Charles and David Koch Historical Net Worth from 1984-2018 (Koch Outperformed S&P 500)

Most recently I blogged about David Koch and his billionaire homes and lifestyle. For a number of years I have updated this analysis to show the net worth for Charles and David Koch (beginning back in 1984). The data came from historical articles (Newsbank database), AP, USA Today, and most recently Forbes magazine. 

Forbes ranked Charles and David Koch as each being worth $60 billion. What you can see is a staggering increase in net worth over time. The major source of the growth was after the acquisition of Georgia Pacific (my analysis of that deal here). What you do notice though is although the net worth has increased substantially there is quite some volatility in terms of the the net worth. One way to measure this is standard deviation. The standard deviation from 1984-2018 is roughly 41% for the Koch net worth. To put this in perspective the standard deviation of the Standard & Poor's 500 index is close to 11% (from 1984-2017). This would say that the Koch net worth has been twice as volatile as the stock market. When looking at the return side though the annual compound growth of the Koch net worth is 18%/year while the S&P 500 index (for the same period) was 11%. If you were to compare this on a risk to reward basis (compare the return to the standard deviation) it would say the S&P 500 is a better bet, however the annual difference in the compound growth has made a large difference over time.

If Charles and David Koch said back in 1984 "let's retire and just invest our money in the stock market) they would have invested roughly $375 million each (net worth at the time). Charles in 1984 would have only been 49 years old and David would have been 44 years old. Had those monies been invested in the stock market Charles and David Koch each would have been worth $37 billion each (currently as I write this they are worth $60 billion according to Forbes). This 62% increase represents the reward for the volatility (standard deviation). Also if the Koch brothers had invested those monies in the stock market their dividends would be $680 million (assuming a current 1.86% dividend yield). I estimated that Charles and David Koch each pull in roughly $200 million of dividends per year. Koch Industries has a policy of reinvesting 90% of the earnings back into the company (for capital expenditures, acquisitions, making improvements). According to this article back in 2012 Dave Robertson (President and CEO of Koch Industries) said that Charles Koch "is really focused on the present value of future cash flows, thinking long term". The benefit is the company reinvesting nearly all of the earnings is that the company will continue to grow. The downside is that the cost of growth is not being able to pay out as large of a dividend. Most Fortune 500 companies steadily increase their quarterly dividends to appease shareholders and analysts. However, since Koch Industries is a private company they don't have to disclose their financials. Charles Koch back in this 2006 interview felt "the short term infatuation with quarterly earnings on Wall-Street restricts the earnings potential of Fortune 500 publicly traded companies". Also Koch Industries is much more diversified now than they probably ever been before in their history. Dale Robertson made the comment back in 2012 the company was more diversified at that point than back in 2000 and that a smaller percentage of revenue comes from energy related things (however it is still a significant part of their revenue).

Charles and David Koch has obviously grown Koch Industries to a level they probably never even thought possible. In this 2015 interview Charles Koch said when he first joined Koch Industries he tried to plot out his future success. Koch estimated the growth of Koch Industries out to his retirement and then looking back at his analysis said that in 2013 he exceed his lifetime goal by a 70 fold increase. David Koch in this MSNBC interview said that when he joined the company the revenues were $6 million revenue (when he joined as a salesman in 1970)  and recently the revenues were $2 billion (in 2015) which would be near a 14% annual growth rate. It is quite interesting in terms of the growth story that Koch Industries has had. The question is will it continue after Charles and David Koch are no longer at Koch Industries. 

David Koch Billionaire Lifestyle and Homes Across America

David Koch owns many different homes across the United States. With places in New York, Southampton, Colorado, and Florida he has access to large and furnished homes. This shouldn't come as a surprise to one of the wealthiest individuals in the United States.

