Forbes - USA (February 2018)

THE INVESTMENT GUIDE

REENGINEER YOUR RETIREMENT | TAXES


heirs or state estate taxes to worry about— ing new techniques that avoid capital gains clients is starting a marketing business and

the best fix will be to do away with trusts tax but require—you guessed it—trusts. figures to earn about $1.6 million a year

altogether. That’s because of the “portabil- Consider the “mother-in-law trust”: You from it. Oshins suggested he set up eight

ity” of exemptions between spouses in- give your mother-in-law or other older separate nongrantor trusts for his three

troduced in 2011. Before that change, the relative a general power of appointment (a kids and five grandkids and give each trust

wills of affluent couples typically created form of control) over an irrevocable trust 10% of the new business. After the entre-


what’s known as a “credit shelter” or “by- for your spouse and descendants and fund preneur takes a reasonable salary for him-
pass” trust. When the first spouse (assume that trust with low-basis assets. When self (crucial to keep the IRS off your back),


it’s the husband) each trust should
died, an amount STATE DEATH TAXES, CIRCA 2018 be left with about

equal to his estate- TWELVE STATES AND D.C. LEVY ESTATE TAXES ON WEALTH ABOVE THE AMOUNT SHOWN. $150,000 a year in
tax exemption SIX HAVE AN INHERITANCE TAX, WITH THE TAX BASED ON WHO GETS THE MONEY. passthrough profi t.
went into a trust (UPDATES AT WWW.FORBES.COM/STATE-ESTATE-TAX) Each of the eight
for his wife and trusts can shield
kids. She would WA MN VT ME 20% of that—or
NE
Estate tax
Estate tax
Estate tax
have access to trust $2.19 million Inheritance tax $2.4 million NY $2.75 million $11.2 million $30,000—from
Estate tax
Estate tax
income and, if Iowa $5.25 million federal income tax,
Inheritance tax MA
need be, principal. OR PA Estate tax avoiding tax on a
$1 million
But his exemp- Estate tax Inheritance RI total of $240,000.
tax
$1 million
Estate tax
tion wouldn’t go to $1.54 million Note that the
waste. And when CT businessman likely
she later died, Estate tax wouldn’t be able to
IL IL $2.6 million
the trust assets Es tat e tax shelter any income
Estate tax
$4 million MD NJ
$4 million
MD
wouldn’t be part KY Es tat e tax D.C. Inheritance if he reported it
KY
Estate tax
tax
$4 million
$4 million
Inheritanc
e tax
of her estate. Now, Inheritance tax Inheritance taxe tax $11.2 million all on his own tax
Estate tax
Inheritanc
with portabil- return, since above
Hawaii
ity, any unused Estate tax the income cutoff ,
portion of the $11.2 million certain service
Estate tax exemption matches federal exemption
husband’s exemp- Estate/Inheritance tax below federal exemption professionals—ac-
tion passes to his No Estate/Inheritance tax countants, lawyers,
widow, so long as brokers, marketing
the executor of the husband’s estate fi les a your mother-in-law dies, the assets in the gurus—can’t claim the QBI break at all.
tax return electing portability. trust get a step-up. True, the trust is now Expected federal income tax savings from
Why not create a trust anyway? One includable in your mother-in-law’s estate. this Rube Goldberg contraption? Nearly
big reason: avoiding capital gains tax. But since she wasn’t rich enough to use $89,000 a year.
When someone dies, the assets in his or her whole $11 million exemption, you’ve And then there are the machina-
her estate (including real estate, collect- expropriated the excess for a good cause: tions of legendary trust lawyer Jonathan
ibles and stocks and mutual funds that avoiding capital gains tax. Blattmachr, now at Peak Trust Co., which
aren’t held in a retirement account) get But why stop with capital gains? Trust sets up Nevada and Alaska trusts for asset
a step-up in basis to their current value, lawyers are now busy concocting ways to protection and tax purposes. He’s schem-
meaning heirs can sell immediately exploit the law’s new tax break for “quali- ing to use trusts to get around the new
without owing capital gains tax. If the fied business income” (QBI). While there law’s $10,000 cap on deductions for state

husband’s assets are left directly to his are various restrictions on claiming the and local taxes (which, like the doubled

wife, they get one step-up at his death break at higher income levels, the provi- estate exemption, technically expires at
and another at hers. By contrast, assets in sion allows singles with total income of the end of 2025). Blattmachr fi gures that
a traditional credit shelter trust won’t get less than $157,500 (and couples below by putting his $1.8 million Garden City,
that second step-up at her death. (If you $315,000) to avoid income taxes on 20% New York, home into an LLC, and then
already have one of these trusts, there’s of their profits from a sole proprietorship putting the LLC shares plus an additional

a possible workaround: Assets that have (reported on Schedule C), from farming, $130,000 of marketable securities into four
appreciated since the husband’s death can or from a passthrough, such as a partner- nongrantor Alaska trusts, he can eff ec-
be distributed—in lieu of cash—to the ship or S corporation. At the last minute, tively get a full deduction for the $40,000
widow. If she holds them until her own tax writers gave the 20% exclusion to trusts in annual property taxes on his home. PETER AND MARIA HOEY FOR FORBES
death, they’ll get another step-up.) with income of less than $157,500 too. “Congress can’t contemplate what creative
But with a bigger $11 million exemp- Here’s the ploy cooked up by Las Vegas estate planners will come up with,” says a
tion to play with, the lawyers are concoct- estate lawyer Steve Oshins. One of his delighted Oshins. F
100 | FORBES FEBRUARY 28, 2018

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THE INVESTMENT GUIDE

REENGINEER YOUR RETIREMENT | INCOME





Live Well While



the Market Tanks



HERE’S A SPENDING FORMULA TO PROTECT YOU IN
RETIREMENT FROM PANIC AND FROM PENURY.

BY WILLIAM BALDWIN

nail-biter for new retirees: and quit your job at age 66. If you knew historically normal multiple of earnings?
What if the next market cor- there would be no down markets and What if interest rates spike, destroying
rection arrives soon? knew you and your spouse wouldn’t a bond portfolio? If such misfortune
A Even if stocks and bonds live past 91, you could live pretty well. occurs early in a retirement lasting 30
do well over the long term, a bear You could draw out $40,000 the fi rst or 35 years, those $40,000-plus-COLA
market early on can do permanent year, give yourself annual raises to keep withdrawals will evaporate your savings.

damage to a retiree’s living standard. up with the cost of living, and be rea- There are ways to cope with these

The experts call this sequence risk. “It’s sonably assured of never running out uncertainties. Learn them and you won’t
not the average return but the timing of of money. overspend. You also won’t make the op-
the returns” that can kill you, says Dan But you don’t know how long you’ll posite mistake of living penuriously and
Keady, who oversees fi nancial planning live and you don’t know about the having regrets.
strategies at TIAA. timing of the next correction. What if The cure for sequence worries lies

Say you have $1 million in your IRA stocks retreat from their lofty level to a partly in portfolio legerdemain, partly

in psychology. If you can adapt to the
market’s vicissitudes by moving your
spending up and down, you can spend
more. If you can’t adapt, you have to be
very frugal.
“Someone who has to have a certain
amount of money every year needs to be
more conservative with the withdrawal,”
says David Blanchett, head of retirement
research at Morningstar. If you want a
very predictable income keeping pace

with inflation, and a high confi dence in
not outliving your savings, then your
draw from $1 million has to be more
like $30,000.
At the other extreme: the rare retiree
content to have an income riding up
and down as violently as the market. For
such a spender a 5% withdrawal rate is
not too lavish. But this means drawing
5% out of assets that might go down
sharply in value. The formula starts you

off at $50,000 on a $1 million account

but then, after a 40% bear market (what

we’ll get if multiples retreat to their nor- VIKTOE KOEN FOR FORBES
mal level), chops you back to $30,000.
There’s a happy middle ground be-

