How Byron Trott became the favorite banker of Warren Buffett

A version of this article originally appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to high-net-worth investors and consumers. become a member to receive future editions straight to your inbox.

In 1989 Byron Trott was working for: Goldman Sachs He was working in private wealth management when Enterprise visited Rent-A-Car Co. founder Jack Taylor.

“Jack was there with his son Andy, who runs the company,” Trott said. “And they said to me, ‘Sports, I don’t know who told you we have money, but we have a 10 to 1 advantage in our business.’ Now, 36 years later, they have become one of the world’s exemplary companies with a significant cash surplus. “And the next generation will not only continue the legacy of Enterprise, Alamo, National Enterprise mobility, but also the legacy of connecting wealth outside of work.”

Part banker, part psychologist and part entrepreneur, Trott helped transform many of America’s largest family-owned businesses from cash-strapped startups into financial giants. The Walton, Koch, Pritzker, Wrigley, Pulitzer, Heineken and Mars families turned to him for advice and guidance. Warren Buffett once described him as “the rare investment banker who puts himself in his client’s shoes” and added, “it pains me to say it; he earns his fee.”

The ultimate whisper of wealth, Trott has built one of the most valuable networks in banking. And he is at the center of a revolution in private wealth and finance. As the fortunes of business owners like the Taylors soar and family offices become sophisticated investment firms, wealthy families are buying, selling and building increasingly larger companies. According to EY, the 500 largest family businesses worldwide generate a combined revenue of $8.8 trillion and employ 25.1 million people.

Trott and his newly expanded firm, BDT & MSD Partners, are quickly becoming trusted partners for today’s rapidly diversifying families. Formed from the 2023 merger of Trott’s commercial bank with Michael Dell’s family office subsidiary, MSD Partners, BDT & MSD Partners, helps family businesses invest in each other, raise capital and diversify their wealth across other sectors.

The firm advised Patagonia founder Yvon Chouinard about transferring the company to a private foundation and non-profit organization. Represented Shari Redstone in $8 billion merger. Paramount Global With David Ellison’s Skydance Media. And he advised Wyc Grousbeck on his record-breaking $6.1 billion sale of the Boston Celtics and David Rubenstein’s purchase of the Baltimore Orioles.

“The biggest advantage we have is that we have been doing this for a long time for many families and business owners.” Trott told Inside Wealth. “This allows us to really learn from within them, from their challenges, from their goals, and solve the things they want to solve. When you add that up over thirty or forty years, it allows us to be more effective counselors for the next family that comes to us for our advice.”

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

As companies stay private longer rather than go public, the patient capital of wealthy families is more sought-after than ever. BDT & MSD was part of the financing round for Kim Kardashian’s Skims when it reached a $5 billion valuation. Between CIS and MSD clients, arrangements are common where one family invests in another’s company or lends their expertise for joint investments.

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

BDT & MSD has also quickly become a force in the technology space, with Dell becoming chairman of the firm’s advisory council and the largest investor in its funds. It recently launched a technology fund that raised more than $800 million in just three months and closed in September. Its network of technology customers and partners includes Daniel Ek. SpotifyCollison brothers from Stripe, Ryan Smith and Joe Gebbia from Qualtrics Airbnb.

Combining young tech founders with the most established American dynasties created a new kind of cultural and financial alchemy.

“There is real magic in these two worlds coming together,” Lemkau said. “The next generation of tech founders are very curious about how these businesses can survive, be resilient, and create families around it. And the families are very focused on what’s happening in technology.”

Wealthy families also turn to the firm for advice on setting up and managing family offices. After decades of seeing different models for family offices, including Dell’s success, Trott and Lemkau said the best family offices share one characteristic: a clear goal.

“The important thing is to have real clarity about what the purpose of the family office is,” Lemkau said. “And then it comes down to setting the incentives for the team running that family office to align with those goals.”

The hottest trend for family offices is to invest directly or buy shares or companies rather than through a private equity fund. It is also fraught with danger, as many family offices lack the necessary due diligence or professional teams to evaluate private companies. BDT & MSD, which specializes in direct deals, said families should first learn to invest directly with a top-tier fund, then gradually move to direct deals.

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

But families are at the heart of the biggest family businesses and deals; often complex ones. Advising them on inheritance, inheritance, raising wealthy children, passing on values ​​and philanthropy is where BDT & MSD’s decades of experience pay off.

Trott and Lemkau said the overriding trend for the next generation of wealth holders is the importance of investments and careers based on values ​​or social impact. While families who own large companies expect and even demand that their children take over the family businesses, most of today’s new generation heirs want to chart their own path.

“In the old days, you were groomed to take over the family business,” Trott said. “The great thing about this generation, the new generations, is that they care so much about impact. They want to impact the world. That’s very consistent across families.”

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

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

“The problem is not the house they live in, the jets, the planes or the cars they drive,” he said. “It is the people at home and in the cars who teach them how to have a high level of integrity, a North Star.”