The $100 Million Status Symbol

The $100 Million Status Symbol

by Rebecca Dana

September 23, 2010 | 10:54pm

Mark Zuckerberg is donating millions of dollars to the NJ school system. Credit: Justin Sullivan / Getty Images From Zuckerberg to Koch to Gordon Gekko, $100 million has become the figure du jour for jaw-dropping philanthropy. Rebecca Dana on the sudden raft of nine digit newsmakers.

What do you get for $100 million these days?

If you’re the Newark Municipal School District, beneficiaries of a gift in that amount from Facebook founder Mark Zuckerberg, you may finally get to claw your way up from the lowest ranks of the public-school system.
If you’re Zuckerberg himself, that money will buy you a news cycle, a turn on Oprah’s couch and a torrent of good press coverage, coinciding with the release of a fictionalized movie about your life, which you reportedly hate.

If you’re Gordon Gekko, on the other hand, resurrected this weekend in Oliver Stone’s Wall Street 2, that’s precisely the amount you’ve managed to squirrel away in Swiss banks. It can buy your professional comeback—or help your bleeding-heart-liberal blogger daughter realize her alternative-energy dreams.
It used to be $1 million was enough to induce gasps in a banquet hall. These days, just a seat on the board of the Met costs a cool $10 million, and to really drop jaws—as Zuckerberg did Thursday with a carefully placed story in The Wall Street Journal previewing his new education initiative, which he’s set to officially announce Friday on The Oprah Winfrey Show—you’ve got to hit nine digits.
The first $100 million gift in modern history was awarded in 1966, by businessman James A. Chapman to a variety of education institutions. Giving at that level shot up in the last decade, led by awards from the Bill and Melinda Gates Foundation in 2001 to combat AIDS and a pair of donations in 2002 from pharmaceutical heiress Ruth Lilly to her family endowment and the Modern Poetry Association.
“But it’s still quite exceptionally rare,” said Patrick Rooney, director of research at the Center on Philanthropy at Indiana University. “It is sort of a mind-boggling and attention-grabbing number. At that level, the media is willing to pay attention.”
“What is clearly striking here is that he’s making such a large donation at such a young age,” said Francie Ostrower, a professor of public affairs at the University of Texas and the author of Why the Wealthy Give. “Would people be writing about him if it were $50 million?”
• Insider: Zuckerberg Wanted to Delay $100 Million DonationYes, certainly, given that people write about Zuckerberg, worth an estimated $7 billion, when he ventures into the men’s room. But if the donation were just $50 million, who could have helped but notice that his gift, while enormous, paled in comparison to other recent examples of philanthropic largesse?

The first $100 million gift in modern history was awarded in 1966, by businessman James A. Chapman.

