Byron Trott: The billionaires’ banker

December 29, 2014, 12:45 PM UTC
Byron Trott, BDT Capital Partners
contract Armin Harris
Photograph by Robyn Twomey for Fortune

Byron Trott vividly recalls the day he became Warren Buffett’s investment banker.

It was February 2002, and he’d recently received a call from Hank Paulson, then CEO of Goldman Sachs and Trott’s predecessor as head of the firm’s Chicago office. Tom Murphy Jr., son of the veteran media executive and longtime Buffett pal, was retiring from Goldman. Paulson had just left Buffett’s office in Omaha after informing him that Trott would now be, in banker parlance, “covering” him. “Go see him,” Paulson barked to Trott.

“Not a lot usually shakes me, but I was scared to death when I walked in,” says Trott, who prepared for the meeting by reading all of Berkshire Hathaway’s annual reports. The two hit it off, and the get-to-know-each-other session, scheduled for an hour, ran to three. Before it was over, Trott had a fee-generating assignment from Buffett, who is notoriously stingy about paying investment bankers. “I did what I do with most clients for the first time,” says Trott. “I say, ‘Give me your toughest problem. What have you not been able to accomplish?’ ”

As it happened, Buffett had a pet project, a task that other bankers had failed to embrace. He wanted to create a security that paid Berkshire to borrow money, the opposite of how a loan typically works, with the catch being that investors also would get the right to buy Berkshire stock in the future at a lower premium than in a standard convertible debt offering. The concept was called a negative coupon convertible, and Trott cajoled a former Harvard finance professor working on the capital markets desk at Goldman to design it.

The sale of $400 million worth of the security—unglamorously labeled “Negative .75% SQUARZ”—proved a modest success for Goldman, but it didn’t exactly work out for Buffett. “The risk was that it’d convert,” says Trott, sharing the anecdote publicly for the first time. Buffett’s partner, Charlie Munger, hated the idea of diluting Berkshire’s equity by converting the notes into stock. The notes eventually did convert, as Munger had feared, and Goldman never sold them to another client. “I thought it would be entertaining to put out a deal that would have a negative coupon,” reflects Buffett. “In retrospect, it was not that smart.”

Smart or not, the arcane transaction transformed Trott’s career. By immediately rising to the challenge of his famous client, Trott earned Buffett’s trust, so much so that in 2004 Buffett mentioned Trott by name in his headline-making annual letter to shareholders. “He understands Berkshire far better than any investment banker with whom we have talked and—it hurts me to say this—earns his fee,” he wrote.

Byron Trott, William Bush, San Orr, Dan Jester, BDT Capital
Trott (center) in the Chicago headquarters of BDT with three of his key fellow execs (from left): BDT vice chairman William Bush and co–chief operating officers San Orr III and Dan Jester.
Photograph by Robyn Twomey for Fortune

All of a sudden the low-profile Midwestern banker’s name became linked with Buffett’s—even as Trott himself largely remained in the background. Over the course of the ensuing decade Trott would work with the Omaha investor on multiple billion-dollar deals, including the $5 billion cash infusion into Goldman Sachs at the height of the financial crisis. Trott rose to become a Goldman vice chairman before leaving in 2009 to set up his own Chicago-based firm, BDT & Co.

Today that firm has carved out a lucrative niche by reimagining an old concept, the merchant bank—a financial outfit that advises powerful clients while investing alongside them. BDT works exclusively with what Trott calls “billionaires with businesses.” The merely rich aren’t of interest, and neither are institutionally owned, professionally managed corporations that are well served by bigger firms. Instead, the 56-year-old Trott, who is trim and a perpetual grinner, caters to the unique needs of families with names like Walton, Pritzker, and Wrigley by earning their trust the way he did Buffett’s. “Let us understand you, your company, your long-term objectives, and let us help you by being a true solutions-based adviser on your side of the table, not the kind of idea-of-the-day, dialing-for-dollars banker,” he says, summarizing his approach.

