Bill Gates’ second empire

For most entrepreneurs, building, growing and defending one’s empire involves a lifetime of work. But Bill Gates is not most entrepreneurs.

While Gates is best known as the founder of Microsoft, since 1994, Gates and his wife Melinda have been busy building the world’s biggest philanthropic empire.

And empire is the right word. According to the Bill & Melinda Gates Foundation website, the foundation has assets of $US34.6 billion (of which $US8 billion was provided by Warren Buffett), more than 870 employees and links to over 100 countries. The foundation is even building a state-of-the art headquarters building (to be known as the foundation’s campus) in its hometown of Seattle, at a cost of about $US350 million.

An argument could be mounted that the foundation is the Microsoft of the charity sector. And in the last week, Gates second empire has been on the move again.

On November 16 the foundation hosted a forum in Seattle focusing, on the topic of encouraging savings, particularly in the developing world.

The foundation’s argument is that people with access to savings accounts are better able to increase manage risks, invest in their businesses and careers, manage risks like illness and business problems, and generally improve quality of life.

But according to the foundation’s figures, just 10% of the world’s 2.5 billion poor have access to formal financial tools like savings accounts.

The foundation has pledged $500 million over five years towards what it is calling “savings” projects, including programs in Tanzania and Bangladesh which aim to increase the use of mobile banking systems, which allow users to move even small amounts of money via their mobile phone. Many of these “branchless” banking systems are based on the highly successful M-PESA system that has over four million users in Kenya.

“Loans for the poor in some ways may be more intuitive for people to understand, and I think people naturally understand that poor people often don’t have access to capital or to credit or to cash. But I think people don’t often as easily grasp the concept that the poor actually need to save,” Melinda Gates told the forum.

The Gates’ plan essentially involves throwing the Microsoft founder’s two big weapons at the problem – money and technology. But it also highlights the foundation’s willingness to work with corporate bodies (the grant recipient in Tanzania, Vodacom, is a subsidiary of telco giant Vodafone) in addition to the usual government and not-for-profit organisations.

The sort of corporatisation of philanthropy that Gates has introduced extends to the way the foundation is run. In a recent article in the Financial Times on the Gates foundation, the paper’s international affairs editor Gideon Rachman mounted a strong argument that the foundation is run more as a venture capital fund that a traditional charity organisation.

The foundation tends to invest in a number of small organisations that might offer experimental or left field solutions to problems – not unlike the high risk, high reward model used by VC funds. Indeed, this is one of the philosophies that attracted Buffett to the foundation.

“If we succeed every time, we’re failing,” Buffett once said of the foundation’s strategy.

Rachman also argues the foundation looks for philanthropic “niches” by concentrating its efforts on areas that struggle to attract government or charity funding, such as malaria and polio.

“We have very clear criteria of what we fund in global health – having to do with what other people don’t fund, what the burden of disease is and what the scientific choice is. So it’s all quite numerical,” Gates told the FT.

That the foundation is run along similar lines to a business is hardly surprising when you consider the sheer amount of money in its coffers.

Last week, the Bill & Melinda Gates Foundation filed a quarterly statement detailing their US stock holdings. Not surprisingly, it’s a portfolio brimming with America’s blue chip stocks.

Here are the top 10 holdings (with percentage of holdings):

• Berkshire Hathaway: 51.9
• Caterpillar Inc.: 5.2
• McDonald’s Corporation: 4.8
• Waste Management: 4.3
• Coca-Cola Company: 4.1
• Canadian National Railway: 3.7
• Wal-Mart Stores: 3.9
• ExxonMobil Corporation: 3.0
• Coca-Cola FEMSA: 3.0
• Costco Wholesale: 2.7

The big news in the last quarter was the foundation’s decision to increase its stake in Buffett’s Berkshire Hathaway, buying another 17.9 million shares worth about $US1.4 billion. That takes the foundation’s stake in the giant conglomerate (now just over 9%) to $US7.6 billion.

If you are looking for some more tips from the Gates Foundation portfolio, Bill and Melinda also added to their holdings Waste Management (although, Berkshire Hathaway actually cut its position in this garbage collection and recycling giant, raising some questions about the stock) and Canadian National Railway. The foundation also boosted its stake in Ecolab, a company which sells cleaning and food sanitation products and services.

If you’re looking for a portfolio to follow – or at least some broad investment themes to stay on top of – the foundation’s list of investments is a good place to start. The total value of the portfolio increased 24% to $US14.6 million in the three months to September 30, or about 11% once the boost from adding $US1.4 billion worth of Berkshire Hathaway shares is removed.

Either way, it’s an impressive performance from a portfolio that underwrites Bill Gates’ second empire.