102 | FORBES FEBRUARY 28, 2018

tween these extremes, between starva-
tion and volatility. The key to fi nding RETIREMENT: THE PAYOUT

it, Blanchett says, is to compartmental- WHAT CAN YOU PEEL OFF A $1 MILLION ACCOUNT? OUR SYSTEM HAS
ize your spending. Some spending, for YOU MOVING SLIVERS OF RISK ASSETS EVERY YEAR INTO A CASH BUCKET.
housing, medicine and food, is manda- BEGINNING WHEN THE BUCKET HAS ACCUMULATED FOUR YEARS OF SALES,

tory. The rest is discretionary. Cover YOU SPEND A FOURTH OF WHAT IT HOLDS AND THEN REPLENISH IT. THE BLUE
the first part with low-risk sources of LINE SHOWS A TYPICAL PAYOUT OVER 1927–2017, WHEN BALANCED FUNDS

income, he says. Cover the second with AVERAGED AN ANNUAL REAL RETURN OF 5%. THE RED LINE SHOWS A TYPICAL
DRAWDOWN IN A HYPOTHETICAL WORLD OF 3% RETURNS.
risk assets.
You have, potentially, four sources of
$100,000
low-risk income. Social Security is infl a-
tion-protected and, despite the system’s 90,000 Historical
funding shortfall, presumably reliable. A 80,000 Future?
married couple, both high earners and 70,000

both deferring benefits to age 70, can 60,000
pull down a combined $88,750 a year. CONSTANT DOLLARS 50,000
40,000
Next on the list of fi xed-income
generators is the old-style monthly pen- 30,000
20,000
sion, if you’re lucky enough to have one 10,000
of those.
0

Third on your list of potential sourc- 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

es of fixed income is a bond ladder. Buy YEAR OF RETIREMENT
a collection of Treasury bonds matur-
ing at annual intervals over the next 30 fast should you pull money out of the into cash.
years and you have a very predictable risk pile? Do your spending from the cash
flow of cash. For the ultimate peace of Needed: a system for spending that bucket. Beginning four years in, draw


mind you could make them infl ation- stretches those risk assets over a lifespan off a fourth of the bucket annually for
protected. A $1 million TIPS investment and also takes some of the edge off their high living. So if you want to retire at
buys approximately $36,000 a year in volatility. There are a lot of formulas that age 66, you’d start moving money out of

spending power for 30 years, aft er which do that, some rather complicated. Here’s the risk account at age 63.
there is nothing left . a method that is easy to follow. What kind of a payout pattern does
Last to be contemplated is a fi xed The starting point is a series of divi- this deliver? We applied the formula to

annuity. You plunk down, say, $100,000 sors published by the IRS as part of tax historical returns on a moderately risky
at age 66 and an insurance company rules requiring minimum distributions investment account to see what a typi-
vows to hand you $550 a month for as from a traditional IRA, beginning at age cal payout looked like (see chart). Th ere
long as you live. (That’s about what a 70 ½. Th e first number in the series is is uncertainty here—there’s no getting


male resident of New York would get.) 27.4. If you have $274,000 in risk assets, around that—but uncertainty is toler-

The 6.6% payout is high but not in- you’d liquidate $10,000, putting the cash able for discretionary spending.
dexed for infl ation. in a money market fund. At this point Blanchett jumps in with

There are a lot of reasons why retirees The IRS divisors descend a scale, at a the admonition that history paints too


aren’t in love with fixed annuities, in- rate a little slower than one notch with rosy a picture of what we can expect

cluding a lack of inflation protection and each passing year. Note: The IRS divi- from Wall Street now. He’s right. So we

a rotten return for the buyer who dies sors relate to life expectancies beginning added the red line. For that we did some
young. But annuitizing a portion of your at age 70, but you can borrow them to dice-throwing for 2018 to 2048 using
IRA, thereby making it an account you create a stretch-out plan that works fi ne greatly lowered expectations for stock
can’t outlive, does have this positive re- beginning in your 60s. and bond returns. The chart displays

sult, Blanchett says: It allows you to take The next number is 26.5. (For the the random payout that came closest to

more risk with the rest of your portfolio. full sequence, see forbes.com/RMD.) If matching the median result.
Let’s presume that, with or without
Cover your basic needs with safe
PETER AND MARIA HOEY FOR FORBES help from those unappetizing annui- liquidation grows 5% to $277,200, in the income, take a chance with the rest of
the risk money remaining after the fi rst

ties, you have your mandatory spend-
second year you sell off $277,200/26.5,
your assets, and sit tight through the
ing covered with stable income. Now
next crash. You don’t want to outlive
or $10,460. Again, the proceeds go into
your savings. But neither is it your
the money market bucket. Continue
you can venture the rest of your savings
in something riskier, perhaps a classic
objective to be the richest person in the
every year, moving an ever-larger frac-
60/40 blend of stocks and bonds. How

tion of what’s left of the risk account
cemetery. F
FEBRUARY 28, 2018 FORBES | 103

THE INVESTMENT GUIDE

REENGINEER YOUR RETIREMENT | BITCOIN IRA






The Hail Mary



Retirement Plan



LOOKING TO TURBOCHARGE YOUR RETIREMENT ACCOUNT? PUT SOME CRYPTO IN
YOUR IRA, BUT ONLY IF YOU CAN STOMACH EXTREME RISK AND HIGH FEES.

BY JEFF KAUFLIN


n the spring of 2017, Kenneth M.,
a physician in his mid-50s, was
looking for the right medicine to
Irejuvenate his retirement savings.
Drawn to technology, he found himself
watching YouTube videos of entre-
preneurs discussing cryptocurrencies
and their real-world applications. Th e
underlying concept of a blockchain—
a technical infrastructure over which
information can move quickly, cheaply
and securely—made his eyes widen.
He was familiar with the barriers that
prevent electronic health records from
moving smoothly between health care
providers, and he became excited by
the problems blockchain might solve.

The doctor liked the idea of invest-
ing in virtual currencies in a retire-
ment account, because using an IRA
meant he wouldn’t have to worry about
the tax implications of buying or sell-
ing within the account. Th rough a
Google search, he discovered Bitcoin
IRA, a three-year-old company that
partners with an IRA custodian and
a cryptocurrency wallet—like a bank
account for virtual currencies—to let a coin to $13,545. Ether’s value rose by greed, a component of fear of loss,”
people invest. nine times. Today the physician’s Bit- says Chris Kline, Bitcoin IRA’s COO,
So he dived in with a risky bet, coin IRA portfolio is worth $2.5 mil- who suggests customers put from 5%
sinking 15% of his retirement savings, lion, making up more than 50% of his to 20% of their retirement assets in
or $350,000, into Bitcoin and other retirement savings. “It will require me virtual currencies.
crypto-assets like Ether and Litecoin. to do some rebalancing,” he says. Bitcoin IRA, based in Sherman
As he watched prices climb, he caught But he’s not ready to take his foot Oaks, California, isn’t a fi nancial
crypto fever, pouring in another off the gas yet, and he’s not alone. advisor, and it’s not regulated by the

$250,000 over the summer and deviat- Among the dozen or so Bitcoin IRA SEC like Vanguard or by the Federal
ing from his otherwise disciplined investors Forbes spoke with, only four Reserve like Wells Fargo. It’s a largely VIKTOE KOEN FOR FORBES
investment style. From May to Decem- have taken money off the table to unregulated “financial conduit” that



ber 2017, Bitcoin surged from $1,747 secure gains. “There’s a component of makes use of self-directed IRAs, which
104 | FORBES FEBRUARY 28, 2018

BEEN














FOOLED














BY FAKE














CONTENT?