What sets Trott apart, along with his unique clientele, is his ability to sit on every side of the table. By stressing discretion, confidentiality, and patience, Trott and his colleagues repeatedly do what few other bankers can: They advise multiple parties to the same transaction—and then invest capital in some of the deals they’ve just brokered. In this fashion BDT has raised two funds, worth $8 billion, in five years and acquired stakes in companies that include Tory Burch, Peet’s Coffee, and the Pilot Flying J truck stop business. The capital comes largely from BDT’s own employees and the families in its network, who essentially are providing patient investment dollars to one another. Elsewhere on Wall Street such behavior would be called a conflict of interest. For the well-pedigreed club Trott has cultivated, it is considered a privilege of membership.

Trott’s timing so far has been impeccable. He left Goldman immediately after the financial crisis, when valuations were low and good advice was dear. Yet for all his renown as a banker, Trott is new to the role of principal investor, with a need to be known by ever more potential investment partners. It is for this reason that the super-secretive Trott agreed for the first time in his career to participate in an article about himself and his firm, allowing Fortune an inside view of his techniques and entrée to his entire network. The man whose name quietly opens so many doors has another challenge as well: to ensure that BDT can grow into something more than “the Byron show”—the initials on the door notwithstanding. “There isn’t any doubt that at this point Byron is the key man,” says Lee Scott, the former Wal-Mart CEO and one of several high-wattage advisers to BDT. “His first job is making sure to be a good steward of the investments BDT is making. The next thing on his plate is to develop his team so that it can transcend him.”


The sun is setting on a pristine, subfreezing December day in Chicago, and Hank Paulson’s head is perfectly framed by the landmark Willis Tower in the background. The former Treasury secretary makes certain to point out that he has no commercial relationship with BDT, though he keeps an office one floor up and works out in the BDT gym.

Paulson is focused on his environmental policy and U.S.-China relations work these days, but he stays close to his protégé. “What’s unique about Byron is that he’s in a class of one,” says Paulson, who plucked Trott from the obscurity of Goldman’s outpost in St. Louis early in his career. “He’s sort of the equivalent of a Triple Crown winner because he is a superb relationship banker-adviser, a great investor, and a brilliant salesman.” Trott also displayed an entrepreneurial streak that isn’t quite the norm for investment bankers, whose job is to risk other people’s money, not their own. “When I ran Goldman Sachs,” says Paulson, “I had to break through walls for Byron. He’s like a guy who plays free safety. You need to let him be effective.”

Trott grew up in Union, Mo., about an hour’s drive from St. Louis, the youngest of four children and the only boy. His father was a telephone-line repairman who fought in the Battle of the Bulge. His mother owned a dress shop in town. As a teenager, Trott decided to start a jeans shop in Union so that young people didn’t have to drive to the big city to trade up from their Wranglers. He was a star baseball player and dreamed of the big leagues, but he passed up a scholarship close to home to attend the more academically rigorous University of Chicago. His trip to visit the campus was his first time on an airplane.

Byron Trott, BDT Capital
Trott, outside in Chicago, grew up in Missouri and spent his years as an investment banker at Goldman Sachs cultivating wealthy Midwestern families.Photograph by Robyn Twomey for Fortune
Photograph by Robyn Twomey for Fortune

After college Trott started in the brokerage business at Goldman, managing investment portfolios for wealthy clients. Early on he realized that his clients spent far more time thinking about their businesses than about their investments. So when Paulson tapped him to make the unusual move from pushing stocks to advising clients on financial transactions, he jumped at the opportunity. He had one condition, however. He told Paulson he wanted to keep his existing clients in an effort to convert them to Goldman’s banking platform. “I think the first list I had was 52 targets, of which none were banking clients of the firm,” remembers Trott. “So he had nothing to lose, and I had everything to gain.”

