How Byron Trout became Warren Buffett’s favorite banker

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for the high-net-worth investor and consumer. subscription To receive future issues, directly to your inbox.

In 1989, Byron Trout was working in… Goldman Sachs in the Private Wealth Management division when he visited Jack Taylor, founder of Enterprise Rent-A-Car.

“Jack was there with his son Andy who ran the company,” Trott said. “And they said to me: ‘Sport, I don’t know who told you we have any money, but we’re leveraging our business 10 to one.’ Now, 36 years later, this company is one of the model companies in the world, with a large cash surplus. “The next generation will not only preserve the legacy of Enterprise, the Alamo, and National Enterprise, but also preserve the legacy of multiplying wealth outside of business.”

Part banker, part psychologist, and part entrepreneur, Trott has helped many of America’s largest family-led businesses grow from cash-hungry startups to financial giants. The Walton, Koch, Pritzker, Wrigley, Pulitzer, Heineken, and Mars families 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 a leading wealth spokesman, Trott has built one of the most valuable networks in banking. It is at the heart of a revolution in private wealth and finance. As the fortunes of business owners like the Taylors skyrocket, and their family offices transform into sophisticated investment firms, wealthy families are buying, selling, and building ever-larger companies. The world’s 500 largest family businesses have combined revenues of $8.8 trillion and employ 25.1 million people, according to EY.

Trott and his newly expanded firm, BDT & MSD Partners, have quickly become trusted partners for today’s rapidly diversifying families. Created from the 2023 merger of Trott Commercial Bank with Michael Dell’s separate family office, MSD Partners, BDT & MSD Partners help family-led businesses invest in each other, raise capital and diversify their fortunes into other industries.

The company advised Patagonia founder Yvon Chouinard on transferring the company to a private, non-profit trust. She represented Shari Redstone in an $8 billion merger Paramount Global With Skydance Media’s David Ellison. She advised Wyc Grousbeck in its record-breaking $6.1 billion sale of the Boston Celtics and David Rubinstein’s purchase of the Baltimore Orioles.

“The big advantage we have is that we’ve been doing this for a long time, 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 things they want to solve. And when you add that up over three or four decades, it allows us to be even more impactful advisors to the next family that comes to us for our advice.”

Co-CEO Greg Lemkau adds: “We always call ourselves long-term investors in a short-term world. Public markets focus on a quarter, maybe a few quarters. Family capital focuses on decades and generations, and that’s how they invest in their businesses.”

With companies staying private longer rather than going public, patient capital from wealthy families is needed more than ever. BDT & MSD were part of a funding round for Kim Kardashian’s company, Skims, when it reached $5 billion. Deals are common among BDT and MSD clients, where one family invests in another company or lends its expertise to co-investments.

In addition to advisory, the firm has approximately $70 billion under management spread across private equity, private credit and real estate. 95% of its investors are active business owners, family offices or institutions.

With Dell serving as chairman of the company’s advisory board and the largest investor in its funds, BDT MSD has also quickly become a powerhouse in the technology space. It 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 from Spotifythe Collison brothers from Stripe, Ryan Smith from Qualtrics, and Joe Gebbia from… Airbnb.

The blending of young tech founders and America’s hottest dynasties has created a new kind of cultural and financial alchemy.

“There is real magic in bringing these two worlds together,” Lemkau said. “Next-generation tech founders are very curious about how these companies have been able to survive and survive and create families around that. Families are very focused on what’s happening in technology.”

Wealthy families also turn to the company for advice on starting and running a family office. After seeing different family office models over the decades, including the success of Dell, Trott and Lemkau said the best family offices have one trait in common: a clear purpose.

“The key is to get real clarity about the purpose of the family office,” Lemkau said. “Then it’s about setting up incentives for the team running that family office to align with those goals.”

The hottest trend for family offices is direct investing, or buying stakes or companies directly rather than through a private equity fund. It is also full of risks, as many family offices lack proper due diligence or professional teams to evaluate private companies. BDT & MSD, which specializes in direct deals, said families should first learn about direct investing first with a large fund, and then gradually progress to direct deals.

“Direct investing is not easy,” Trott said. “The basic principles we tend to live by are that you have to have great people with high integrity and significant experience.”

However, at the heart of all major family businesses and deals, there are families – and they are usually complex families. Advising them on succession, inheritance, parenting, transmitting values ​​and philanthropy is where BDT and MSD’s decades of experience pay off.

Trott and Lemkau said the trend among future generations of high net worth individuals is the importance of investing and careers based on values ​​or social impact. While families who owned large businesses used to expect or even ask their children to take over the family business, many of today’s next-generation heirs want to forge their own path.

“In the old days, she grew up to take over the family business,” Trott said. “The great thing about this generation, the rising generation, is that they care deeply about impact. They want to impact the world. That’s very consistent across families.”

The company also holds regular client meetings for both children and parents, where families can confide in each other and share experiences, successes and failures. Common questions include how much money to leave to your children, when to start teaching them about investing, and even whether the children should be able to fly privately or be forced to fly commercial.

Trott said that the secret to successful family wealth is not about material things, but about values.

“It’s not about the house they live in or the airplanes or planes or cars they drive,” he said. “It’s the people at home and in those cars who teach them how to have high integrity, like a North Star.”