Sources: Ipsos Public Affairs survey, Dec. 2016; Simmons Research, Multi-Media Engagement Study, Spring 2016.













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THE INVESTMENT GUIDE

REENGINEER YOUR RETIREMENT | BITCOIN IRA


have been around since the govern- Haze and Camilo Concha, who also hospital supply-room manager to take
ment created IRAs in 1974. Self-direct- run Fortress Gold Group, which helps care of his wife, who had cancer. He
ed IRAs let people hold nontraditional people invest directly in gold through saw his retirement savings decrease
assets like real estate, gold and virtual their IRAs. First-mover advantage from $245,000 to $132,000 over eight
currencies in a retirement account. and aggressive Google advertising months, before she passed away. A year
Since cryptocurrencies are transferred campaigns have allowed them to build later he threw a proverbial Hail Mary
and stored in unique ways, Bitcoin IRA the largest presence in the crypto- and dumped all his retirement funds
has carved out a niche to help investors asset IRA space, with close to 4,000 (which amounted to $118,000 aft er
address security challenges. If you hold customers and $105 million in inflows fees) into Bitcoin IRA. Today his re-
Bitcoin, you need a private key—like a since they began accepting funds in tirement account stands at more than
password, just a string of numbers and June 2016. Those assets have bal- $500,000, and he has plans to travel
letters—to move your money. So extra looned to about $287 million due to and make home improvements.
security is critical, and In July 2017, Simpath
that’s Bitcoin IRA’s primary Srinath of Atlantis, Florida,
value proposition. took a fi ve-week hiatus

The company partners from his job as an IT man-
with Bitgo, a Silicon Valley With Bitcoin prices ager for his wife’s medi-
cryptocurrency-security whipsawing daily, cal practice to research
startup that serves as a cryptocurrencies. Aft er
wallet and creates three investing your IRA in the 62-year-old pulled his
unique private keys as- head up, he thought, “Th is
sociated with an inves- crypto is a gamble. is something that will ab-
tor’s Bitcoin IRA account. solutely change the future
Bitgo stores one key itself, And win or lose, of finance.” He has since

gives another to the IRA doubled his IRA to more
custodian, Kingdom Trust, you’ll pay a stiff than $2 million, and now
and a third to keytern. al, cover charge to get he’s telling all his friends,
a startup that provides “Go ahead and invest—at
recovery services if your into the casino. least 5%.” Steven Phung,
key is lost or damaged. All a risk-loving real estate
of these keys are stored off developer from Pasadena,
the internet, in “cold stor- California, who lost 80% of
age” locations. For the time his wealth in the fi nancial
being, residents of New York State can’t crypto currencies’ soaring prices. Ac- crisis, has turned $500,000 into
use Bitcoin IRA because Kingdom cording to the company, their average $1.4 million through Bitcoin IRA.
Trust doesn’t have a BitLicense, a state Bitcoin IRA investor earned a 172% Of course, with Bitcoin prices
requirement for companies that hold return in 2017. whipsawing daily, including its recent
cryptocurrencies. No surprise that competition is swoon from nearly $20,000 in Decem-
Any investor can create a self-di- coming. Two newcomers, Noble Bit- ber to $10,000 a month later, these
rected IRA without using Bitcoin IRA, coin and CoinIRA, offer similar ser- crypto-retirees are rolling the dice.

and there are attorneys and specialty vices, with fees ranging from 10% to an Perhaps the only model for respon-
firms like San Francisco’s Pensco Trust outrageous 25%, depending on which sible Bitcoin IRA investing is the case

that will help you invest in a host of token you invest in. Fidelity, Vanguard of Kelly Nguyen, a 45-year-old entre-
alternatives. Investing in a cryptocur- and Charles Schwab don’t off er self- preneur in Los Angeles who sold her
rency IRA yourself may require you to directed IRAs or cryptocurrency IRA specialty pharmacy business, which
set up an LLC to buy the tokens, and products. But investors in traditional had revenues of about $160 million,
you will need to select an exchange, a IRAs can choose to allocate money in 2012. Nguyen was already retire-
secure wallet and an IRA custodian. to funds like Kinetics Internet Fund, ment rich, so she committed only 10%
For its one-stop access to pure-play which has 28% in Bitcoin, or American of her retirement savings to Bitcoin
cryptocurrency IRAs, Bitcoin IRA Beacon Ark Transformational Innova- IRA. After quadrupling her hold-

charges steep upfront fees of 10% to tion Fund, with 8% in Bitcoin. ings, she cashed out 75% of her initial
15%. On top of that, Kingdom Trust As in any hysterical gold rush, investment. Now she’s gambling with
charges about 1% a year on assets. there are tales of lottery winners. At mostly winnings. “I hardly look at my
The wheeler-dealers behind Bit- 60 years old, Randy Krafft of Terlton, account,” Nguyen says, noting crypto’s
coin IRA are Chris Kline, Johannes Oklahoma, retired from his job as a hypervolatility. “It can be painful.” F


108 | FORBES FEBRUARY 28, 2018

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THE INVESTMENT GUIDE

REENGINEER YOUR RETIREMENT | SECOND ACTS






Sunnier Days on



Sesame Street



AFTER A MERGER KNOCKED HIM FROM HIS CEO’S PERCH, JEFFREY
DUNN CONSIDERED GLOBE-HOPPING. INSTEAD, HE HEADED TO
HARVARD AND THEN ON TO RETOOL AN ICONIC NOT-FOR-PROFIT.
BY KERRY HANNON


t the annual Halloween bash

last year, Jeffrey Dunn, the
63-year-old CEO of Sesame
A Workshop, didn’t dress up as
Bert or Ernie but as the Statue of Liberty. “I
was distraught by the divisiveness and the
toxicity in this country,” he says. “I wanted
to make a statement to our employees of
what we at Sesame stand for.”
His Lady Liberty costume worked on
another level, too. Six years ago, Dunn

gained the financial freedom to do any-
thing—or nothing at all. Mattel Inc. had
just paid $680 million for the company
where he was CEO, HIT Entertainment,
owner of Thomas the Tank Engine and

other children’s characters and program-
ming. Flush and out of a job, Dunn wanted
to work in the charitable sector. But his
wife, Karen, suggested they first take a few

years to travel the world and sit on the
beach. A temporary retirement, of sorts.
“I was like, ‘No, I am not ready for
that. Not sure if I ever will be,’ ’’ he recalls.
Anyway, Harvard was calling. Dunn had
earned his B.A. in history and his M.B.A.
there decades before. Now he’d been ad-
mitted to Harvard’s Advanced Leadership high school sweethearts who have been like) and DVD sales had been sliding for a
Initiative, a yearlong program for corporate married 36 years—is that spouses of fel- decade, and its operating losses were grow-
executives and professionals in their 50s lows are welcome on campus too. So while ing. “Sesame found me because I was a


and 60s interested in applying their skills Jeff dived into nonprofit accounting, media known entity in the kid space,’’ he says. Be-
to social problems. For a tuition of around and kid’s education and economics, Karen, fore taking over at HIT in 2008, he’d spent
$65,000 the handpicked fellows (for 2018, a nurse by training, studied art and music. 13 years at Viacom’s Nickelodeon, where
48 were chosen from more than 550 ap- Dunn began as a fellow in January he helped create Noggin (now Nick Jr.) as a
plicants) get to audit courses and hash out 2014. Then, midway through his year, a joint venture with Sesame Workshop.