In Colorado David owns two homes in Aspen, Colorado (they are actually on the same street).  Both of these homes are owned by trusts homes. Generally people who have multiple residences in different states will do this to avoid probate in multiple states. One trust is the "David H Koch 2003 Trust" and the other is just the "David H Koch Trust". The smaller home is 3 bedrooms, 3 and 1/2 baths and roughly 4,000 square feet in size and was purchased for $1.75 million in December 1991 and currently is appraised at $7.1 million. The larger Colorado home features 5 bedrooms, 7 bathrooms and is 9,600 square feet in size and features a finished basement as well. The larger home was purchased in January 1989 for $1.9 million and currently appraised at $15 million in value (the home was remodeled in 2013). Koch in his bachelor days would open his Aspen home to throw some extravagant New Year's Eve parties that would often hundreds of people for the occasion. In 1993 David invited 800 people for New Year's Eve and Newsweek said it was as one of the top parties to crash. Brother Charles also has a home on the same street in Aspen as well. You would think with three Koch homes on the same street they could rename it Koch Drive at least. Charles purchased the home in 1992 for $2.65 million and was recently appraised for $10.7 million. Charles also has a caretaker apartment as part of his home too.

We can't forget the Palm Beach that Mr. Koch owns in Palm Beach. The property is nicknamed El Sarimento. The 32 room home 16,000 square foot home was purchased from David and Julia Koch in 1998 for $10.5 million. Wife Julia then gave the home a $12 million face lift (which included increasing the number of square feet to 30,000). The 2017 property taxes for his Florida residence was ~$638,000. Here are photos of Julia and David that were published in the home from February 2003. The Koch family has even held fundraisers at the home for cancer.

The New York place (his primary residence) is a 9,000 square foot duplex that occupies the fourth and fifth floors of 740 Park Avenue and was purchased for $18 million. The 18 room duplex was purchased in 2003 and it took one year before the Koch family actually moved in because of lavish remodeling. David even poked fun at his wife and her spending habits for remodeling as "there was no budget and she still managed to go over the budget". In April 2016 there was a fire in the apartment (that started in sauna of another apartment tenant that was above). Koch was forced to move his family to a hotel for interim quarters.

The Park Avenue home was purchased after David Koch and his family moved out of the 1040 Fifth Avenue apartment. In 1995 Koch purchased the former home of Jacqueline Kennedy Onassis for $9.5 million. The 1040 Fifth Avenue 15th floor apartment was 5,300 square feet, 5 bedrooms and 1/2 baths. Here are photos after Julia Koch did some remodeling of the apartment and the sketch plans. The apartment also featured three fireplaces, a conservatory, a library, and two terraces. David was quoted as saying "As much as I love the old Jackie Onassis apartment, it wasn't large enough". Koch sold it for $32 million in 2006. Koch and his family had to move out because the area wasn't large enough for David, his wife Julia, his three children, Julia's mother, and the 3 nannies (7 total people). What is interesting is when Koch first purchased the property (he was still single at the time and not yet married to Julia). Around this time in the mid 1990's David (who at the time was 50) was trying to gain membership into the Southampton Bathing Corporation (an exclusive club) and it was speculated he wouldn't gain membership and wouldn't be let in "until he was more stable and had a family". David and Julia were dating at the time and when David purchased the former Jacqueline Kennedy apartment Julia was referred to as the "mistress" of the apartment.

Speaking of New York we can't forget the Southampton home. This roughly 12,000 square foot home has 7 bedrooms and 9 bathrooms. Given the large property size the Koch family also uses plenty of water. His water bill was $34,500 in 2014. Between 2015 and 2016 Koch used 22.5 million gallons of water (he has been the heaviest water user of water in the county for the past 5 years). What is even more interesting is Koch is head of Koch Membrane group which sells equipment to purify water for companies around the world.

According to Sons of Wichita David in his bachelor days was known for having parties at his 7 bedroom, nine-bathroom South Hampton beach house. Actually back in the day he had 5 different properties in the Hampton's. He would be a gracious host offering guests six different types of champagne and serving two meals (dinner and breakfast). Of course not just anyone could get in. In order to secure the party Koch hired 40 security guards to make sure no riff raft would enter.

