Dying with a small fortune gets a lot easier when you amass a much bigger one over a long lifetime, no matter how much you give away.
As the ultimate wildcat, T. Boone Pickens knew the long-term odds were stacked against him hitting the oilfield jackpot decade after decade.
Sooner or later, the commodity markets go against everyone. And even if you die holding the right cards, you can’t take it with you.
That’s why he gave away most of his wealth while he had it, while holding onto control of the leverage it provided as long as he could.
He knew the odds. So he structured the philanthropy to make sure he kept the critical mass to capture the opportunities he liked to chase.
The beneficiaries ultimately get the bulk of his money. They got to share the rewards of his expertise in the intervening decades.
Win or lose, he kept the chips on his side of the table as long as he could.
What a legendary career leaves behind
Pickens amassed about $3 billion at his peak and gave more than $1 billion of it away.
He was in the Giving Pledge club vowing to leave no more than half of his wealth to his five kids. From reports that he ended up with roughly $500 million, it looks like he kept that promise.
However, the math conceals the really interesting piece of his career. The biggest bequests to Oklahoma State University flowed into the school’s endowment but stayed invested under Pickens management.
He spun out a big slice of his own hedge fund holdings to the non-profit of his choice, while maintaining the assets to play with in the meantime. For all practical purposes, he created a new client.
The theory was simple enough. Pickens made all this money buying and selling oil stocks and commodity contracts in the first place, so who was better suited to grow the endowment than him?
Admittedly, he waived the 2 and 20 management fee so the university got the benefit of his oilfield genius a lot cheaper than what Harvard or Yale would have paid. He probably wrote that off on the fund’s taxes as well.
And in the meantime, he kept the money in the fund, boosting the amount of capital he had to invest. For a sometime corporate raider and activist, it meant being able to take significant positions in the companies that interested him and then take big exits when they turned around.
Likewise, in the commodity markets, keeping more chips in play gave him a bigger footprint for leverage and derivatives to expand even further. Even if the chips were promised to other people, his overall bankroll didn’t shrink.
But as we all know, oil is cruel and big bets over the last few decades have cycled between spectacular payouts and dismal failure. It’s a boom and bust business.
Because Pickens knew oil, that’s what he played, using his money as well as his charitable contributions.
The booms were great. Some years, everyone in the fund doubled their money and the fees on outside AUM made Pickens even richer.
But in bad years, losses triggered redemptions and eliminated that fee income. AUM dropped a harrowing 85% in 2008, for example.
Reading between the lines, that’s probably when the university decided to take the money back and hand it to other outside managers. They were done with the wildcat ride.
I can’t say I blame them. Endowments don’t really thrive in Pickens’ world. Their objectives are very different.
They want the money available for capital improvements. They don’t want to be tied up in someone else’s portfolio strategy that could take years to unwind efficiently.
Divorcing the donor from the investor
Ultimately, while Pickens as donor looked like one of the greatest things that ever happened to Oklahoma State, Pickens the investor wasn’t the best fit for them.
He was happy, of course. His funds stayed big enough to provide plenty of muscle to throw around.
But that’s the mindset that leads to either wealth creation or wealth destruction. It’s a young person’s strategy. When it works, it creates billionaires.
And it created a billionaire here. When that billionaire started handing the money back out, though, it needed to play a different role. In the non-profit world, you want wealth preservation.
Sooner or later, that would have happened when the donor died and his unique genius for the oil business ended.
While Pickens was alive, it was no problem. He could always get back up and start over, from a higher base each time.
His heirs get about $500 million to split. Half of it is in his 65,000-acre homestead, which true to form generates about $1 million a year in oil royalties and could easily be worth $400 an acre if turned into a working ranch.
The other half is in that hedge fund, which has dwindled to about $135 million over the years as outside investors walked away.
At this point, the portfolio was really just his last favorite toy. Now that he’s gone, it’s up to the heirs to decide whether they want to leave the money there or move it into other strategies.
It happens with most inheritance situations. The only difference here is that there’s a little more money on the move.
We don’t know how much wealth Pickens would have died with if he’d saved the charity until later, or if he’d cashed out of oil along the way and parked the funds in nice index funds.
Keep in mind that he survived five divorces as well, each a drain on his ultimate net worth while enriching his life along the way. He kept trying.
One way or another, he gave most of it away.
And at the end, it wasn’t about the final number so much as the adventure. Among the truly wealthy, he was a legend . . . even if the clock ticked down while billionaire status was temporarily out of his reach.
What’s a billionaire, anyway? Just the track of someone passing somewhere between roughneck and the grave.