prospective projects with professors and representative from Sesame’s board called Already in Harvard term-paper-writing VIKTOE KOEN FOR FORBES
fellow students. him for a consult. Th e nonprofi t’s licensing mode, Dunn delivered a ten-page report
What sealed the deal for the Dunns— revenues (from Tickle Me Elmo and the to Sesame’s board. By September he’d


110 | FORBES FEBRUARY 28, 2018

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THE INVESTMENT GUIDE

REENGINEER YOUR RETIREMENT | SECOND ACTS























Sweeping the clouds away: CEO Jeffrey Dunn turned around Sesame Workshop’s finances with an HBO deal.



been hired as the first outsider to head the months. After that period, PBS stations test adaptive learning for preschoolers.

insular organization. Sesame needed a “fi - would get those shows for free. What about the philanthropy and social
nancial turnaround, a cultural turnaround “It totally changed our economics,” impact side of Sesame? It, too, seems to be
and a strategic turnaround,” says Harvard Dunn says. “It replaced that lost revenue thriving. In December, Sesame Workshop
Business School professor Rosabeth Moss from the DVDs and other merchandise, and the International Rescue Committee
Kanter, who is director of the Harvard and we totally stopped the bleeding.” In the started work on a new, regional version of

Advanced Leadership Initiative and a co- fiscal year ended June 2014, Sesame had an Sesame Street that aims to reach 9.4 million
author of a case study on Sesame. operating loss of $11 million on revenues Syrian refugee and local children in Jordan,
Perhaps Dunn’s most signifi cant of $104 million. In 2017 it had an operat- Lebanon, Iraq and Syria with material

structural and cultural change: He cre- ing profit of $6.7 million, on revenues of more relevant to their experiences and cul-
ated two business units. One was for $118.5 million. ture. It’s funded by a $100 million fi ve-year
Sesame’s philanthropy and social impact As he did with revenues, Dunn took grant from the MacArthur Foundation,

work, mostly funded by foundations and a bold approach to another Sesame prob- which notes that before this effort less than
government. The other ran Sesame’s TV, lem—keeping up with changes in educa- 2% of global humanitarian aid money was

media and licensing operations; it would tion technology and in how media is con- being spent on education, and only a sliver
have to operate with an eye to the bottom sumed. He axed a four-year-old internal of that 2% on young children.

line. “People thought ‘nonprofit’ meant we innovation lab that had produced no viable “The Syrian refugee crisis is the hu-

don’t have to make money, or we can lose products and launched Sesame Ventures manitarian issue of our time,” Dunn says.
money,” Dunn says. “Nonprofit is a tax to invest in startups focused on children’s “These children are, arguably, the world’s


status: If your revenues don’t exceed your education, development and health. At most vulnerable on the planet, and by
expenses, you don’t stay in business—it is Harvard, Dunn says, “I was going to school improving their lives we create a more
not sustainable.” with all these kids, sitting there and listen- stable and secure world for us all.” Th e new
That new ethic led to Dunn’s most ing and talking to them, and knowing full program will be distributed via television,

audacious move. For 45 years the Pub- well most of these things happen from mobile and digital platforms, with extra
lic Broadcasting Service had been the startups, not existing players.” educational content given to parents, clin-
home of the Sesame Street television So far, Sesame has invested in more ics and child development centers.

show, where generations of preschool- than 40 startups, including Epic!, which These days, Dunn makes a weekly
ers learned to recognize letters and love gives kids and teachers access to a person- eight-hour round-trip commute via Am-
Cookie Monster. But what PBS was alized digital library of high-quality trak from his Boston home to Sesame’s
paying for broadcast rights covered less ebooks, and Kano, which sells kits to Manhattan headquarters. But he’s not
than 10% of production costs. So in 2015 teach children computer coding. “You complaining. “You don’t get the oppor-
Dunn negotiated a fi ve-year licensing can’t force people inside, who’ve been tunity many times in life to really change
deal with HBO, the premium cable chan- doing it the same way forever, to change the world, but this may be one of them,”
nel known for its edgy and sometimes vi- their habits,’’ Harvard’s Kanter says. he says. Sure, this isn’t exactly volunteer
olent content. HBO would pay enough — “When you partner with those startups work—Dunn’s offi cial compensation in
an estimated $20 million-plus a year—to and connect them to the people inside, 2016 is listed as $689,000, though he says
cover most of Sesame Street’s production new creative sparks begin.” Sesame is also he declined to take all of it. “You only need JAMEL TOPPIN FOR FORBES
costs and would get the right to air newly completing a pilot program with IBM that so much money,’’ Dunn concludes. “But
produced episodes exclusively for nine pairs its characters with IBM’s Watson to you can’t sit on the sidelines.” F


112 | FORBES FEBRUARY 28, 2018

PROMOTION
Paraguay







SOUTH AMERICA’S NEW EMERGING LEADER
With the lowest taxes in the region, and competitive labor and energy costs, Paraguay offers one of
South America’s highest returns on investment. These attractive conditions are driving the country’s largest
wave of foreign and domestic investment to date.

araguay today has a when comparing Paraguay with
new self-confidence. neighboring countries. Our young
Nestled between Brazil, people want to work, and they are
PArgentina and Bolivia, eager for opportunities. They are
this small landlocked country of also very efficient.”
almost 7 million is emerging as a That efficiency also applies
regional success story. to the Paraguayan government.
When a fall in global com- As one of Paraguay’s leading
modity export prices crippled businessmen, the president
neighboring economic giants brought to office an entrepre-
Brazil and Argentina, Paraguay’s neurial vision and a team of
stable macroeconomic frame- highly trained ministers to drive
work and prudent fiscal policies his ambitious agenda, reducing
helped it weather the storm to Paraguay President Horacio Cartes waste and heightening account-
maintain sustainable growth. ability in government.
Annual GDP growth for the International rating agencies have consistently “We targeted job creation and
past decade has averaged 4.8%, better economic conditions for all
driven by robust agricultural upgraded the country’s sovereign risk ratings; Paraguayans. But to do this, the
and hydroelectric power exports Paraguay should achieve Investment Grade in 2018. public sector has had to perform
and a rapidly expanding indus- its duties just as well as the pri-
trial base. By minimizing eco- vate sector. I believe that, in this
nomic volatility, the country has past decade, such as inflation tar- diversification of the country’s respect, we are in the forefront of
recently reduced poverty levels, geting and the creation of a Fiscal economic base beyond its tra- the region,” he says.
increased prosperity and become Advisory Council, Paraguay has ditional reliance on agricultural In a bid to reduce poverty,
a regional leader. cemented its country’s price index — mainly soy, meat and corn — Cartes also launched an unprec-
At the forefront of Paraguay’s and exchange rate stability and and electricity exports, boosting edented social housing pro-
transformation is President consolidated public debt as one of industrial activity to 9.5% of GDP gram, building over 20,000
Horacio Cartes, who took office the region’s lowest at 22% of GDP, in 2017. Until 2012, agriculture homes, with 10,000 more to be
in 2013, ushering in a new era according to the World Bank. contributed nearly one-quarter delivered by the end of his term.
of Paraguayan economic success. Investors are taking note. Inter- of GDP, with industry and con- “We have everything we need to
Throughout his five-year term, national rating agencies have con- struction representing just over house and feed our population.
which will end in August 2018, sistently upgraded the country’s 6%. Today, agribusiness gener- We have no excuse for poverty
Cartes and his team have mod- sovereign risk ratings, and Para- ates 15% of GDP, and industry here,” says Cartes.
ernized the economy and pushed guay should achieve Investment and construction have grown to The president has also boosted
Paraguay onto the world stage. Grade in 2018. The Brazil-based 20%, according to Finance Min- education with programs offering
At home, Cartes launched the think tank Getulio Vargas Foun- ister Lea Gimenez. scholarships for study and train-
country’s first National Develop- dation ranked Paraguay as the In addition, Cartes has built a ing abroad. “Sending our best
ment Plan for 2014-2030, focused Best Investment Climate in South regulatory framework to encour- students to study science and
on poverty reduction, social devel- America for 2016 and 2017, and age public-private partnerships technology in the leading uni-
opment, inclusive economic recent sovereign bonds issuances as a path to meeting the country’s versities in the world has been
growth and the insertion of Para- in 2017 were oversubscribed and infrastructure deficit, further stim- one of our best legacies,” he says.
guay into the global economy. His achieved near-investment grade ulating investment in the sector. “This has meant great change
administration has successfully spreads of 4.7%. “We are success- “Several aspects contribute to and remarkable improvements
legislated for greater government fully accessing international capital making Paraguay a very attrac- in our universities and the edu-
transparency and tighter fiscal markets and have major U.S. funds tive country,” he explains. “We cation of our population. When
responsibility in a serious bid to as our investors, which is an excel- have a lot of young people — these students enter the Para-
tackle public-sector corruption lent sign,” explains Cartes. more than 70% of our population guayan workforce, they’ll apply
and inefficiency. Along with other Key to the Cartes govern- is under 40 years old. We have their innovation to the nation’s
reforms implemented over the ment’s success has been the to take this into consideration products and processes.”
Economic Development 1

