be called Gates 3.0: With Buffett's help, Gates is embarking on the biggest philanthropic endeavor of modern times. And in his bid to make that charity an enduring powerhouse of generosity, Gates has directed Cascade Investment to amass a wide-ranging collection of investments, holdings that that have nothing to do with high technology and everything to do with long-term value.
Michael Larson, a former bond-fund manager with Putnam Investments, is the financial engineer and stock picker behind that historic undertaking.
As head of Bill Gates Investments, the 46-year-old Larson oversees Gates' personal wealth, which is housed within Cascade outside Seattle. At the same time, BGI is also responsible for the $32 billion Bill & Melinda Gates Foundation.
At Cascade, Larson's main goal is to diversify Gates's wealth away from the technology bias of his large Microsoft stake. He's done that mostly through bonds. But Cascade also has at least $3 billion invested in "old economy" stocks, which have outperformed the Standard & Poor's 500 Index this year.
Buffett's presence?
It's not clear how Cascade and BGI generate returns because the firms are closely guard their strategies and holdings. Larson didn't return calls requesting an interview and representatives from the foundation and Microsoft both declined to comment.
However, Cascade discloses some of its large equity holdings with the Securities and Exchange Commission, although regulators have granted the firm confidential filing status, which allows it to only divulge those stakes that have already been made public.
As of late June, those holdings were worth just over $3 billion, according to data that Cascade filed with the SEC.
In 2006, the stocks returned almost 17% on average through the end of September, exceeding the 6% gains by the S&P 500 during the same period, according to Morningstar data. (That excludes one Cascade holding -- Western Asset/Claymore Trust -- and uses Berkshire's Class B shares, not the company's Class A stock).
Indeed, with its lack of racy technology plays, Cascade's equity portfolio bears several similarities in common with Buffett's famed investment style.
Gates and Buffett have developed a closer personal and professional relationship in recent years. In late 2004, Gates joined the board of directors at Berkshire. This year saw Buffett's historic decision to transfer the bulk of his estimated $44 billion personal fortune to the Bill & Melinda Gates Foundation.
"I've seen a migration of Bill Gates's investing mentality towards Mr. Buffett's over the years," said Timothy Vick, author of "How to Pick Stocks Like Warren Buffett" and a senior portfolio manager at Sanibel Captiva Trust. "As they've become closer personally, their investing styles have come together too."
Vick said he doesn't follow Cascade closely, but a review of its equity investments suggests a "whole market" approach like Buffett's that tries to capitalize on select stocks within an industry on the rebound, he said.
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