Elizabeth Harris
08/01/06
John Calamos built his firm, Calamos Asset Management, into a runaway success. But by doing so he placed his heirs in a precarious position; if he were to die with most of his wealth locked in the family firm, they would be forced to dismantle it to pay estate taxes.
Just two years ago, most of John P. Calamos’ personal fortune, then about $2.1 billion according to Forbes magazine’s rankings, was tied up in his investment firm, Calamos Asset Management. “The wealth that we have created as a family has really been in this business,” Calamos says. But despite not being ready to retire at 65, he came to realize that having the family’s wealth in an illiquid asset could prove disastrous to the firm—and the family—if he were to die unexpectedly.
Calamos’ parents were Greek immigrants who opened one of
the first grocery stores in their Chicago neighborhood. As a child, he delivered
groceries, stocked shelves and swept floors. He first dabbled in the markets as
a teenager, when he convinced his mother to let him invest $5,000 of the
family’s savings. He invested profitably in five growth stocks, which he held
for several years. Calamos eventually earned an MBA in finance and found a job
as a broker, a field in which he would develop a specialty in the then-niche
market for convertible bonds. He would build his reputation as a leading
investor in the market for these complex securities after he established his own
firm in 1977.His firm today has nearly $50 billion in assets under management and 331 employees, but it remains very much a family operation. Calamos holds the roles of chairman, CEO and chief investment officer. His son, John Jr., helps run the firm’s nine investment funds. His nephew, Nick Calamos, is co-CIO.
Success and Succession
Calamos was determined to keep the business in
family hands, so as the firm grew and he amassed his wealth, he was dismayed to
realize that with a major portion of his net worth tied up in a very valuable
business, his heirs would, in all likelihood, be forced to sell the firm to pay
estate taxes if he were to die without a plan. (Using published estimates of his
net worth as a guide, his family would have owed about $900 million in federal
estate taxes in 2004.) He could not gift enough of his wealth to his family or
buy an adequate amount of life insurance to provide the capital they would need
to pay an estate tax levy of that size.
Since the mid-1980s, Calamos had been
a member of The Executive Committee International (now Vistage), an
organization that brings together CEOs in regional groups for peer-to-peer
discussions about business concerns. Succession planning emerged as an important
theme, and, at the suggestion of the group, Calamos created an advisory board
composed of three independent directors to think strategically about his
business. The advisory board proposed taking a small portion of the company
public to raise capital. Calamos agreed, and put the idea before his full board,
which approved it unanimously.
The 2004 IPO spun off a 23 percent stake and
raised $414 million. The family retains the remaining equity in the firm’s
holding company, Calamos Family Partners, of which Calamos, his son and nephew
are principals. Though some industry analysts, including John Bogle, the
Vanguard funds founder-turned-author and financial cynosure, have raised
concerns about the extent of the family’s control, the stock has performed well.
After debuting at $18 per share, it was recently trading around $32, down from a
high of $44.
From the IPO proceeds, Calamos committed about $200 million to
go into new funds and investment products. The proceeds also provided sufficient
liquid assets to allay concerns about having to dismantle and sell the company
to pay estate taxes.
The liquidity event also presented an opportunity for the family to pursue
philanthropic goals; they launched the John P. Calamos Foundation in 2005.
Calamos was the first in his immediate family to go to college, and so his
foundation is geared toward offering scholarship programs. It has also made
several grants, including a $2 million donation to the Hellenic Museum and
Cultural Center scheduled to open in Chicago in 2008. His son and daughter serve
as trustees of the foundation, and in that capacity help their father seek out
projects that honor their Greek heritage and expand educational
opportunities.
Today, Calamos and his nephew serve on the board. John Jr. and his sister,
Laura Calamos Nasir, hold nonvoting seats. Calamos hopes to keep his daughter
engaged in the business, although her career interests lie elsewhere. With three
grandchildren and two step-grandchildren, Calamos is considering an internship
to introduce the third generation to the business.
However, the question of who in the next generation will run the family
business remains. Calamos hopes that it will be a family member, but says that
the board will have final say when the time comes to pick his successor. Nick
Calamos has significant operational and investment experience, but his uncle
would not object to having an outsider run the day-to-day business if the family
can continue to oversee the investment business.
Portraits by Michael Candee/Illustration by Allan Burch.
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