It is apparent that David Koch lives well and has different homes all across the country. In the late 1990's, David even had a home in Wichita, Kansas. He has been known to charter a yacht which runs $500,000 per week. David also likes fast cars and was quoted in the late 1980's as having a Ferrari but pointed out he didn't have fifteen. Koch said he would rather give his money to charity versus buying "bigger and better paintings". In his free time he enjoys reading: biographies, historical fiction, military history, taking a private jet with his friends to Africa, the Amazon jungle, and the Himalayas. Speaking of reading, in the early 1980's Koch had a subscription to two dozen magazines (not even including technical trade journals). Also during this time period Koch described that during the weekend he would ski, study pollution control designs at his office, attend parties with a girlfriend.

If you look at what David Koch spends compared to his annual income it is actually quite modest. I blogged on this post how my best estimate as to the dividends that Charles and David Koch each receive is $200 million a year. David pointed out in a 1999 article with M.I.T. that he gave away half his income to charity every year. Assuming this living on $100 million per year before taxes isn't too bad (if you back out taxes (Federal and NY state) it would be roughly $50 million of after tax cash flow to live on).

David Koch has worked hard for a number of years to earn this level of income and have this type of wealth (important to remember his net worth is tied up in an non liquid stock since it is privately traded). Back in this 2014 interview he said that he still gets to the office at 9 A.M. but then stays until 7 P.M. and for him 12 hour days are not unusual. Being the executive vice president of a $115 billion company (revenues) is not a 9-5 job. At 77 years old David Koch is still working and not off retired just hanging out by the beach. This work over many decades has afforded him the opportunity to enjoy the amazing growth of Koch Industries and allowed him a life of luxury.

Case Study: Koch Industries Purchases Georgia Pacific (How Did Koch Do?)

In recent posts I have covered case studies in involving deals Koch Industries was involved in. I covered the Pine River Bend Refinery here, and the ABKO Chrysler deal here. Since I covered the Koch acquisition of ABKO back in the 1980's I thought I would cover a more recent transaction that Koch performed back in 2005. On November 13, 2005 Koch Industries purchased Georgia Pacific. Georgia Pacific would be the largest acquisition that Koch Industries would ever perform. I stumbled upon this good research analysis paper on Georgia Pacific that helped write this post.

Charles Koch actually bought Georgia Pacific while playing golf. According to "Sons of Wichita" Koch was at The Reserve Club in Indian Wells, California playing golf with brother David Koch and friend John Damgard. Charles was constantly using his cell phone. At one point a guard from the club approached Koch to let him know that the guard would have to turn him in and even get a formal letter of reprimand from the club. It was during this afternoon that Charles bought Georgia Pacific.

Koch had Georgia Pacific on their radar for a while and in 2003 met to discuss a possible future together. According to SEC filings in 2003 Georgia Pacific earned a net income of $254 million in 2003 (in the two prior years the company lost $735 million, and $477 million respectively. The company in the first quarter of 2004 earned $147 million. The company in 2004 had a net income of $623 million. Georgia Pacific chairman A.D. "Pete" Carroll was excited that given Koch was a private company they wouldn't be subject to the onerous reporting requirement under the Sarbanes Oxley Act and the 47 other regulatory requirements.

The deal would allow for Koch to increase their revenues from $60 billion to $80 billion. Georgia Pacific had 55,000 employees with 40% who were members of unions). Including debt Koch would purchase Georgia Pacific for $21 billion in December 2005 (the price was a 39% premium for the shares). David Koch was quoted as saying "We are all staggered by the size of it". Koch would grow from 55,000 employees to 85,000 employees with the acquisition. Georgia Pacific was primarily involved in paper products (Brawny paper towel, Dixie cups, paper towels in commercial building restrooms, and toilet paper) construction materials to build homes (plywood and oriented strand board-if you ever see construction you might see a GP label), and packaging (boxes).Georgia Pacific customers included companies like Wal-Mart, Target, Home Depot, and Kroger. David Koch said Koch Industries would reinvest the cash flow into improving and upgrading Georgia Pacific's manufacturing facilities and help Georgia Pacific operate more efficiently.

