Russell Goldsmith keeps a close eye on the L.A. economy, but ask him how he thinks the next generation of local billionaires will build their fortunes and he’ll admit he has no idea.
He took over as chief executive of City National Bank in 1995, the first year the Business Journal published its list of the 50 Wealthiest Angelenos, and Goldsmith said there’s no way he could have predicted then how L.A.’s economy and our list – running now for the 20th time – have changed.
“Who would have expected 20 years ago that someone would become a billionaire by owning the Dodgers or by making electric cars?” Goldsmith said. “Some wealth is going to get created in ways you don’t expect.”
Consider Elon Musk, who has built a $10 billion fortune on the unlikely triumvirate of electric vehicles, solar energy and private space flight. Or Andrew and Peggy Cherng, whose Panda Restaurant Group made Chinese fast food almost as ubiquitous as burgers and fries. Or Alec and Tom Gores, who built 10-figure fortunes in private equity, an industry that was still young in 1995.
Those wealthy Angelenos and other relative newcomers have gradually replaced those who died, left Los Angeles or whose wealth didn’t keep up with the massive gains raked in by today’s top 50.
In 1995, the 50 Wealthiest had a combined net worth of $25.4 billion – “maybe enough cash to finish Metrorail,” the Business Journal quipped at the time. Today, the top 50 control assets worth $153 billion – enough to buy out Bank of America. Or maybe enough to build the California bullet train.
A casino magnate and an oil baron topped our first list, which also included a defense manufacturer and an old-money publishing family. Today, two South Africans who made their money in tech and biotech hold the top spots, while others on the list built fortunes in fashion, retail and auto finance.
Billionaire philanthropist Eli Broad, one of a handful of wealthy Angelenos who has managed to stay on our list for all 20 years, said those changes reflect how the L.A. economy – not just its wealth – has shifted in that time.
“It’s a very different economy today,” he said. “It’s much broader based. You no longer have large aerospace and defense employment, but it’s been replaced with tech and some biotech, lots of entrepreneurship in fashion and other industries.”
For many of those entrepreneurs, Los Angeles is an adopted home. Perhaps the biggest change to the list over the years has been the influx of immigrants who have built their wealth here – a reflection of the region’s still-growing diversity.
In 1995, just five of the wealthiest Angelenos were born outside of the United States. This year’s list includes 15 foreign-born tycoons, including the two richest men in town: Musk and Patrick Soon-Shiong, both born in South Africa.
A handful on this year’s list hail from the Middle East. The Gores brothers were raised in Flint, Mich., but born in Nazareth, Israel; media mogul Haim Saban was born in Egypt; investor Neil Kadisha was born in Iran, as was Isaac Larian, head of toymaker MGA Entertainment; and former Occidental Petroleum Corp. chief Ray Irani is from Lebanon.
The influx of money and talent from Asia is also represented. Don and Jin Sook Chang, founders of fast-fashion retailer Forever 21, were born in South Korea. John Tu, of computer memory maker Kingston Technology, was born in China and brought up in Taiwan. Andrew and Peggy Cherng were born in China and Burma, respectively.
California, and Los Angeles in particular, have always drawn the adventurous and the entrepreneurial, both from abroad and the rest of the United States. Goldsmith guessed that’s partly thanks to L.A.’s position as a trade hub, but also its reputation as a diverse, inclusive place.
“Los Angeles is a place where people are accepted for who they are and what they can do, not just based on where they’re from,” he said. “You can come to Los Angeles and become whoever you’re capable of being.”
Still, while the list’s diversity has grown along with that of the region, it’s an imperfect parallel. The list has never included a black or Latino Angeleno, and it has always been dominated by men. The 1995 list included three women, two of them heirs. This year’s has a still-meager six, three of them self-made.