Trott steadily progressed by carving out a niche, at first a lucky outgrowth of having started selling securities, by gravitating toward families with businesses. Goldman corporate clients such as Sears and Quaker Oats were spoken for, so Trott cultivated families like the Waltons instead. He worked the Midwestern circuit of cities like St. Louis, Kansas City, and Chicago, assembling additional clients like the Taylors of Enterprise Rent-a-Car and the newspaper Pulitzers.

Trott’s clients tended to be highly private, and the companies were often generations removed from their founders. Having been around a long time themselves, they appreciated that Trott—a master of the soft sell—stuck around for years, with or without generating revenues for Goldman. “He viewed himself as our general contractor inside Goldman rather than the Goldman guy covering us,” says Tom Pritzker, who retained Trott in 2007 to raise capital for the Hyatt hotel empire. In a move that typified his win-win-win strategy, Trott found Hyatt two investors for that deal: a fund controlled by Wal-Mart heir Rob Walton and Goldman Sachs’s own private equity arm.

The year the financial markets nearly collapsed was one of the best of Trott’s career. At the beginning of 2008, Buffett mentioned Trott again in his annual letter, calling him the “rare investment banker that puts himself in his client’s shoes.” In the next six months Trott sold the Pritzker’s Marmon industrial group of companies to Berkshire Hathaway (BRKA). He played go-between for Buffett’s investment in Goldman. Then he brokered a deal for the candy company Mars, a client, to buy the Wrigley chewing-gum empire, another client, with a critical investment from Berkshire Hathaway. “He was basically on every side of the transaction,” says William “Beau” Wrigley Jr., then the chairman and CEO of Wrigley and today an adviser to BDT. “We knew he was working with Mars as well, and our board signed off on that. We had a trust factor for 10 years.”

By the spring of 2009, Trott had left Goldman Sachs (GS) to set up BDT. “All my life, once I accomplish something, I tend to like to find the next challenge,” he says in an interview in his Chicago office, which features a bookcase devoted to a career’s worth of deal “tombstones.” That something else was to try his hand at becoming a heavy-hitting investor, just like his most famous client.


The smoky aroma of barbecue wafts from the nearby kitchen at the Weber Grill, a bustling eatery in downtown Chicago. Jim Stephen, one of 12 children of the man who invented the original Weber grill (the iconic kettle-shaped barbecue that birthed an empire, including the restaurant group), revels in the homey ambiance as he tells his family story and how it became entwined with Byron Trott’s investment firm. Stephen was for many years CEO of Weber-Stephen Products, in the Chicago suburbs, and when he and his siblings wanted liquidity he snagged an introduction from another business owner to Trott, who was preparing to leave Goldman Sachs. After initially advising Weber-Stephen on its options, BDT bought a controlling stake in the company, retaining the family as investors but giving Stephen and some of his brothers and sisters control of their beloved restaurants.

The deal for Weber-Stephen was one of BDT’s first, in 2010, and it has all the markings of a BDT transaction. It took place three years after Trott and Stephen started talking, there wasn’t an auction to find the highest bidder, and some structural jujitsu resulted in satisfaction—financial and emotional—for all parties. Trott later added Lee Scott to the company’s board, a move Stephen says he’d never have dreamed of on his own. In retrospect, Stephen might have been able to get a higher price for his company, but then he would have been less confident about his father’s legacy. “Weber was successful because we built a quality product no matter what,” he says. “This means there were certain price points for grills we wouldn’t do. These are the hallmarks of a private business, which requires a certain kind of ownership. I got very comfortable with Byron and BDT being the next owner of Weber-Stephen.”

It isn’t the typical investment bank that wins such personal tales of affection from its clients. Last year Daniel Lubetzky, the entrepreneur behind the Kind snack bar, began to be inundated by requests from private equity firms because it had been nearly five years since he took an investment from another firm, VMG Partners. The outreach often was from bounty hunters attempting to line up deals for a client. Trott, in contrast, reached out to Lubetzky, whom he’d never met, to invite him to a conversation he was hosting in Omaha with Buffett. “I couldn’t go,” says Lubetzky, “but I invited him to meet.” Trott shortly found himself in New York City, introducing himself to Lubetzky. “Byron and his firm didn’t send scouts. Byron reached out to me personally. He did it the old-school way.” BDT became a minority investor in Kind.

