Exclusive Interview with BDT & MSD Partners Co-CEOs

Key Concepts

• BDTMS: A financial firm formed by the merger of Byron Trott's merchant bank and Michael Dell's investment powerhouse, specializing in advising wealthy families and businesses.
• Duration: A core principle of BDTMS, emphasizing long-term investment horizons (8-15 years) rather than short-term transactional approaches.
• Aligned Capital: Providing capital that aligns interests with business owners, aiming for disproportionately greater returns for the owner if their plan succeeds.
• Family Offices: Dedicated entities managed by wealthy families to oversee their investments, businesses, and philanthropic endeavors.
• Generational Wealth: The concept of preserving and growing wealth across multiple generations of a family.
• Direct Investing: Family offices directly investing in companies rather than solely through funds.
• Quiet Wealth: Significant wealth held by families in traditional industries, often unknown to the public.
• NextGen: The younger generation of family members who will inherit and manage family wealth and businesses.
• Impact Investing: Investments focused on generating positive social or environmental impact alongside financial returns.
• Sports as an Asset Class: The increasing recognition of professional sports franchises as a significant and investable asset for family capital.

BDTMS: Architects of Generational Wealth and Long-Term Capital

This summary details an exclusive interview with Byron Trott and Greg Lmcow, co-CEOs of BDTMS, a firm renowned for its trusted advisory services to America's wealthiest families and its innovative approach to capital and generational wealth. BDTMS, born from the merger of Byron Trott's merchant bank and Michael Dell's investment powerhouse, distinguishes itself through its commitment to long-term duration, aligned capital, and a deep understanding of family business dynamics.

Core Services and Differentiating Philosophy

BDTMS provides a comprehensive suite of services including advice to business owners and their family offices, investment solutions, and a unique form of capital. The firm's founding principle stemmed from a perceived gap in Wall Street's transactional advice and private equity's short-term focus. BDTMS offers a more tailored approach, advising family companies as if they were their own and providing capital with a longer duration (8-15 years) compared to the typical 3-5 years of private equity. A key tenet is aligning interests such that business owners can make disproportionately more money if they achieve their plans.

Greg Lmcow highlights "duration" as the defining word for BDTMS, emphasizing their focus on 50-100 year, generational thinking. This is achieved by finding alignment with what family business owners truly want: trusted advice and long-term, aligned capital. BDTMS effectively bridges capital from family business owners seeking long-term investment with family business owners requiring long-term capital partners, all within the family business ecosystem, and then wraps this with expert advice.

Navigating the Economic Landscape and Investor Sentiment

Despite current economic crosscurrents, including geopolitical anxiety and high valuations, the wealthy families BDTMS advises remain largely unfazed due to their long-term investment horizons. These families are investing for decades, whether in their core businesses or outside investments, making them less susceptible to short-term market fluctuations. While acknowledging general anxiety, their focus is on deploying capital to diversify wealth and create long-term economic opportunity.

A consistent theme observed over four decades, through various market downturns (1987, 1999, 2001, 2008-09, COVID), is that closely held company owners and their family offices tend to "lean in" – investing more and making acquisitions. This resilience is attributed to their long-term perspective and the robust balance sheets they maintain. The vast majority of their network (80-90%) are private company owners who preserve their company's balance sheets and deploy excess capital into their family offices with the objective of compounding wealth.

Strategic Shifts and Technological Adoption

In periods of market fever, BDTMS clients exhibit flexibility, becoming more "risk-off" in their outside investments while maintaining momentum in their core businesses. This strategy allows them to feed capital back into their companies and shift towards investments like private credit, which offers shorter durations but double-digit compounding.

Business owners are observing surprising resilience in the US economy, despite the lingering effects of COVID and rapid interest rate hikes. While the private equity market faces liquidity challenges and public markets have been less accessible, a significant trend is the rapid adoption of Artificial Intelligence (AI). Instead of simply seeking stakes in AI companies, owners are focused on how AI can reinvent their existing businesses, whether in sanitation, food distribution, or other sectors, to drive topline growth or reduce costs. This recognition of a massive technological shift necessitates application to their businesses, with many actively sorting through how to best leverage AI.

The Rise of Technology Investment and the BDTMS Technology Fund

BDTMS has historically avoided significant technology investments, with Michael Dell's company, Dell, seeking diversification away from technology. However, recognizing the current wave of technological development, BDTMS has launched a technology fund backed by their families and founders. This fund aims to invest in generational founders and businesses for the long term, mirroring their approach to generational businesses. The firm has built a dedicated team and leverages insights from interactions with technology founders at innovator conferences to inform their broader client base. The merger of BDT and MSD has created a unique synergy, blending the experience of multigenerational business-owning families with the curiosity of next-generation technology founders, fostering a mutual exchange of knowledge on business durability and technological application.

The Explosion of Family Capital and its Differentiating Advantages

The world of family capital has "exploded," with the BDTMS merger highlighting the growing importance of family-owned companies and family offices in the broader deal landscape. Family capital is increasingly differentiated by its long-term focus, contrasting with the quarterly outlook of public markets. This patience allows families to invest without the pressure of immediate capital deployment or investor redemptions.