Along with Jin Sook Chang and Peggy Cherng, there’s marketing maven and pomegranate grower Lynda Resnick; Marion Anderson, wife of late investor John Anderson; real estate heiress Vera Guerin; and Tamara Hughes Gustavson, who inherited a big stake in publicly traded Public Storage, a company founded by her father.
But more diversity is coming, said Bob Graziano, a longtime Dodgers executive and now co-head of J.P. Morgan Private Bank in Century City, which manages the fortunes of ultrarich clients.
“We’re seeing a lot more diversity in wealth creation,” Graziano said. “It’s just a matter of time before that’s reflected more on the list.”
The list has also seen big changes in the industries represented by the wealthiest Angelenos. Compare the first year’s with the current list and you’ll see, among other big changes, the rise of the financial sector in Los Angeles.
In 1995, the list featured seven wealthy Angelenos who built their wealth in financial services, including Berkshire Hathaway’s Charlie Munger, late bond trader Barnard Cantor and City National’s Bram Goldsmith – Russell’s father, who ranked No. 50 on our first list.
Today, there are a dozen financiers of one type or another on the list, including five who made their fortunes in private equity. That’s an industry that didn’t show up on the first list but has gradually grabbed several spots. Tom Gores of Platinum Equity and Alec Gores of Gores Group have been on the list since 2002. Oaktree Capital Group founder Bruce Karsh and Howard Marks debuted in 2008, though Marks, who recently relocated to New York, is no longer on the list.
They’re joined this year by newcomers Ric Kayne, majority owner of Century City private equity and hedge fund firm Kayne Anderson Capital Advisors, and Tony Ressler, whose private equity and debt firm Ares Management, also in Century City, went public this month.
The rise of private equity managers reflects the huge volume of cash that flowed into private equity and hedge funds over the past two decades, said Rob Baron, investment team leader at J.P. Morgan Private Bank. In 2000, private equity groups were managing about $600 billion in assets; by last year, that figure had grown nearly sixfold, to $3.5 trillion.
“So much institutional investor money has flowed into private equity,” he said. “And principals involved in those firms have done quite well for themselves.”
Tax policies benefitting private equity managers have also helped create huge wealth in that industry, said Chris Thornberg, an economist and founding partner of L.A. consultancy Beacon Economics. Specifically, private equity managers pay lower tax rates on so-called carried interest – their share of investment gains – than they do on regular income.
“These guys have found ways to make huge amounts of money and pay very little in taxes,” Thornberg said. “They can accumulate wealth incredibly rapidly.”
As the number of financiers on the list has grown, the number of entertainers and real estate investors has dipped over the years. The first list included Hollywood names such as Bob Hope, Aaron Spelling and singing cowboy Gene Autry; other early lists named Arnold Schwarzenegger and Merv Griffin among L.A.’s wealthiest.
A few Hollywood and media moguls have managed to stay on the list for years, but mostly they’re big names who built huge fortunes years ago, such as Steven Spielberg, A. Jerrold Perenchio and David Geffen – all of whom have appeared on all 20 wealthiest lists.
Thornberg said there’s no mystery as to why Hollywood isn’t churning out new billionaires these days.
“It’s not growing,” he said. “It’s still there, and it’s still big, but look at the trends in revenues, in employment, in terms of issues they’ve had with digitalization. There’s a dozen different reasons you’re not seeing new folks there.”
In real estate, it’s much the same – a small decline over the years, and not many new names of late. Rick Caruso, whose Caruso Affiliated developed the Grove and Americana at Brand shopping centers, is the newest real estate name on the list, debuting in 2007.
These days, it’s difficult to build new wealth in real estate in Los Angeles, Thornberg said, because it’s difficult to build. Developers like to complain about the California Environmental Quality Act, or CEQA, which is commonly used to stall new development, even though the law has indirectly made their properties more valuable.
“Because of our CEQA system, we prevent easy entry, which tends to drive values up far past where they should be,” he said.