In September, billionaire George Soros gave $100 million to Human Rights Watch, earning a story in The New York Times. In August, Saudi Arabia promised $100 million to help Pakistani flood victims, a donation that made headlines worldwide because it beat the United States’ promised $76 million. Last year, the Gates foundation awarded $100 million to Tampa’s Hillsborough County School District to fix its system for training and evaluating teachers.
The last few years have seen a raft of high-profile $100 million donations. In 2008, billionaire Tea Party enthusiast David Koch gave $100 million to renovate the New York State Theater at Lincoln Center, which now bears his name. That same year, Wall Street financier Stephen Schwarzman gave that much to the New York Public Library, which now bears his.
But why $100 million? Why not, say, $97.5 million, as the Orthodontic Education Community gave the University of Colorado School of Dentistry in 2003?
“At the most elementary level, we all do this. We all round up,” said Eugene Steuerle, an economist at the Urban Institute who has studied charitable giving patterns of the wealthy. “You want it to be large enough so that people can’t dodge what you’re trying to achieve.”
And it’s not just the status figure du jour in philanthropic circles—$100 million is now the going rate for a certain kind of tabloid dignity. People cheered at early, incorrect reports that Elin Nordegren’s divorce settlement from her philandering golfer husband Tiger Woods netted her $100 million. This week, Lindsay Lohan withdrew a $100 million lawsuit she filed against online brokerage firm E-Trade, claiming they defamed her in a Super Bowl ad that featured a “milkaholic” talking baby named Lindsay. The troubled starlet, currently back in jail, reached an undisclosed settlement with the company, presumably valued much lower than her initial asking price.
In the territory of scandals, $100 million feels like the ultimate affront to decency. In the winter, bankers were spreading rumors around Davos that Goldman Sachs CEO Lloyd Blankfein would take home that much in salary and bonus this year. At the height of the Gulf oil spill, BP executives estimated the company was spending $100 million per day on cleanup and containment efforts. In the scramble to pass health-care reform late last year, ABC News reported that a single congressional vote, that of Louisiana senator Mary Landrieu, had cost $100 million in pork funneled to her state. And just this spring, a thief waltzed out of Paris’ Museum of Modern Art with five paintings, including a Picasso and a Matisse, valued at an estimated… you guessed it.
Zuckerberg’s donation comes less amid scandal than personal nuisance: the pre-release hype for Aaron Sorkin’s The Social Network, a fictionalized account of his time at Harvard and the founding of Facebook, which is already drawing raves from reviewers. Zuckerberg’s visit with Oprah will air just hours before the movie premieres at the New York Film Festival, a week before its wide release.
With his gift to New Jersey schools, Zuckerberg joined the ranks of Soros and Gates—and beat the movie to a big $100 million announcement. But if the critical praise is any indication, The Social Network is headed for the ranks of Twilight: New Moon and Iron Man 2, which hit the current box-office benchmark for a big-screen hit: $100 million on opening weekend.
Rebecca Dana is a senior correspondent for The Daily Beast. A former editor and reporter for The Wall Street Journal, she has also written for The New York Times, The New York Observer, Rolling Stone, and Slate, among other publications.


The $100 Million Status Symbol

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From Tiananmen Square to Possible Buffett Successor - WSJ.com

From Tiananmen Square to Possible Buffett Successor

By SUSAN PULLIAM

Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager, he is in line to become a successor to Warren Buffett at Berkshire Hathaway Inc.

Dennis Berman tells the story about one of the leaders at Tiananmen Square who is now one of the top candidates to manage Berkshire Hathaway's investment portfolio.

Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire's $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire's 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. "In my mind, it's a foregone conclusion," Mr. Munger said.

The job of filling Mr. Buffett's shoes is among the most high-profile succession stories in modern corporate history. Mr. Buffett, who will turn 80 in a month, says he has no current plans to step down and will likely split his job after he leaves the company into separate CEO and investing functions. Mr. Li's emergence as a contender to oversee Berkshire investments is the first time a name has been identified to fill the investment part of Mr. Buffett's legendary role.

The development illustrates that Berkshire is moving toward putting in place—possibly sooner than investors anticipated—certain aspects of its succession plan.

The Chinese-American investor already has made money for Berkshire: He introduced Mr. Munger to BYD Co., a Chinese battery and auto maker, and Berkshire invested. Since 2008, Berkshire's BYD stake has surged more than six-fold, generating profit of about $1.2 billion, Mr. Buffett says. Mr. Li's hedge funds have garnered an annualized compound return of 26.4% since 1998, compared to 2.25% for the Standard & Poor's 500 stock index during the same period.

Mr. Li's ascent on Wall Street has been no less dramatic. He spent his childhood shuttling between foster families after his mother and father were sent to labor camps during the Cultural Revolution. After the Tiananmen Square protest, he escaped to France and came to the U.S. Investors in his hedge fund have included a group of senior U.S. business executives and the musician Sting, who calls Mr. Li "hardworking and clever."

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Mr. Li's investing strategy represents a significant shift for Mr. Buffett: Mr. Li invests chiefly in high-technology companies in Asia. Mr. Buffett typically has ignored investments in industries he says he doesn't understand.

Mr. Buffett says Berkshire's top investing job could be filled by two or more managers who would be on equal footing and divide up responsibility for managing Berkshire's $100 billion portfolio. David Sokol, chairman of Berkshire unit MidAmerican Energy Holdings, is considered top contender for CEO. Mr. Sokol, 53, joined MidAmerican in 1991 and is known for his tireless work ethic.