PROMOTION
Diversifying The Economic Matrix



he Paraguayan invest- Stephan Winkler is a for-
ment and export agency “We are expanding our matrix beyond soy, beef and eign investor in Paraguay’s fast-
and one-stop shop for electricity production and starting an industrial growing forest industry and is
T investors, REDIEX, chairman of EFISA, one of the

is spearheading Paraguay’s eco- takeoff of historic proportions. Paraguay is a country’s leading fully integrated
nomic transformation. In 2017, it serious investment destination.” forestry services and wood pro-
launched Paraguay’s new country cessing companies, with a par-
brand, focusing on Paraguay’s — GUSTAVO LEITE, Industry and Trade Minister ticular focus on biomass for
“fertile economy.” energy. “With ideal conditions
“We have identified four eco- for photosynthesis, and very low
nomic motors ripe for investment “Paraguay is in the heart of “Itaipu Dam is a world leader, production costs, the potential
and growth,” explains Industry South America and an excellent not only in energy production, for Paraguay’s forestry industry
and Trade Minister Gustavo platform for international com- but also in environmental con- is huge,” says Winkler. “A tree
Leite. “Exporting food for the panies to springboard to the rest servation,” says Itaipu Managing in Paraguay can be used for bio-
world, building factories for the of the region. The opportunities Director Dr. James Spalding. mass in four years and saw tim-
region, creating a regional logis- for investment in infrastructure “In June 2017, we were the first ber in eight years. This is one of
tics hub, and promoting forestry and logistics are abundant,” says hydroelectric power plant to be the most productive locations in
and green energy.” Fabian Sesto, the Paraguayan included in UNESCO’s world net- the world. It is also an industry
Paraguay currently produces representative for multinational work of biosphere reserves. We which has the potential to pro-
food for around 80 million Imperial Logistics. provide 75% of Paraguay’s energy tect and ultimately restore Para-
people, predominately from Another pillar of the Cartes demand and 15% of Brazil’s. guay’s native forests, in keeping
meat, corn and soy production. administration is its support for Itaipu’s original loan will be paid with the government’s long-term
But the government plans to manufacturing facilities, known off in 2023, providing a multibil- sustainability goals.”
triple this number, making Para- as “maquilas.” The Maquila law lion-dollar windfall equivalent to Low land prices and over a
guay a key breadbasket for the offers competitive conditions 17% of Paraguay’s annual external million hectares of available
world. Through incorporation for international companies to debt to be reinvested in social and land for forestation are the key
of technology, better territorial assemble their goods in Paraguay infrastructure programs.” for ongoing growth in the sector.
planning and increased foreign for export. Over 150 companies Meanwhile, Yacyreta is also According to Eduardo Almeida of
investments in the sector, Para- operate in Paraguay under the investing in environmental pres- the IDB (Inter-American Devel-
guay is rapidly industrializing law — 70% since 2013 — produc- ervation and has created five opment Bank), 45% of the energy
and modernizing its cooperative ing everything from car parts to conservation areas in Paraguay matrix is biomass. “With growing
farming culture to meet world shoes and toys. covering 20,000 hectares pro- demands for energy from a grow-
export standards. “This is a star program; it is moting tree-planting programs ing population, even with better
Meanwhile, Paraguayan beef, the low-hanging fruit for eco- and public awareness campaigns. transmission from the dams, this

already famous globally for its nomic diversification,” says Leite. The Paraguayan government demand for biomass should not
quality, should be approved for “Sixty percent of the companies is also working with Finnish decrease,” he says.
U.S. sale in 2018. “This is a big are Brazilian, because we have experts to map out the future for
step for Paraguay,” says Juan the most competitive conditions the forestry and biomass sectors,
Carlos Pettengill, president of for manufacturing in the region, and how best to encourage fur-
the Paraguayan Meat Chamber. offering competitive energy ther foreign investment.
“We currently export around and labor costs, low taxes and
300,000 tons of beef per year to a youthful workforce. We are
73 markets, and once we obtain Brazil’s China.” Ninety percent Why Paraguay?
access to the U.S., we plan to also of maquila exports go to Brazil;
begin exports to Hong Kong, however, with President Cartes’
đƫ Best return on investment in South America
Japan and Korea.” successful re-entry of Paraguay
đƫ One of the fastest-growing economies in the region
One of Paraguay’s greatest into Mercosur (a South America
đƫ Strategic location in the heart of South America
challenges has been providing trade bloc established in 1991),


đƫ Cost-efficient and youthful workforce
efficient logistics for exports. exporters now have improved
đƫ Lowest taxation in Mercosur
Blessed with one of the world’s access to Uruguay and Argentina.
đƫ No restrictions to foreign investment and ownership
largest river networks and the Green energy and forestry also
đƫ Foreign-sourced income is tax exempt
third-largest river fl eet, Paraguay hold excellent potential for Para-
đƫ Free trade regime
is adopting international logistics guay, which is the world’s biggest
đƫ Tax benefits and guarantees for investments

standards to become an impor- renewable energy supplier via two
đƫ Abundant opportunities in diverse sectors
tant fluvial hub for the region binational hydroelectric dams,
đƫ Best investment climate in South America
and upgrading key highways, the Itaipu and Yacyreta, and has
đƫ One of the safest South American countries
international airport and its digi- among the world’s best conditions
tal infrastructure. for tree growth for biomass energy.
2 Economic Development