That’s almost certainly helped real estate investors with large local holdings get and stay on the list. Ed Roski Jr., of landlord and developer Majestic Realty Co., has appeared on all 20 lists, as has apartment owner and recent pariah Donald Sterling; developer and Dole Foods Inc. owner David Murdock; and the family of late investor John E. Anderson, which maintains big real estate holdings.
Famously folksy Anderson was reportedly fond of Mark Twain’s aphorism, “Buy land. They aren’t making it anymore.”
Then again, the boom-and-bust cycle of the real estate market is responsible for a few high-profile flameouts. Alan Casden, who debuted on the wealthiest list in 1999, was taken off last year. The real estate developer had an ugly breakup with one of his financial backers and lost a handful of buildings to foreclosure.
And Robert Maguire, once listed as a billionaire, saw his fortune dwindle after taking on too much debt just before the recession. He was ousted from his MPG Office Trust Inc., formerly one of downtown L.A.’s largest landlords.
One more source of wealth that’s dwindled: inheritance. Our first list included a handful of well-known, old-money California names – Keck, Getty, Disney, Hearst. But members of those families have fallen off the list over the years as wealth has either been given away or split among a new generation of heirs, said Leslie Lassiter, co-head of the local J.P. Morgan Private Bank office. This is the first year in which a Hearst does not appear on the Business Journal’s list.
“It’s the natural progression,” Lassiter said. “Money gets divided among the children and then the grandchildren. That’s the reason you see some of these old California names dropping off.”
Just as the past few years have seen an influx of private equity billionaires, the next few could bring a wave of tech wealth to the list. In 1995, just one family – Bob and Jan Davidson – was on the list because of wealth built in technology. The Business Journal valued their software firm, Davidson & Associates, at $550 million.
Today, there are four tech names on the list, plus Musk, who got his first big payday as an investor in online payments pioneer PayPal. But as tech giants such as Google Inc. and Facebook Inc. make huge acquisitions, and as money pours in to tech companies in Santa Monica, Venice and Hollywood, there’s bound to be more tech wealth on future lists.
Last year, Venice messaging service Snapchat reportedly turned down a $3 billion buyout offer from Facebook, a deal that would have valued Snapchat’s founders at $750 million each. And a rumored deal reported this month, a $3.2 billion acquisition of Culver City headphone maker and streaming music company Beats Electronics by Apple Inc., could make near-billionaires out of co-founders Jimmy Iovine and rapper-producer Dr. Dre.
Lassiter expects to see technology create more wealth – and grab more spots on the list – in coming years, but, like Goldsmith, she said there are plenty of other industries that could create billionaires.
As the oil and natural gas boom continues in Texas and the Dakotas – and potentially in California – she said Los Angeles could be home to a new energy billionaire. That’s something Los Angeles hasn’t had since the late oil tycoon Marvin Davis.
“They might be in related industries – maybe the people who own the pipelines or the ones who supply the equipment,” Lassiter said. “But we may see that number grow.”
However they make their money, Broad hopes his fellow wealthiest Angelenos will follow his lead and start giving their money away. While the wealth of L.A.’s elite has grown more than fivefold in the last 20 years, he said there hasn’t been a commensurate increase in philanthropic giving.
“Los Angeles has not had the tradition of philanthropy that other cities have had,” he said. “We’ve invested – we don’t say ‘giving away’ – close to $3 billion, and we hope others will continue and emulate what we’re doing.”
Of this year’s 50 Wealthiest, seven have signed the Giving Pledge, a commitment to give more than half of their wealth to philanthropic causes. Along with Broad, there’s Musk, Soon-Shiong, Michael Milken, Nicolas Berggruen, Jeffrey Skoll and William Barron Hilton.
Giving, pledging or otherwise, Broad said he expects to see more of his fellow wealthy Angelenos start donating more, especially as they age.
“If their family is well taken care of, they’re going to start thinking about what they can do for the public good,” he said. “I think people are going to find you can’t take it with you.”
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