In an interview, Mr. Buffett declines to comment directly on succession plans. But he doesn't rule out bringing in an investment manager such as Mr. Li while still at Berkshire's helm.

"I like the idea of bringing on other investment managers while I'm still here," Mr. Buffett says. He says he doesn't preclude making a move this year, though he adds that there is no "goal" to bring on an additional manager that quickly either. Mr. Buffett says he envisions a team approach in which the Berkshire investment officials would be "paid as a group" from one pot, he says. "I don't want them to compete."

Mr. Li fits the bill in some important ways, Mr. Buffett says. "You want someone" who "can think about problems that haven't yet existed before," he says. Mr. Li is a contrarian investor, loading up on BYD shares when they were beaten down. And he's a big fan of Berkshire, which may also help his cause. "We don't want them unless they have special feelings about Berkshire," Mr. Buffett says.

But hiring Mr. Li could be risky. His big bet on BYD is his only large-scale investing home run. Without the BYD profits, his performance as a hedge-fund manager is unremarkable.

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Li Lu (far right) with Chinese student leaders at Tiananmen Square in June 1989.

It's unclear whether he could rack up such profits if managing a large portfolio of Berkshire's.

What's more, his strategy of "backing up the truck," to make large investments and not wavering when the markets turn down could backfire in a prolonged bear market. Despite a 200% return in 2009, he was down 13% at the end of June this year, nearly double the 6.6% drop in the S&P-500 during the period.

Mr. Li declines to discuss a potential Berkshire position, saying only that he feels fortunate to be a member of the Berkshire inner circle. "This is the stuff you can't conjure in dreams," he says.

Mr. Li was born in 1966, the year Mao Zedong's Cultural Revolution began. When he was nine months old, he says, his father, an engineer, was sent to a coal mine to be "re-educated." His mother was sent to a labor camp. Mr. Li's parents paid various families to take him in. He was shuttled from family to family for several years until moving in with an illiterate coal miner, with whom he developed a close bond, in his hometown of Tangshan. Living apart from his family as a child taught him survival skills, Mr. Li says.

He was reunited with his family, including two brothers, by age 10, when a massive earthquake hit his hometown, killing an estimated 242,000 people in the area, including the coal miner and his family. His nuclear family was spared, he says, but "most of the people I knew were killed."

At the time, he says he had no direction and was fighting in the streets. Mr. Li says his grandmother, who was among the first women in her city to attend college, inspired him to begin reading and studying. He later attended Nanjing University, majoring in physics.

In April 1989, he traveled to Tiananmen Square in Beijing to meet with students who were gathering to mourn the death of Secretary General Hu Yaobang, who was viewed as a supporter of democracy and reforms.

The students protested against corruption, among other things, and Mr. Li helped organize the students and participated in a hunger strike.

He and other students fled to France. Later in 1989, he traveled to the U.S. to speak at Columbia University, where human-rights activists embraced him as a hero. He spoke little English but landed an advance to write a book about his experiences.

Helped by financial scholarships at Columbia, Mr. Li quickly learned English. He simultaneously earned three degrees: an economics degree, a law degree and a graduate degree in business, according to Columbia.

With his student loans piling up, Mr. Li attended a lecture by Mr. Buffett at Columbia in 1993. At the time, the 1990s bull market was in full swing, and hedge funds were on the rise. Mr. Li says in China he didn't trust financial markets but hearing Mr. Buffett helped him overcome skepticism about stock investing.

He began dabbling in stocks using money from his book advance. By his graduation in 1996, he had built a sizable nest egg and says he thought he could retire. Instead he took a job at securities firm Donaldson Lufkin & Jenrette and then left to set up his own hedge fund. In 1997, he had set up Himalaya Partners, a hedge fund. Later he started a venture-capital fund to invest in U.S. technology companies.

It was a heady time on Wall Street. The Internet boom was beginning. Investors were clamoring to find hot stocks.

Through his human-rights contacts, Mr. Li quickly attracted well-heeled clients including Bob Bernstein, former chairman of Random House and founder of Human Rights Watch as well as the musician Sting. Other investors included financier Jerome Kohlberg, News Corp. director emeritus and Allen & Co. executive Stanley Shuman and hedge fund manager Jack Nash, Mr. Li says.