PROMOTION
All Eyes On Paraguay: Foreign Investors Flood In



ith compelling development, the US$300 million
incentives includ- “Investors must come here to see how rich Paseo La Galería shopping, cor-
ing tax breaks, economically, culturally, socially and porate and hotel complex. Lopez
W full repatriation credits the Cartes administration
of capital and profit, and equal politically the country is.” for helping investors move for-
rights for foreign investors and ward with their plans. “The fact
local businesses, as well as a stra- — MARIO LOPEZ, Foreign Investor that Cartes is more of a business-
tegic position at the heart of Mer- man than a politician simplifies
cosur, Paraguay is seeing a rush of things a lot,” he says. “It provides
foreign investment from its neigh- Paraguay into other markets such a growth in domestic consump- a great business environment in
bors as well as from farther afield as Brazil and Argentina is a game tion and investment.” which investors are happy to par-
in Europe, North America and changer, a strategic decision made According to the report of the ticipate, including myself.”
Asia. A business-friendly approach by some companies.” United Nations Economic Com- Meanwhile, the expansion
from the Cartes administration Paraguayan-Chilean beverage mission for Latin America and of Paraguay’s middle class has
has helped drive interest. company Bebidas del Paraguay the Caribbean (ECLAC) in 2014, driven a consumption and real
Well-versed in advising inter- saw a chance to enact its interna- the return on investment in Para- estate boom, attracting presti-
national companies seeking to do tional expansion strategies when guay is 22%, second only to Peru gious international companies
business in Paraguay, Hugo Berke- it acquired Pulp, Paraguay’s most in the region. Investors in Para- such as Zara, Cinemark and
meyer, partner in Berkemeyer Law recognized national brand of soft guay can achieve far greater prof- Armani/Casa. “Investors must
Firm, says clients often ask him drinks. “Paraguay is a country itability compared to neighbors come here to see how rich eco-
whether Paraguay is an attractive with great opportunities,” says Argentina (10%), Uruguay (8%) nomically, culturally, socially and
proposition with only 7 million CFO Andrew Mac Gregor. “It is and Brazil (6%). politically the country is,” says
consumers. “It is a small market by experiencing a period of growth Guatemalan businessman Lopez. “This country has been
Latin American standards,” says greater than that of many coun- Mario Lopez saw this oppor- isolated for many years, but now
Berkemeyer. “However, the possi- tries in the area, and this growth tunity early on, building Asun- things have changed and Para-
bility of expanding a business from is happening hand-in-hand with cion’s most prestigious real estate guay is in the spotlight.”


Paraguay’s New Icon


Paseo La Galería is the first mixed-use complex in Paraguay’s capital,
Asuncion. Its rapid construction, new standards in design, unparalleled quality and
visual elegance are a prime example of Paraguay’s recent success.
Located in Santa Teresa, the new commercial, corporate and residential area of
the capital, Paseo La Galería combines a full-fledged shopping mall with dining areas,
corporate towers, a hotel and a convention center. Its high-tech parking facilities can
accommodate up to 3,500 vehicles.
The three-story, 45,000-square-meter mega mall is an important success story
for the country. It has attracted international brands like Cinemark and Zara to Para-
guay for the first time and, with its 140 international and national
brands and a wealth of shopping options, the mall has become a family gathering spot for locals and a must-
see destination for visitors. Its entertainment areas include movie theaters, Mundo Cartoon Network play-
ground and 14 restaurants within Terrazas del Paseo.  
Torres del Paseo, a pair of 25-story buildings, houses the country’s most prestigious international and
national companies. Towering over each side of the mall, each Torre offers an average of 780 square meters of
space per floor and a modular office system, providing immense flexibility for corporate office space.
In October 2017, De Las Torres Hotel opened with 50 rooms, and in December 2017, its convention center,
Salón Bicentenario, opened for business. The center can host five events at a time, offering seating for 1,800.
Together the hotel and convention facility add yet another dimension to Asuncion’s thriving business and
Mario Lopez
entertainment hub. A new and modern hub of the city, it is a mere 15-minute drive from the international
airport, and is nestled between numerous up-and-coming residential and commercial real estate projects.
More than an architectural marvel for Paraguay, Paseo La Galería is a source of pride for its citizens and a
destination worthy of international attention. Financed by Guatemalan investor Mario Lopez, this emblematic
venture serves as both an icon and a catalyst for further investment in Paraguay.
www.paseolagaleria.com.py


Economic Development 3

PROMOTION
Banking On Paraguay’s Fiscal Stability

And Digital Future


nder the supervi- small country but welcoming to
sion of Paraguay’s foreigners, and much easier to do
“For the traditional bank, it is difficult to
independent Central business in than its neighbors,”
flourish in emerging markets like Paraguay, as we
UBank, the banking says Beltran Macchi, president
sector comprises more than 50% have many people living in rural areas far from of the Association of Banks. “We
of GDP. Today, banks and commu- are also in need of a lot of invest-
branches. Instead, people are using mobile phone
nications companies are mobiliz- ment, which creates unique
ing technology to increase access to technology. We have the network — now we are opportunities.”
banking for Paraguayans, as well as learning how to use it.” Eduardo Campos, president of
to improve services and products Paraguay’s BASA bank, welcomes
for international investors. — CARLOS FERNANDEZ VALDOVINOS, foreign clients: “We urge foreign
“Profitable and well capital- Governor, Central Bank investors to trust Paraguay, a
ized,” as defined by the IMF, the country of great opportunities.
sector is closely supervised by the The nation has been carrying out
Paraguayan Central Bank, which monetary policy, bank supervi- Paraguay there is a free flow of the right tasks to achieve sustain-
has achieved prudent macro- sion and financial inclusion. capital, and the economy is inte- able development.”
economic stability through con- In 74 years, Paraguay has grated into international financial Viviana Varas, president of
trolled inflation and increased maintained the same currency markets. A major currency in the Paraguay’s largest commercial
regulation. Central Bank Gover- without any readjustments, Paraguayan economy is the U.S. bank, Itau, likewise believes Para-
nor Carlos Fernandez Valdovinos reinforcing its leading monetary dollar, and around 40% of trans- guay possesses all the conditions
is confident he will be hand- policy and stability. According to actions are made in dollars.” necessary to make it an interna-
ing over a “better institution” at Manuel Ferreira, former finance International investors will tional hub for the region. “Para-
the end of his term in 2018, due minister and head of investment find Paraguay’s banks eager to guay is the best-kept secret,” she
to ongoing improvements in consultancy MF Inversiones, “In work with them. “Paraguay is a says. “It has had excellent GDP

Tigo Paraguay:


A Catalyst For Digital And Social Transformation

Leaders at Tigo Paraguay understand how inclusion through technology can drive
success. In Paraguay, Tigo has found an environment that supports innovation and
entrepreneurship, and it has in turn become the number one international investor
in Paraguay today. As Tigo expands, it is transforming the nation of 7 million people.
The midsize telecom operator is bringing broadband and mobile networks to
individuals, households and businesses, schools and hospitals. Through its mobile
money operation, it offers access to financial services in even the most isolated
regions of the nation.
“Technology is a development accelerator,” says Tigo Para-
guay CEO Jose Perdomo. “Allowing people in remote areas to connect to the internet is like providing them
with water or electricity. This is social inclusion, and it’s what makes it fun to work in telecom here. Working
with telecom in developing countries has a real impact. It is a game changer.”
Tigo Paraguay, 100% owned by Millicom, operates in eight countries in Latin America. With a presence in
Paraguay since 1992, Tigo is one of the country’s biggest and most recognized brands. The company employs
more Paraguayans and pays more in taxes than any other business in the country.
Paraguay is an important test market for new products and services. One of the most successful examples
is Tigo Money, now used regularly by more than 1.3 million Paraguayans. “We are to banks what WhatsApp is
to telecom: a disruption to the value chain,” Perdomo says. IDB named Tigo Money “the best mobile financial
CEO Jose Perdomo
inclusion service” in Latin America earlier this year.
Tigo has also invested heavily in cable TV service and content production, with Tigo Sports now the main
sports channel in the country. And Tigo recently launched a B2B service with a private cloud for businesses.
“These examples show that this is a country of innovation, and people are excited about making Paraguay
a better place,” says Perdomo.

www.tigo.com.py


4 Economic Development

PROMOTION


growth in recent years, many Technological innovation is also which has also become the coun- of Millicom’s Tigo Paraguay. “In
young people will be moving into driving changes in the traditional try’s largest money mover through a country of 7 million people, we
the workforce in coming years, Paraguayan banking sector with its mobile banking service, Tigo have more than 2 million mobile
and it has a private sector that new players emerging, including Money. “We are responsible for wallet active accounts and 1.3 mil-
is dynamic and that moves inde- Paraguay’s largest foreign investor, $1.5 billion worth of transactions lion regular users. Paraguay has
pendent of the public sector.” communications giant Millicom, per year,” says Jose Perdomo, CEO only 800,000 bank accounts.”