The structure of BDT itself differs from other investment banks in two critical ways. First, it doesn’t have traditional areas of practice, such as financial services or consumer products. Instead, each of its investment professionals is a generalist, the better to serve many of its family clients, whose needs tend to be broad and deep rather than one-time transactions. Second, BDT bankers work on both advisory and investment deals. At other firms a rigid wall would separate the two activities.

Trott says a BDT banker needs three skills: “You’ve got to be a black belt in investment banking. You’ve got to be a black belt at investing. And you’ve got to be part psychologist in dealing with families and business owners.” Those are traits that appeal to clients as well as to younger recruits to BDT. Diana Nelson, the third-generation chair of the Carlson family of companies, which includes Carlson Wagonlit Travel and Radisson hotels, has worked with Trott and his colleagues since their Goldman Sachs days, including on a recent decision to divest her family’s holdings in the TGI Fridays restaurant chain. “They are willing to listen to what the problems really are,” she says. “In a family setting you don’t do a deal and then walk away from the people.”


Investment bankers, as a tribe, are master networkers. Byron Trott has institutionalized his schmoozing and taken it to a high art. Those skills are on display in September at one of BDT’s every-other-year summit meetings in Chicago. In the audience are the individuals from the wealthy families in BDT’s network, often parents with their adult children. At lunch the journalist Bethany McLean interviews Amy Chua, the Yale law professor best known as the “Tiger Mom,” and Madeline Levine, a prominent psychologist with a specialty in parenting. The lunch is meant to be entertaining, but the subject matter is critically serious for the attendees: how to raise children while facing the special pressures of wealth, entitlement, and familial responsibilities.

“Often very wealthy people do not expect to be met with any sympathy regarding their financial or psychological issues,” says Levine, who in addition to the BDT summit has appeared at numerous smaller roundtables the firm hosts for the families in its extended network. “It is an enormous relief for them to be able to talk about their issues in a safe and nonjudgmental environment.”

Such nurturing of its network is BDT’s secret sauce. Because the wealthy families, along with BDT’s investment professionals, make up most of the investors in its funds, they are intertwined with one another financially and socially, with BDT as the connective glue. The roundtables in particular are intimate and highly confidential gatherings, where BDT clients can open up about their common concerns. “These people get naked faster than I ever would’ve believed,” says Erskine Bowles, the presidential chief of staff and investment banker—who is now an adviser to BDT. “The trust is almost instantaneous.”

Byron Trott, Toby Cosgrove, Andy Taylor, Dennis Washington, Erskine Bowles
BDT senior advisors with Byron Trott (right) in the banker’s Chicago deal-trophy-festooned conference room, from left: Toby Cosgrove, CEO of the Cleveland Clinic; Andy Taylor, executive chairman, Enterprise Holdings; Dennis Washington, founder, the Washington Companies; Erskine Bowles, president emeritus, University of North Carolina.Photograph by Robyn Twomey for Fortune
Photograph by Robyn Twomey for Fortune

If BDT get-togethers sound like group therapy sessions, it’s because essentially they are. “The most important thing to me is raising good children who are going to have good values,” says Kind’s Lubetzky, who was lured into the BDT orbit by the experience he had while attending his first conference. “The time I spend talking to these business leaders about educating your children, caring for others, and not creating a culture of excess is invaluable.” Of the people he met, he remarks, “I didn’t meet one single jerk.”