But Mr. Li bombed out in 1998, his first year as a hedge fund manager. His fund, which was invested chiefly in Asian stocks, was hammered by the Asian debt crisis, and lost 19%.

"I felt bad that people had trusted me," he says. "All they knew was I was a student activist and all they saw was losses."

His fortunes rebounded as the Asian crisis quickly faded. As 1998 began, so did a huge new bull market. By now, the hedge-fund industry was growing gangbusters, and by the end of 1999, Mr. Li's fund had regained its losses.

In 2002, hedge-fund giant Julian Robertson gave Mr. Li money to invest in his fund on the condition that the fund would make bearish as well as bullish bets on companies.

It wasn't a good fit. Mr. Li says he "hated" betting against stocks, complaining that he had to "trade all the time" to adjust his portfolio. (The remaining parts of the fund now are being unwound.) Mr. Robertson declined to comment on the business relationship.

One of Mr. Li's human-rights contacts was Jane Olson, the wife of Ronald Olson, a Berkshire director and early partner at a Los Angeles law firm Mr. Munger helped found. Mr. Li began spending time at the Olsons' weekend home in Santa Barbara, Calif., and on Thanksgiving 2003 met Mr. Munger, whose home is nearby.

Mr. Munger says Mr. Li made an immediate impression. The two shared a "suspicion of reported earnings of finance companies," Mr. Munger says. "We don't like the bull—."

Mr. Munger gave Mr. Li some of his family's nest egg to invest to open a "value" fund betting on beaten-down stocks.

Two weeks later, Mr. Li says he met again with Mr. Munger to make certain he had heard right. In early 2004, Mr. Li opened a fund, putting in $4 million of his own money and raising an additional $50 million from other investors. Mr. Munger's family put in $50 million, followed by another $38 million. Part of Mr. Li's agreement with Mr. Munger was that the fund would be closed to new investors.

Mr. Li's big hit began in 2002 when he first invested in BYD, then a fledgling Chinese battery company. Its founder came from humble beginnings and started the company in 1995 with $300,000 of borrowed money.

Mr. Li made an initial investment in BYD soon after its initial public offering on the Hong Kong stock exchange. (BYD trades in the U.S. on the Pink Sheets and was recently quoted at $6.90 a share.)

When he opened the fund, he loaded up again on BYD shares, eventually investing a significant share of the $150 million fund with Mr. Munger in BYD, which already was growing quickly and had bought a bankrupt Chinese automaker. "He bought a little early and more later when the stock fell, which is his nature," Mr. Munger says.

In 2008, Mr. Munger persuaded Mr. Sokol to investigate BYD for Berkshire as well. Mr. Sokol went to China and when he returned, he and Mr. Munger convinced Mr. Buffett to load up on BYD. In September, Berkshire invested $230 million in BYD for a 10% stake in the company.

BYD's business has been on fire. It now has close to one-third of the global market for lithium-ion batteries, used in cell phones. Its bigger plans involve the electric and hybrid-vehicle business.

The test for BYD, one of the largest Chinese car makers, will be whether it can deliver on plans to develop the most effective lithium battery on the market that could become an even bigger source of power in the future. Even more promising is the potential to use the lithium battery to store power from other energy sources like solar and wind.

Says Mr. Munger: "The big lithium battery is a game-changer."

BYD is a big roll of the dice for Mr. Li. He is an informal adviser to the company and owns about 2.5% of the company.

Mr. Li's fund's $40 million investment in BYD is now worth about $400 million. Berkshire's $230 million investment in 2008 now is worth about $1.5 billion. Messrs. Buffett, Munger, Sokol, Li and Microsoft founder and Berkshire Director Bill Gates plan to visit China and BYD in September.

Mr. Li is able to travel in China on a limited basis today, but he hopes to regain full travel privileges soon. It isn't clear how he is viewed by the Chinese government.

Mr. Li declined to name his fund's other holdings. Despite this year's losses, the $600 million fund is up 338% since its late 2004 launch, an annualized return of around 30%, compared to less than 1% for the S&P 500 index.

