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Gates lacks golden touch with $5bn investment portfolio

He's been losing money on many of his private investments

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Bill Gates has around $5 billion in private investments outside his $100 billion Microsoft holding, but he seems to have been losing on many of the quoted stocks in his portfolio over the past few months. That's quite hard to do in a bull market. He doesn't seem to possess any magic touch so far as his investments go, and has chosen some sectors that are seriously underperforming the market. Gates' precise private holdings are shrouded in secrecy, because Michael Larsen, his investment manager who runs the investment vehicle Cascade Investments on his behalf, has successfully invoked a confidentiality provision in the SEC rules to keep his acquisitions and sales secret for around a year, unless Gates accumulates more than 5 per cent of a company. Gates shelters under the so-called Schedule 13G, instead of the normal 13F, which can be invoked where an investor is not acquiring shares with a view to influencing control of the company. The theory is that if Gates investments were known, this could influence the price of shares as others might try to mimic his investment strategy. There will be disclosures, but about a year after the investment is made or sold. So far Larson has been able to get confidential status for all of Gates' holdings, but it is doubtful if the SEC will continue to take such a lenient view since it has sent out letters requiring more detailed information about trading practices. Investors like George Soros and Warren Buffet only have partial confidentiality. Not too many people know that Intel takes advantage of the same provision for its investments in technology start-ups. It is also a closely guarded secret as to whether Gates takes the initiative in investments, or leaves them to Larson. Anecdotal evidence and analysis of what is known suggests that in most cases he is directly involved. Larson told Fortune last year that Gates had about $3.5 billion in bonds and securities; some $750 million in equities; and about $250 million in commodities and real estate. A not-so-successful acquisition has been a 10.3 per cent share in Pan American Silver, which has sunk from a high of $7.50 to around $4.50 and shows losses while mines in Mexico and Russia are being brought to production, although there is a Peruvian mine that produced 3.11 million ounces of silver in 1998. Silver prices have been flat, which does not auger well. Larson sits on the Pan American board for Gates. Another holding is a 5.7 per cent stake in Chaparrel Resources, a Houston-based oil company which has seen its share price fall from a 52-week high of $52 to around $9. Gates' investment of 9,090,200 shares (5.2 per cent) of Republic Services, a solid waste collection and disposal service which is the third-largest in the US, has fallen in value by about a third over the last six months and is trading at nearly half of its 52-week high. Several shareholders are suing the company and its executives for allegedly misleading them. The solid waste sector is underperforming the market, and Gates' investment of $114 million has taken a tumble. Another strange investment is in Schnitzer Steel Industries, a scrap metal exporter. One of Gates' interests is molecular biology and genetic engineering. Although he dropped out of Harvard, he has had private tuition in the subject, but is probably not keeping up-to-date. He is an investor and board member of Chiroscience R&D Inc (formerly Darwin Molecular Sciences Corporation), which has as its objective "gaining control of the flow of evolution", according to David Galas. Darwin was founded by Leroy Hood, the geneticist at the University of Washington who developed an automatic gene-sequencing machine. There are those who may be concerned at Gates' interest in the genetic engineering of humans, although the avowed objective at present is to find a solution to Alzheimer's disease by controlling the STM-2 gene mutation. He also has a 13 per cent stake in the Bothell biopharmaceutical company Icos Corporation, and sits on the board, as well as 12 per cent of drug company Warner Chilcott. The Seattle area has one of the greatest concentrations of biotechnology research in the world. Gates also apparently has holdings in Warren Buffet's Berkshire Hathaway, Cox Communications, and USA Networks. It was discovered recently that Gates is a venture partner with his old girlfriend Ann Winblad in Hummer Winblad, a venture capitalist specialising in software start-ups. An irony is that Gates may well be investing in companies that are in competition with Microsoft, without being fully aware of it, since there is more than $500 million invested in some 60 companies. Gates also owns outright Corbis Corporation, which has been buying up picture collections, with just Paul Getty as a business rival. With Craig McGraw and other investors, Gates has a stake in Teledesic, the low-orbiting satellite company that is trying to establish a two-way broadband service. Of course these non-Microsoft investments are at the hobby-farm level in the scheme of things, but the quoted share portfolio has underperformed the market significantly. Whether Gates is in fact sufficiently engaged in Microsoft's business nowadays to contribute as chief software architect remains to be seen, but there must be some doubt about it. We can only hope that Bill is refreshed from his Millennium holiday in Mombasa, where he took over the Hemmingway Hotel and insisted that all visitors be turned away. ®

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