Trott has been hosting his conferences since he was at Goldman Sachs. Now he’s layering on top of the advice his billionaires give one another some gold-plated wisdom from the businesspeople he’s met on his journey. Trott asked Lee Scott, for example, to join BDT full-time when he retired from Wal-Mart. Scott refused the offer but agreed instead to sit on a BDT advisory board, primarily to mentor the firm’s younger talent. “They might come down to my house in Florida to discuss career development or how to develop gravitas,” he says. Over time Trott persuaded Scott to become a director of Weber-Stephen and Pilot Flying J as well as an observer on the Tory Burch board. Says Scott: “He’s been very successful at having me turn down working for him full-time, only for me to wake up one morning to find out I’m doing darn near that.”

Thanks to Bowles, who sits on the board of Facebook (FB), Trott also is dipping his toes into the unfamiliar waters of Silicon Valley. “Like BDT, we focus on building a network, investing in the people we finance, and advising them too,” says venture capitalist Marc Andreessen, also a Facebook board member, whom Bowles connected to Trott. “So in fact our firms are almost mirror images of each other. Once we understood that, we had a lot to talk about.” Andreessen and his wife, Laura, a philanthropist, have appeared at BDT summits. So, too, has the tech investor Jim Breyer, who hosted a panel this fall in Chicago with the education entrepreneur Sebastian Thrun and Elizabeth Holmes, the founder of blood-testing innovator Theranos. “We talked about how to stay on course,” says Breyer, a subject of interest to multigenerational businesspeople. “These are not one- to two-year challenges they are working on.”


In early December, Trott made a 55-hour trip to Amsterdam—“for a board meeting,” he says—then a few days later traveled to the San Francisco Bay Area on a Sunday for a five-hour sit-down with an unnamed client. (Asked who it was, he proudly offers up the cliché rejoinder of secret-keepers: “If I told you, I’d have to kill you.”) After a hearty meal and a good bottle of Chardonnay, he flew overnight to New York, where, among other things, he attended a Goldman Sachs dinner to unveil Hank Paulson’s official portrait as the firm’s chairman.

Trott’s whirlwind activity highlights his firm’s single greatest challenge: proving it is about more than him. BDT has three other partners: San Orr, a longtime colleague at Goldman Sachs and the key emissary to the Walton family; Dan Jester, another ex-Goldmanite and a prized Paulson lieutenant at Treasury during the financial crisis; and William Bush (no relation to the political clan), a lawyer and longtime Trott confidant who is nearing retirement. The midlevel ranks are stocked with former members of Trott’s team at Goldman. Not every Goldman Sachs transplant to BDT sticks, though. Two senior colleagues from Goldman, Gerry Cardinale and Kevin Kennedy, briefly joined BDT and then left. Trott acknowledges the need to boost his firm’s senior ranks. “We need to fill out my age range for the next 10 years to make sure the next generation is truly trained to take over,” he says.

BDT’s challenges extend beyond personnel. Its deal flow has slowed of late: The firm completed just two, low-profile transactions in 2014. BDT has done relatively little business with Berkshire Hathaway in its five years of existence, and to the extent that Berkshire makes minority investments, BDT is something of a competitor now. Trott hints that more deals are coming, including with Buffett. And Toby Cosgrove, another high-powered BDT adviser who is CEO of the Cleveland Clinic, says he has brought the firm a large health care investment that is “in process.”

One of the many reasons Trott has flown under the radar for so long was to avoid drawing the interest of competitors. That’s changing too. He has heard anecdotes about the likes of Blackstone and KKR sniffing around his turf. It’s also possible that BDT’s very strength—its long-term relationship with ultrapatient, wealthy families—could become a pain point. When you hire a typical Wall Street firm, you know you’re getting a hired gun. But BDT sells a long-duration, mutually beneficial arrangement. The first time one of its investments goes really bad, as it inevitably will, the investor-to-owner conversation may prove particularly awkward for BDT.

Trott says BDT will remain relatively small, and he plans for it to be around long after he’s gone. “This company is highly unlikely to be sold. It’s highly unlikely to be taken public,” he says. “It’s highly likely that it will be an employee-controlled or closely held company, just as it is today.” Just like the family businesses he so discreetly serves.

This story is from the January 2015 issue of Fortune.

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