Mr. Li told investors he took a lesson from watching the World Cup, comparing his investment style to soccer. "You may very well work extremely hard and seldom score," he says. "But occasionally—very occasionally—you get one or two great chances and you make decisive strikes that really matter."

Write to Susan Pulliam at susan.pulliam@wsj.com

From Tiananmen Square to Possible Buffett Successor - WSJ.com

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Berkshire Profit Falls 40% on Derivatives Losses - DealBook Blog - NYTimes.com

AUGUST 6, 2010, 6:31 PM

Berkshire Profit Falls 40% on Derivatives Losses

Warren E. Buffett’s company, Berkshire Hathaway, reported late Friday that its second-quarter net income fell 40 percent, as declining stock prices depressed the value of its derivatives contracts, Reuters reports.

Operating profit nevertheless climbed 73 percent, helped by the takeover of the Burlington Northern Santa Fe railroad, improvement in insurance underwriting results and a turnaround in performance at the NetJets corporate plane unit.

More from Reuters:

Berkshire’s net income fell to $1.97 billion, or $1,195 per class A share, from $3.3 billion, or $2.123, a year earlier.

Excluding investments, operating profit rose to $3.07 billion, or $1,866 per share, from $1.78 billion, or $1,147.

Analysts on average had expected an operating profit of $1,360 per share, according to Thomson Reuters I/B/E/S.

Berkshire recorded $1.41 billion of losses on derivatives, including long-term contracts tied to equity indexes, compared with a year-earlier profit of $1.53 billion.

The book value per Bershire class A share, Mr. Buffett’s preferred measure for performance, fell 3 percent to $86,661 as of June 30 from $89,374 as of March 31.

Results included $603 million of profit from Burlington Northern, in the first full quarter since Berkshire in February paid $26.5 billion for the 77.5 percent of the railroad company that it did not already own.

Insurance operations, Berkshire’s biggest business, saw operating profit jump 23 percent, to $1.55 billion, including a sevenfold increase in underwriting profit to $462 million.

Berkshire said NetJets posted a $57.5 million pre-tax profit, compared with a year-earlier $252.5 million loss, after Mr. Buffett installed David Sokol, who is chairman of Berkshire’s MidAmerican Energy Holdings unit, to turn that unit around.

Go to Article from Reuters via The New York Times »
Go to Earnings Release from Berkshire Hathaway (pdf) »
Go to Full Financial Report from Berkshire Hathaway (pdf) »

Berkshire Profit Falls 40% on Derivatives Losses - DealBook Blog - NYTimes.com

Larry Ellison, George Lucas Join Billionaires in Buffett-Gates Charity Pledge - WSJ.com

TECHNOLOGY

AUGUST 3, 2010

U.S. Super Rich to Share Wealth

By SHELLY BANJO And ROBERT A. GUTH

Billionaire Oracle Corp. founder Larry Ellison will join film director George Lucas and 38 other mega-wealthy people in following a call by Warren Buffett and Bill and Melinda Gates to pledge to give the majority of their riches to charity.

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Former Microsoft CEO Bill Gates

On Wednesday, Mr. Buffett announced that 40 of America's wealthiest individuals and families, from formerCitigroup Inc. leader Sandy Weill to hotel mogul Barron Hilton, have signed the "Giving Pledge."

Mr. Buffett and Mr. Gates in June had asked the individuals and families to publicly commit to give away at least half of their wealth within their lifetimes or after their deaths.

The pledge stemmed from a series of dinners the two men held for the nation's billionaires over the past year to discuss the effects of the recession on philanthropy.

Rob Guth discusses the public pledge by 40 billionaires, led by Bill Gates and Warren Buffett, to give away at least half their wealth before they die.

The push by Mr. Buffett and Mr. and Ms. Gates is publicizing what had been a private matter for many wealthy people. Many of those who joined the pledge already had intended to give away much of their money.

The effort comes during the second consecutive year in which philanthropy experienced its deepest decline ever recorded by the Giving USA Foundation, which has tracked annual giving since 1956.