The Decade Of Infrastructure:

PPPs Drive New Investment


he Cartes adminis- develop the necessary expertise
tration entered office and capacity to be a strong local
facing a severe infra- partner for international con-
T structure deficit. Pub- struction companies.
lic Works and Communications With the largest turnover in
Minister Ramón Jiménez Gaona the construction sector, new
worked quickly to increase ISO certification and the new
investments, more than qua- U.S. Embassy build on its radar,
drupling those of the previous Tecnoedil welcomes more inter-
administration. Infrastructure national partnerships to access
investment reached $800 mil- long-term financing for large-
lion in 2017 and is expected to scale infrastructure projects.
grow to $1 billion in 2018. “Our company is specialized in
To support investment in all aspects of construction, from
infrastructure, the government roads to highways, ports to indus-
established the framework for trial complexes, factories to large
public-private partnerships “Paraguayan construction companies can be buildings,” says Ardissone. “It
(PPPs) for the first time in Para- is important to note that Para-
guay. This opened the door to excellent partners because we are serious, eager to guayan companies are very seri-
Paraguay’s initial PPP to upgrade work together, and we have good local expertise ous and highly skilled, and they
Routes 2 and 7, the arterial high- to bring to the table.” are reliable.”
way that links the capital, Asun- A more recent addition to the
cion, with Ciudad del Este on the local offering is Tecsul, whose
— EMILIO GILL, President of CAVIALPA,
Brazilian border, thereby con- youthful founder Joaquin Fer-
the Paraguay Road Builders Association
necting the two regions respon- nandez brings an innovative,
sible for 70% of Paraguay’s GDP. can-do attitude to his business.
The international airport is also For the Routes 2 and 7 project, Paraguay can achieve investment “So much still needs to be done:
earmarked for redevelopment leading Paraguayan construc- grade, this will be a key step. Infrastructure is lacking, real
under the new laws. tion firm Ocho A has partnered “Once we complete this proj- estate investment is required, and
“We welcome international with Spanish company Sacyr, ect and investors see how suc- we have shortfalls in the sewage
companies that are bringing new Portuguese firm Mota Engil and cessful it was, it will be easier to network which covers only 20%
technology into the country and Paraguayan construction firm get financing,” Pettengill adds. or 30% of the country. But it is
increasing competition with Par- Tecnoedil. “The hardest part of “Investors are usually afraid of impossible for us to do it alone.
aguayan companies, and that are this project is financing it, and buying bonds and not seeing a We do not see foreign companies
hiring more local professionals this is a hurdle that we have project become a reality. In our as taking away work from us, but
and professionals from overseas,” overcome already,” says Ocho case, this risk does not exist, as we rather expanding the total oppor-
explains Jiménez. “By improving A President Luis Pettengill. have the expertise to execute the tunities so that we can catch up
the pace and the quality of public “Routes 2 and 7 will be funded project, which is not a complex on our infrastructure deficit
works, we have reduced costs by by bond emissions via Goldman one. Building highways is what faster,” says Fernandez.
around 20%. We are witnessing Sachs and backed by the IDB. we do best.”
bigger, more complex projects in It is a good structure. In addi- Tecnoedil founder Roque Credits:
terms of engineering and financ- tion, the government is attract- Ardissone echoes Pettengill’s Project Directors: Clementine
ing, which is helping us move ing a great deal of interest from comments, explaining that his Winkler and David Seale
faster and improve the lives of international investors who are company has worked hard since Writer: Susan Burnell
millions of Paraguayans.” buying government bonds. If its incorporation 40 years ago to [email protected]
Economic Development 5

Forbes Life AUTOS












































Separated at Rebirth



Thanks to signature models, Rolls-Royce and Bentley are both enjoying a renaissance.
But the iconic British automakers have traveled two very different roads.
BY JOANN MULLER


here’s a certain charm to the idea of a over who would control the Rolls-Royce brand—but
storied British luxury carmaker, famous- both companies are much better off today.
ly down on its luck, roaring back to life Bentley sold a record 11,089 vehicles world-
Tunder new ownership with a fresh line- wide in 2017, driven by the success of its first SUV,
up of classic-yet-modern vehicles that seduces a the Bentayga. Launched in 2016, the $229,000
new generation of discerning buyers. Bentayga quickly became Bentley’s bestselling
When it happens to two of them, it’s uncanny. model. Unprofitable as recently as 2010, in 2016
So it is with Rolls-Royce Motor Cars and Bent- Bentley posted an operating profit of $135 million
ley Motors, two illustrious automotive brands cos- on $2.4 billion in revenues.
mically linked for decades, now both savoring re- Rolls-Royce has also been on a roll. In 2014
markable comebacks, independent of one another. the company recorded its best sales year in its
There was a time in the 1960s, during the near- century-plus history—4,063 vehicles—luring new,
ly 70-year stretch that Rolls owned Bentley, that the younger buyers with bold Black Badge versions
Backseat driver: brands were virtually identical, save for their distinc- of models such as the Ghost, Wraith and Dawn.
Rolls-Royce CEO
Torsten Müller-Ötvös tive hood ornaments. But today Rolls-Royce, now Sales fell to 3,362 in 2017, mostly because Rolls-
touts the unparalleled owned by BMW, and Bentley, a unit of Volkswa- Royce temporarily stopped producing its flagship JAMEL TOPPIN FOR FORBES
customization of its
cars. “Your imagination gen AG, have found separate paths to success. Their Phantom.
is basically our limit.” 1998 divorce was a tad messy—including a battle Fanning this synchronicity, both brands are