Twenty-five years ago, only 25% of business-owning clients had family offices. Today, this has increased significantly due to growing sophistication and the recognition of opportunities. BDTMS's integrated platform offers four distinct strategies under the core theme of long-term compounding. In the past, families with excess cash would simply hold it in cash or engage in "coupon clipping." However, as businesses have grown, so has the excess free cash flow, leading to more sophisticated investment strategies. The example of Enterprise Rent-A-Car, which transitioned from a highly leveraged company to one with significant excess cash, illustrates this evolution.

Navigating the Next Generation and Family Values

The "NextGen" is a critical topic of discussion for all families. The current generation often faces less pressure to join the family business, with a greater emphasis on finding their passion, whether in the family business, social impact, philanthropy, or independent investing. Examples like Chrissy Taylor of Enterprise Rent-A-Car, Lucas Walton's focus on impact investing, and David Ellison's reimagining of the media landscape showcase diverse paths for the next generation. The core lesson for multigenerational families is to help the next generation identify and pursue what is most important to them.

Discussions around raising children and instilling values are paramount. BDTMS facilitates these conversations through gatherings where families can share best practices and challenges. Specific questions arise, such as whether children should fly private. The prevailing sentiment is that while families may enjoy the privileges they've earned, children flying solo often do so commercially. The focus remains on teaching high integrity, a northstar, and impact. The rising generation's strong desire for impact is noted as a significant differentiator from previous generations.

Succession Planning and Wealth Distribution

Succession planning is highly individualized, with no single model fitting all families. The Enterprise Rent-A-Car example of hiring a non-family CEO to train the next generation, and the Waltons' approach to preserving culture without selling the business, illustrate different strategies.

The question of "how much to leave your kids" elicits a wide range of answers, from "just enough to stay off skid row" to significantly more to enable them to start their own businesses. A key strategy for instilling financial discipline and respect for the business is through a carefully managed "dividend policy" or allowance, starting post-college. This forces beneficiaries to invest and understand the effort behind wealth creation. BDTMS educates the next generation on their family's investments, explaining asset classes, risk-adjusted returns, and the rationale behind investment decisions.

Direct Investing: Opportunities and Challenges

With three-quarters of family offices now engaging in direct investing, BDTMS emphasizes that it is not an easy endeavor. Key principles for success include having a team with high integrity and relevant experience for deal due diligence and company management. While fund investing remains crucial for diversification and leveraging professional expertise, BDTMS advises against spreading capital too thinly across numerous funds. Instead, they advocate for strategic alignment, learning from fund managers, and seeking co-investment opportunities.

For direct investing, building an internal team is essential, though only the largest family offices can afford the necessary expertise. Partnering with trusted individuals who take responsibility for outcomes is also critical. Direct investing is a skill that develops over time with experience, and BDTMS advises hiring the right team, finding the right partners, and learning alongside them.

The Enduring Power of Quiet Wealth and the American Dream

The media often focuses on tech, celebrity, and sports wealth, overshadowing the significant "quiet wealth" held by families in traditional industries like Duncan, Taylor, Koch, and SC Johnson. Byron Trott and Greg Lmcow consistently discover new, impactful wealth in these less glamorous sectors, highlighting the enduring inspiration of America's entrepreneurial spirit. While tech founders are now emerging with significant wealth and liquidity, they, like established families, require trusted advisors to deploy their capital.

The belief in the American Dream and the possibility of "rags to riches" remains strong. The Horatio Alger Association's work exemplifies this, showcasing the grit and fortitude of young people overcoming adversity. BDTMS is inspired by the opportunities available in the country and the potential for smart, driven individuals from all backgrounds to succeed.

Sports as a Growing Asset Class and Family Unifier

The sports industry has evolved into a significant investable asset class for family capital. The aggregate value of major North American sports leagues is estimated at $600-$700 billion, offering liquidity and a track record of better returns than the S&P 500 with less volatility over the past 20 years. Tax benefits further enhance its attractiveness.

Beyond financial returns, sports ownership serves qualitative purposes for families. It can be a powerful way to engage with and bind a community. For multigenerational families where younger generations may not be involved in the core business, owning a sports team can provide a rallying point for the entire family. BDTMS represents owners across major leagues, with a significant portion of their network owning professional sports teams and many more planning to invest in the next 3-5 years.

The Warren Buffett Endorsement and BDTMS's Legacy

Byron Trott's reputation was notably enhanced by Warren Buffett's 2003 annual letter, which praised Trott's understanding of Berkshire Hathaway and his earned fees. This highlights BDTMS's core philosophy: listening to clients' challenges and long-term objectives to have a meaningful impact. While acknowledging Buffett as a unique figure, BDTMS has learned immensely from him and other prominent families like the Kochs, Pritskers, Taylors, and Waltons, whom they have had the privilege to advise. The firm's success is built on a foundation of deep learning, client-centric advice, and a commitment to long-term partnership.