IVCA Profile Q&A: New Member, Bessemer Trust

IVCA Profile Q&A: New Member, Bessemer Trust

March 16, 2011

CHICAGO - “ The heritage of Bessemer Trust is tied into the history of American commerce. Founded in 1907 by Henry Phipps, it was created to manage his family funds after the sale of Carnegie Steel, the mega-industry Phipps founded with Andrew Carnegie. After ably serving the Phipps family for close to 70 years, Bessemer Trust expanded its reach in 1974 and now serves the financial management needs of over 2,000 families.

Bessemer Trust recently joined the IVCA, and is represented in Chicago through their offices headed by Managing Director Kevin Rochford. Mr. Rochford recently spoke to the IVCA about their recent membership and the particular services that Bessemer Trust offers their clients.

IVCA: Bessemer Trust recently joined the IVCA. What drew you to the association and why did the firm think it was important to join?

Kevin Rochford: Three reasons: One, as a corporate citizen Bessemer and myself have a real interest to see Chicago grow and prosper. In the private equity community, we think Chicago has all the ingredients to be a great location. It's got excellent universities, a strong civic community and many wealthy individuals and corporations. We know we can make a contribution as a good corporate citizen.

Secondly, we as a firm manage private equity. Our founding family, the Phipps family, is probably one of the pioneers in the world of private equity. We were very involved in that industry at different touch points. It allows us here to get closer to the management and strategies that are out there.

Finally, we work with high net worth individuals and families. Whether it be the actual private equity investor themselves or someone that might be coming out of a liquidity situation, a lot of times they just need someone to help them figure out what to do with their money because the impact is so big on the family. 

IVCA: How long have you been in Chicago, and what kind of scope do you have internationally?

Rochford: We've been in Chicago for about 17 years. We're not so international in terms of client base, but we're very international in investment perspective. If you would look at what we're doing on behalf of our clients, both in the private equity field and in the public sector, a significant and growing part of what we do is overseas based. In fact just last year we just introduced a new asset class called Strategic Currency, we suggest four currencies to put into our client's portfolios.

IVCA: What are the main issues today for those seeking your services? Are clients staying steady regarding their wealth management or are there more demands considering the economic situation now?

Rochford: I think clients are still nervous about the state of the economy, but because we have a minimum asset management of $10 million or more, to some extent they are recession insensitive. But often our clients have built their wealth by building companies, so they do have a passionate concern about how that wealth will be preserved, either in the form of the company or in taking it liquid. Once they do that, the question is how do I keep that wealth in my family and how do I prepare the next generation to steward that wealth. One of the great challenges of significant wealth is that often it doesn't succeed through three or four generations.

IVCA: The family dynamic in wealth management is growing increasingly more complex. Since your firm has been doing this type of work for a long time, what unique issues do today's clients face as opposed to the social and family structures of a generation or two ago?

Rochford: A while ago, during the era of the Rockefellers let's say, you had more defined class boundaries for their children to grow up in, and environments where they were educated specifically about wealth. This was a world isolated by privilege. Today, we see the children and grandchildren of our clients are in much more diverse communities, where being wealthy can be viewed as a positive or negative. Today we see a much different approach to philanthropy than that of their parents and grandparents, a much more activist approach, so they need guidance on that.

As one of my older clients said, when she grew up if you really wanted to squander your wealth you had to really work at it. Today, you only need to press a few buttons on a keyboard and you can squander your wealth.

IVCA: What about the financial dynamic of divorce and step families, which seems to be much more prevalent now than in the past?

Rochford: It's not so much a problem, as a fact of life. We encourage all of our families to have goals as to what they are about, what they believe in and what they're trying to achieve across the generations. And one of the most sensitive elements to that is a very candid and clear understanding of the roles people play, as in blood relatives versus those who marry in.

As you can imagine, one of the most difficult situations in this scenario is to tell your children's spouses, for example, that they're not invited to the family meeting. Or they are invited, but they're going to have to sign documentation that in case of divorce, they cannot leave the marriage and share publicly what they have learned about the family. It's an emotional minefield. The good news is that people are better prepared to deal with it than they were 40 or 50 years ago.

IVCA: Bessemer Trust began as an off-shoot of American industrial success, specifically the Andrew Carnegie steel empire. Since we're currently in a more global structure in regard to economic markets, what type of American-born companies figure most strongly in your investment advisory? In other words, what innovation are you seeking in this country for capital growth?

Rochford: As you said, we grew out of the Phipps-Carnegie effort and success in building the steel industry. And the family for close to 70 years just had the Trust working for them. In the 1970s, they opened it up to other families.

In general, we are much more about asset allocation than specific company investment. So the asset allocation is the real driver. The secondary consideration, in general, is we're always looking for companies that have certain strengths in their market and an advantage in what they do. Somewhat of a Warren Buffett approach, we tend to buy and hold, but we also follow how the market changes. We don't trade in and out on a quarterly basis, and in general if we don't understand something we don't do it. Clients that want a - œdeal of the month-  club are not Bessemer clients. Clients of ours have made their wealth, they want to preserve it and grow it.

IVCA: Bessemer Trust prides itself in creative thinking and breakthrough ideas in wealth management. Can you give an example of a recent trend that the firm stayed ahead of, and subsequently was successful in?

Rochford: Yes, one I mentioned earlier. About three or four months ago we introduced an allocation portfolio for strategic currencies. It is four different currencies from around the world that we have identified as good currencies to hold given the potential debasement of the dollar, the rise in inflation and the continued globalization of the world economies. We hold them like equity, it isn't trading. We will move the currencies, but not on a daily or weekly basis.

Secondly, we've been broadening our scope in the work we do with the next generation. For example, this year we're holding a conference in Chicago called NextGen. It's being organized and run by our - œthirtysomething-  representatives, 35 and younger. It targets our clients whose children are between the ages of 20 and 30. The idea is to educate them on the various responsibilities and issues of wealth management. NextGen subjects include issues like stocks and bonds, but also extends to identity theft and philanthropy, as in why you can't say yes to everyone even if you come from an exceptionally wealthy family. It's about the next generation understanding that with wealth comes many challenges and responsibilities.

IVCA: Tax law is in constant and fluid change it seems. How does Bessemer Trust stay up-to-date, even ahead of that tax curve, given the nature of legislation on the issue in the current environment?

Rochford: We're really fortunate in the depth of people we have in the organization that do only tax work, specific to high net worth individuals. This is what we do as a firm, only manage high net worth individuals. One of our representatives, Steve Akers, is considered a national leader in interpreting what laws have come out and what it might mean for our clients. We do a tour nationwide where Steve meets with trust and estate attorneys, then shares with them his views on what are the most recent and compelling trends. One important focus is on what tax issues the IRS and Congress have raised, but unfortunately have not provided any guidance for it.

So we have the resources and the firm, but we also have guys like Steve Akers that are recognized leaders nationwide. We've actually set up a website specifically for trust and estate attorneys to stay current on our interpretation as to what has happened in tax law, what does it mean and what are the issues to think about.

IVCA: Which or what type of the IVCA membership do you hope to establish working relationships with, and what benefits can you provide in that relationship?

Rochford: The benefits we can provide is our ability to identify potential firms that might be candidates for our fund-to-fund bid. We also identify firms and trends that are of interest to our clients or their families. It is a source of intelligence and networking to create investment opportunity.

The other aspect is that for any IVCA members who are involved in managing successful companies. It would be helpful to them in a circumstances when they have a liquidity event, for example, that there will be issues well beyond the event in terms of wealth and family. They will want to talk to a couple of firms for guidance, and Bessemer Trust might be one of them.