118 | FORBES FEBRUARY 28, 2018

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launching redesigned versions of the cars that But here is the proverbial fork in the road: THE
started this renaissance 15 years ago. While Bentley plans to accelerate growth by lever- HAUTE
For Rolls-Royce, it’s the 2018 Phantom VIII, aging the engineering might of Volkswagen, in- LIST
the stately sedan that is the epitome of bespoke cluding new electrified power trains, Rolls-Royce
luxury. For Bentley, it’s the redesigned Continen- shares little with BMW. Instead, it has developed
tal GT, a refined Grand Tourer delivering a com- its own, scalable platform, which underpins the
bination of performance and luxury. Phantom and future models, including Project
New Rolls-Royce Phantoms don’t come along Cullinan, its first four-wheel-drive utility vehicle,
very often: The 2018 model is only the eighth edi- due to be revealed later this year.
tion since the Phantom was introduced in 1925. Bentley’s ambition is to grow sales to 20,000 ve-
Men as diverse as Fred Astaire and John Lennon hicles a year, while Rolls-Royce aims to stay more
owned Phantoms throughout its history. As with exclusive, at fewer than 6,000. By comparison, Mase-
all Phantoms, the newest edition was designed for rati sold 46,186 vehicles last year, Lamborghini just
the rear passenger. When the coach doors gently 3,104.
close, you are embraced in a plush, silent sanctu- At prices frequently north of $400,000, Rolls-
ary, soothed by a starlight canopy that can be cus- Royce can afford to thumb its nose at the notion of
tomized to reflect your birth constellation. sharing platforms with a “mass-market” brand. Its LAMBORGHINI
Up front, the Phantom’s dashboard can be trans- biggest challenge is shedding the stodgy image still TIME
formed into a rolling art gallery, where owners can lingering from those notorious Grey Poupon com-
display works behind a single piece of glass that also mercials from the 1980s. Fast times call for
houses the instrument cluster and a retractable in- Bentley, by contrast, occupies a unique middle a watch built for
speed. The Swiss
fotainment screen. ground between the highest-priced Mercedes-Ben- watchmaker Roger
zes and the cheapest Rolls-Royce mod- Dubuis will begin
els. It’s done a good job of creating sex a partnership with
appeal, says Rebecca Lindland, a senior Lamborghini Squadra
Corse this spring
analyst at Cox Automotive, “but the real- to produce limited-
ity is these brands have to make money.” edition watches. The
With the average price of a Bentley Excalibur Aventador S
is made in a carbon-
around $250,000, you’d expect the com- fiber case with a
pany to be raking in profits. But its op- movement inspired
erating margin through September 2017 by the engine block
of the Lamborghini
sank to 2.5%, well below that of proletar- Aventador. (Another
ian automakers like General Motors and model is inspired by
Ford. So modifying a Porsche platform the Huracàn Super
Wheeling: Bentley’s Continental GT is designed for drivers, not passengers. Trofeo EVO.) Like the
could help Bentley keep costs down and
legendary Italian sports
And with the average age of Rolls-Royce buyers boost margins, as long as it doesn’t sacrifice its brand car, the Aventador S
dipping to the low 40s (thanks to younger custom- DNA, notes LMC Automotive analyst Jeff Schuster. timepieces will have
ers in markets like China), the new model was also Besides, he adds, “leveraging Porsche isn’t exactly very limited production
engineered to be as pleasing to drive as it is to be slumming it in terms of technology and capability.” and come with luxury-
car sticker prices—88
driven in. The Phantom floats along on an electri- The reality is both automakers have found vi- pieces will be produced
cally controlled suspension, called Magic Carpet able business models. “If I compare the cars and with accents of
Ride. And a new twin-turbocharged, 12-cylinder drive them, they are different,” says Wolfgang Lambo’s Neptune
engine delivers 0 to 60 mph in 5.1 seconds. Dürheimer, the recently retired CEO at Bentley. Blue and Giallo Orion
yellow (retailing for
Meanwhile, Bentley’s new Continental GT, like- “Rolls-Royce is ultimate luxury. We are luxury and $194,500) while
ly to start at around $240,000, was designed for a performance.” an 8-piece orange-
driver who loves performance, while still swaddling And Rolls-Royce doesn’t disagree. “We are accented edition will
cost $216,000.
passengers in luxury. Its twin-turbo, 12-cylinder en- operating in a completely different price segment
gine powers the car to a top speed of 207 mph and than Bentley,” says CEO Torsten Müller-Ötvös.
goes from 0 to 60 mph in a dazzling 3.6 seconds. Of course, in this rarefied air, where wealthy
The dashboard also astonishes. An optional owners possess an average of seven cars, it’s not
THE HAUTE LIST BY MICHAEL SOLOMON
three-sided display rotates, allowing the driver to about price anyway. “Our clients have garages like
choose between the sleek wood veneer, a 12.3-inch we have wardrobes,” Müller-Ötvös reasons. “For
touchscreen and three elegant analog gauges. every occasion there is the right car.”

FINAL THOUGHT
“Whither goes thou, America, in thy shiny car in the night?” —JACK KEROUAC


120 | FORBES FEBRUARY 28, 2018

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THOUGHTS ON
Value




“Value is not made “JUST
of money, but a BECAUSE
PEOPLE
tender balance of
THROW IT
expectation and OUT AND
longing.” DON’T
—BARBARA KINGSOLVER HAVE ANY
USE FOR IT
“WHO STEALS MY PURSE STEALS TRASH; DOESN’T
’TIS SOMETHING, NOTHING.” MEAN IT’S
—WILLIAM SHAKESPEARE GARBAGE.”
—ANDY WARHOL
“Statements of “EVERY ADVANCE
fact are after IN KNOWLEDGE
all statements, BRINGS US FACE “Beauties in vain “LOOK BENEATH
which presumes TO FACE WITH their pretty eyes THE SURFACE;
a number of THE MYSTERY OF may roll; charms LET NOT THE
questionable OUR OWN BEING.” strike the sight, SEVERAL QUALITY
OF A THING
judgments.”
—MAX PLANCK but merit wins NOR ITS WORTH
—TERRY EAGLETON the soul.” ESCAPE THEE.”
—ALEXANDER POPE —MARCUS AURELIUS
“Law, and force, and ether, and the like,
are merely useful symbols, while the “Price is a proposed
ignorant and the careless take them for point of agreement
adequate expressions of reality.”
between a buyer
—THOMAS HENRY HUXLEY
and seller. The
“GOLD IS THE CORPSE OF proposal is the key.
VALUE. WEALTH STORED It is not a marching
order.”
UP IN GOLD IS DEAD.” —JEFFREY TUCKER
—NEAL STEPHENSON
“IT IS IN DIALOGUE
“NETWORKS GAIN WITH PAIN THAT
SOVEREIGNTY THROUGH MANY BEAUTIFUL “One does not
THEIR OWN DIGITAL THINGS ACQUIRE cease to treasure CLOCKWISE FROM TOP LEFT: UPPA/ZUMAPRESS/NEWSCOM; AGIP/RDA/GETTY IMAGES; PRISMA/UIG/GETTY IMAGES; PERRY REICHANADTER; PICTURES LTD/CORBIS/GETTY IMAGES;
CURRENCY.” THEIR VALUE.” a gem simply
—OLAF CARLSON-WEE —ALAIN DE BOTTON because one owns
another that is
larger.”
—MARIE BRENNAN ETHAN PINES; PAKO MERA/ALAMY; THE PRINT COLLECTOR/GETTY IMAGES; COLIN MCPHERSON/CORBIS/GETTY IMAGES
FINAL
“THE ONE WHO GETS THOUGHT
WISDOM LOVES LIFE; THE “Money’s merits
ONE WHO CHERISHES
UNDERSTANDING WILL are measured by its
SOON PROSPER.” use, not amount.”
—PROVERBS 19:8 —MALCOLM FORBES
SOURCES: OTHELLO, BY WILLIAM SHAKESPEARE; ANIMAL, VEGETABLE, MIRACLE, BY BARBARA KINGSOLVER;
CRYPTONOMICON, BY NEAL STEPHENSON; THE RAPE OF THE LOCK, BY ALEXANDER POPE; MEDITATIONS, BY
MARCUS AURELIUS; LITERARY THEORY: AN INTRODUCTION, BY TERRY EAGLETON; WHERE IS SCIENCE GOING?, BY MAX
PLANCK; THE EVOLUTION OF THEOLOGY, BY THOMAS HENRY HUXLEY; THE TROPIC OF SERPENTS, BY MARIE BRENNAN.


124 | FORBES FEBRUARY 28, 2018

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