Koch usually takes on partial ownership before offering to buy full companies. Koch in 2004 purchased the pulp industry business from Georgia Pacific for $610 million (pulp sales in 2004 were $74 million). By the next year Koch would be ready to purchase all of Georgia Pacific for $21 billion (so all in the deal was closer to $22 billion). The $21 billion deal was financed by mostly debt (Citigroup underwrote the loan for $11 billion-JPMorgan and Deutsche Bank helped in the financing too) with Koch only contributing $2.2 billion of cash. The debt deal reduced the underlying credit rating of Georgia Pacific from BB+ to BB- (Georgia Pacific in 2017 had their credit rating upgraded to A3).  As mentioned in the ABKO deal (which was done in the late 1970's) Koch also put in little equity (if roughly 10%) and the deal was mostly financed with debt.

Charles Koch in this rare one hour video interview says that he "heard [GP] wanted to get into consumer products and out of the commodity business so their multiple would go up". Koch wanted to buy all the non consumer product businesses however Koch couldn't because Georgia Pacific had asbestos liabilities and the attorneys wouldn't let Koch pick and choose which pieces they purchased (this would be known as fraudulent transfer). Georgia Pacific would only allow the deal if Koch purchased the whole company.

Georgia Pacific would notice changes after Koch acquired them. Koch Industries has a history of reinvesting 90% of the earnings back into a business. Georgia Pacific was not reinvesting much of their profits back into the business. The company would let machines run as long as possible without shutting them down (which was dangerous and led to injuries). Koch would also cut out the dividends that Georgia Pacific was paying investors. In 1Q 2005 Georgia Pacific actually increased their dividend by 40% . Koch believes that paying out small dividends and reinvesting more into the business the business can grow over time.

Charles Koch in Good Profit wrote that when Koch took over Georgia Pacific the company Koch "its safety performance improved under [Market Based Management], lowering the return on the capital to low single digits". Georgia Pacific was an old school company that had many layers of bureaucracy. After Koch took over Georgia Pacific employees were given much more authority to make decisions. When Wesley Jones who ran the Georgia Pacific-pulp mills wanted to install more efficient processing towers at a plant and asked for approval he was surprised when the $35 million capital expenditure was quickly approved (over the phone too). Usually at large companies spending this type of money would need to go through committees with feasibility studies and only certain managers can approve. Companies usually specify the threshold a manager can approve (example: authority to only approve an expenditure up to $1 million). Koch even offers incentives to employees that work at the shop level to improve their efficiency.  In addition to also pushing down the level of authority there was also was an emphasis on safety. At the Georgia Pacific Green Bay Broadway Mill after an accident at the mill the number of annual recordable injuries declined from 37 incidents to 7 over a 3 year period, equipment failure dropped by 50%, and productivity increased by 20% per employee.

The Georgia Pacific deal helped moved the needle for Koch Industries. The large acquisition helped Koch add new capabilities that they previously had. Koch bought Georgia Pacific with very little equity-only putting down 10% cash for the deal and borrowing to pay the rest. To be honest I was surprised that Koch used so much debt to purchase companies. Borrowing can help companies grow in good times but in bad times or if interest rates dramatically increase they can be a real issue.

At the time of the Georgia Pacific acquisition Charles and David Koch were each worth roughly $4.5 billion-from Forbes). As I write this Bloomberg Billionaires Index lists the net worth of Charles Koch at roughly $47 billion. Forbes as I write lists his net worth at close to $60 billion. Bloomberg does a good job of breaking out the net worth into different divisions of Koch Industries. Charles and David Koch each own 42% of Koch Industries. The asset breakout on Bloomberg lists $12.5 billion for Georgia Pacific. Assuming the $12.5 billion for Georgia Pacific represents a 42% interest in Koch Industries then it would say 100% of Georgia Pacific would be worth roughly $30 billion. Given Koch paid $22 billion back in 2005 that is now is worth $30 billion isn't bad. However, when looking at the deal from a growth rate perspective the deal isn't as good as it appears. Over a 13 year period this would represent a growth rate of roughly 2.4%/year which is under the normal 6%/year growth on average (Koch tries to double earnings every 6 years).

The moral of this story is Koch purchased Georgia Pacific-changing the culture, investing capital, cutting dividends (as Koch reinvests 90% of their earnings back into the company), and it helped Koch grow. However, Georgia Pacific itself has not grown as quickly as the rest of Koch Industries.