Throw away the old adage that the rich get richer in good times or bad at least for now.
The financial crisis that has gripped the nation has taken a huge toll on L.A.’s wealthiest residents with significant public stock holdings. Several have lost $1 billion or more just in the last few months.
Unlike most tough times, when the rich often escape the worst of it because of their access to the best financial advice, the recent carnage has been different.
Kirk Kerkorian, ranked as the city’s wealthiest resident earlier this year by the Business Journal, has lost $4.5 billion in the past six months. Viacom Chairman Sumner Redstone lost $2.2 billion and philanthropist Eli Broad appears to have lost $1.5 billion.
And that’s just for starters.
“The higher net worth (people) can do a much more sophisticated asset allocation, (but) everybody’s being hit very hard,” said Bob Graziano, a managing partner in wealth management firm Northern Trust Corp.’s Westwood office.
With such a broad decline in the markets, it can be hard even for the wealthiest to protect their assets. They took a similar hit during the tech bust, when the Dow Jones industrial average declined 34 percent and the Nasdaq much more. The Business Journal calculated in 2003 that the cumulative wealth of L.A.’s 50 Wealthiest Angelenos had fallen 9 percent.
Kerkorian, the 91-year-old chief executive of Tracinda Corp., has been particularly exposed to the recent market swings, according to Securities and Exchange Commission filings.
He owns nearly 150 million shares of casino operator MGM Mirage, the value of which has been cut in half since April. His 140 million shares of Ford Motor Co. have lost more than 40 percent. Kerkorian’s net worth now stands at $6.1 billion, down 42 percent since May, the last time the Business Journal calculated his wealth for the annual Wealthiest Angelenos issue.
Redstone has seen the value of his shares in Viacom Inc. and CBS Corp. drop about 40 percent since May, which has dropped his net worth to $4.8 billion.
Broad, one of the city’s leading philanthropists, has been hard hit by the struggles of American International Group Inc., which the government bailed out with an $85 billion equity investment last month.
Broad made the bulk of his fortune when he sold his financial company, SunAmerica, for $18 billion to AIG in 1999. Broad’s holdings in the insurance giant were worth $1.7 billion in April, when the shares were trading above $39. Now with those shares trading around $4, his stake has shrunk to around $100 million assuming he hasn’t sold the stock. Broad’s wealth is now estimated at $5.3 billion.
Those kinds of losses have the city’s philanthropic community biting its fingernails. Broad alone has donated hundreds of millions of dollars in the last few years to the Los Angeles County Museum of Art, UCLA and other institutions.
Even worse, philanthropic capital is drying up at the same time social service-oriented non-profits need more help to fulfill their mission to help the poor and at-risk.
“The needs are greater when the supply of philanthropic capital will be lower,” said Katherina Rosqueta, executive director of the Center for High-Impact Philanthropy at the University of Pennsylvania. “People start doing triage with their philanthropy.”
Broad and the other wealthy residents discussed in this story either could not be reached or declined to comment.
Direct hit
The philanthropic community has been hit particularly hard by the fall of AIG. In addition to Broad, three of the city’s wealthiest residents derived the bulk of their wealth from the insurance giant’s stock: Steven Udvar-Hazy, and Leslie Gonda and his son Louis.
The trio founded International Lease Finance Corp., one of the world’s largest aircraft-leasing companies, and sold it to AIG in 1990. Udvar-Hazy still runs ILFC for the insurance conglomerate, and while the Gondas have left the AIG board they have maintained their AIG holdings.
The Gonda family has built the Gonda Theatre at Georgetown University and the Gonda (Goldschmied) Neuroscience & Genetics Research Center at UCLA, the latter made possible by a $45 million gift.
Udvar-Hazy gave $66 million to the Smithsonian National Air & Space Museum in Washington, D.C., which now bears his name.
As of last week, the Business Journal calculated that Leslie Gonda’s wealth had fallen 84 percent to $137 million, Louis Gonda’s had fallen 68 percent to $350 million and Udvar-Hazy’s had dropped 55 percent to $1.3 billion.
The pain also is being felt at L.A.’s major non-profit and educational institutions.
UCLA, which has an endowment of roughly $1 billion, has hundreds of millions of dollars tied up in equity securities and a variety of funds. Those holdings have declined in value over the past month, though UCLA spokesman Phil Hampton maintained the university is more concerned about long-term returns.
“Obviously, UCLA, like other universities and managers of other endowments, is keeping a close eye on what’s going on, but the investments are intended to produce long-term returns not short-term gains,” he said. “That’s intended to smooth the rough waters during difficult times such as this.”
The California Community Foundation, which has a diversified endowment of $1.2 billion, also has taken a hit, though many donors commit funds years in advance.
“Last year, donors gave us $200 million. I’m hoping that once the market settles down that they will continue their generosity,” said Antonia Hernandez, president of the foundation. “Like all institutions with significant amounts of money who invest in the market, we have been impacted. I don’t know of anyone who is in the market who has not had a drop-off.”
Bucking the trend
Still, not every wealthy benefactor in Los Angeles is doing poorly in the markets.
Abraxis BioScience Inc. Chief Executive Patrick Soon-Shiong has done pretty well this year even though his net worth is largely dependent on public holdings.
Earlier this year, Soon-Shiong sold an Illinois-based generic drug company, of which he controlled more than 80 percent of the shares, for $3.7 billion. In addition, the share price of Abraxis has increased more than 11 percent since May. Combined, the two windfalls have shot Soon-Shiong’s estimated net worth from $3.7 billion to $5.3 billion.
That’s good news for medical and other institutions. Soon-Shiong has significantly increased his philanthropy over the past two years, including major gifts to St. John’s Health Center and the American Jewish University. He also plans to endow a new family foundation that will focus on easing disparities of health care in Los Angeles.
“I would want to manage my philanthropy in a very hands-on way,” Soon-Shiong said in a recent interview.
Charles Munger, the right-hand man of investor Warren Buffet and vice chairman of Buffet’s Berkshire Hathaway Inc., added roughly $160 million to his total net worth in the past six months. Munger owns about 15,000 shares of Berkshire Hathaway, which has been one of the market’s few shining stars recently.
Munger, also chief executive of Pasadena-based Wesco Financial Corp., has donated millions of dollars to the University of Michigan and Stanford University, as well as several prep schools in California.
Yet whether exceptionally wealthy donors have seen their assets grow or shrink, Graziano, of Northern Trust, said the real decline in philanthropic giving may be seen among the merely wealthy class.
“You may see (a decline) in the middle,” he said. “The very high net worth clients don’t typically alter their philanthropic strategy based on short-term results.”
Rachel Madison Hill, events director for Van Nuys-based Proper Image Events, a planning and public relations firm that works with non-profits such as Feed the Children, said there already has been a noticeable pullback in smaller donations.
“The numbers are down. We are definitely noticing a decrease in auction donations; we are also noticing a decrease in sponsorship dollars,” she said. “The economy is affecting people quite a bit.”
Staff reporters Deborah Crowe and Joel Russell contributed to this article.