Donations fell 3.6% to $303.8 billion last year, down from $315 billion in 2008, according to Giving USA. In 2008, charitable giving fell 2%.

In an interview, Mr. Buffett said that while the pledge push might produce a short-term boost in giving, the main goal is to set an example over the long term for others to get involved in philanthropy.

"The behavior of those before does affect what happens with those after, particularly if those people are somewhat admired in society," Mr. Buffett said. "If Carnegie and Rockefeller hadn't done what they'd done, there'd be less philanthropy in the United States today."

Mr. Buffett said he and Mr. Gates in coming months will meet with wealthy individuals in China and India to talk about the pledge in the hopes of adding more names from outside the U.S.

Some signatories on the list Wednesday came as a surprise. Mr. Ellison, the software mogul, is among those who had been involved in philanthropy but hadn't stated their intentions so publicly.

Some of the Donors

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Warren Buffett, chairman and CEO of Berkshire Hathaway

• More photos and interactive graphics

"Until now, I have done this giving quietly—because I have long believed that charitable giving is a personal and private matter," Mr. Ellison wrote in a public letter in response to a call from Mr. Buffett to joint the group.

The letter was posted on the Giving Pledge website, set up to display the billionaires' commitments.

Mr. Ellison said he has put virtually all his assets into a trust with the intention of giving away at least 95% to charitable causes and has already given hundreds of millions of dollars to medical research and education.

"So why am I going public now? Warren Buffett personally asked me to write this letter because he said I would be 'setting an example' and 'influencing others' to give," Mr. Ellison wrote.

"I hope he's right," he added.

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New York City Mayor Michael Bloomberg

Mr. Lucas, creator of the "Star Wars" franchise, said he was "dedicating the majority of my wealth to improving education" in a pledge letter on the Giving Pledge website. "It is the key to the survival of the human race," he wrote.

In an interview, Tom Steyer, founder of hedge fund Farallon Capital Management LLC in San Francisco, said he and his wife had planned to give away their wealth but decided to go public after Mr. Buffett called.

Mr. Steyer made the pledge to support what he sees as an effort by Mr. Buffett to show how those who profit from capitalism can help improve society.

"We want him to succeed in reshaping the way people think about the private enterprise system," Mr. Steyer said.

Other billionaires on the list, including New York Mayor Michael Bloomberg and oil tycoon T. Boone Pickens , had previously stated their plans to give away the majority of their wealth but said calling attention to their plans will encourage others to follow suit.

On a conference call with media, Messrs. Buffett and Bloomberg said that tax deductions weren't a main motivator for people to join the pledge.

Still, for a donor in the 35% income tax bracket, the highest U.S. bracket, the effective cost of a $100 donation while alive can be $65, subject to some limitations.

The dinners will culminate with a daylong meeting where donors can swap project ideas and advice, as well as discuss challenges such as how to draw children into giving.Philanthropists who sign the pledge will be invited by Messrs. Gates and Buffett to attend three or four dinners this fall, Mr. Buffett said.

The group won't monitor whether the signatories meet their pledge commitments.

"I think the chances of there being any significant slippage of that are virtually nil," Mr. Buffett said. "When people make a pledge like this I think if anything their commitment becomes stronger over time."

Mr. Buffett said he and Mr. Gates and Ms. Gates called between 70 and 80 people based, in part, on their record of philanthropy.

He said he was able to persuade two individuals to expand their giving, while a couple was convinced by their children to increase their giving.

The big question is whether the group can find new donors in the months ahead, especially in an uncertain economy.

While America's rich have recovered somewhat from the recession, their spending and investing have slowed because of the volatile stock markets, rising taxes for top earners and economic uncertainty overseas.

—Robert Frank contributed to this article.

• Buffett on World's Growing Wealth
• Wealth Report: The New Social Status?
• Read the full list of donors
• Deal Journal: Who Hasn't Signed the Pledge
• Earlier: Gates, Buffett Goad Peers to Give Billions

Write to Shelly Banjo at shelly.banjo@wsj.com and Rob Guth at rob.guth@wsj.com

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Larry Ellison, George Lucas Join Billionaires in Buffett-Gates Charity Pledge - WSJ.com

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