TO OUR CLIENTS, SHAREHOLDERS, AND EMPLOYEES,
The world isn't standing still, and neither are we. During 2012, Bessemer Trust continued to evolve, building on our strong foundation by embracing change.
We implemented an important leadership transition in 2012. After nearly two decades at Bessemer, including 11 years as chief executive officer and president, John A. Hilton, Jr. retired from his role at year-end. We thank John for his many contributions to Bessemer, particularly his passion for delivering highly personalized client service, his commitment to sustaining our firm's distinct culture, and the high standards of integrity he set for himself and everyone at the firm. John continues to support Bessemer's activities from our Miami office.
|Stuart S. Janney, III, Chairman, and Marc D. Stern, Chief Executive Officer|
As part of the transition, George Wilcox was named president. Since joining Bessemer in 1998, he has taken on successively greater responsibilities, most recently as head of client service. George's extensive experience working with wealthy families and his disciplined management skills have reinforced the firm's high professional standards.
We also made several changes within our investment platform. Early in 2012, we replaced one of our senior portfolio managers and completed the addition of external firms, Sands Capital Management and Oldfield Partners, to our equity lineup. At midyear, Rebecca H. Patterson joined us as chief investment officer from J.P. Morgan Asset Management, where she had extensive experience advising institutional and private clients on their investment portfolios and asset allocation. Rebecca's broad global knowledge and strong communication skills are well suited to lead our investment team.
The investment landscape itself was in transition last year. As 2012 began, investors were weighing strong corporate profits, ongoing fiscal challenges in major developed countries including the U.S., and slowing economic growth in China, India, and Brazil. Despite this mixed picture, global equity returns were unusually strong. European stocks posted particularly robust gains, and high-yield bonds, mortgage-backed securities, and emerging-market bonds generally kept pace.
In this environment, our Balanced Growth model portfolio — comprised of global equities, bonds, credit investments, commodities, and hedge funds — rose 9.9% in 2012. A significant cash position held at the start of the year to guard against European turmoil detracted from our returns, as did our exposure to commodities, which struggled amid soft global demand. Consequently, our overall results trailed the benchmark by about 1.5 percentage points despite favorable decisions to underweight government bonds and own a range of high-yield securities. Favorable returns in the second half of 2012 were encouraging, and we believe that recent shifts in equity portfolios and asset allocation will continue to benefit clients over time.
Even as we moved ahead with these changes, we remained resolute in our commitment to deliver superior service to clients.
Of particular importance in 2012 was planning for potential tax law changes. The exemptions from the gift, estate, and generation-skipping transfer taxes were scheduled to revert from over $5 million to $1 million on January 1, 2013. In addition, the tax rate on transfers above these exemption amounts was slated to increase from 35% to 55%. Although we knew that Congress could eventually act to make adjustments (which they did in the first days of the new year), the scheduled changes were so far-reaching that we worked with many clients to take advantage of the 2012 exemptions by making gifts to their beneficiaries, mostly in long-term trusts. In the last three months of the year, we were named trustee of nearly 500 new irrevocable trusts, many of which were created in Delaware. Our client advisors and estate planning professionals worked together tirelessly to ensure these trusts were reviewed, executed, and funded on time. We commend Chief Fiduciary Counsel James L. Kronenberg, who after 11 years with Bessemer assumed his new role last year following the retirement of William H. Forsyth, Jr.
Throughout the year, we stayed focused on building long-term relationships with clients. Existing clients made positive net contributions to their Bessemer accounts for the fifth consecutive year. More than 125 new clients joined in 2012, half of whom were referred to us by clients and professional advisors. At year-end, Bessemer supervised $78 billion for nearly 2,200 individuals and families.
We also continued to invest for the future. Important steps included hiring professionals to key roles, enabling us to maintain our industry-leading 3:1 ratio of clients to employees; reducing management fees primarily associated with our fixed income portfolios; and increasing our expenditures on information technology by 10% to enhance operational efficiency.
Taken all together, the firm remains well positioned. Net income for the year was $49.0 million, a decline year-over-year but above 2010 results. Income distributions related to 2012 earnings were $4.13 per share. The company remained well capitalized by regulatory standards, with total shareholders' equity of $257.3 million and no outstanding debt as of December 31. For more detailed information on our financial results, please see page 6 of the Annual Report PDF.
We are grateful for the support we received from the Bessemer board of directors during a year of transition, and we offer sincere thanks to three directors who retired at year-end: Dorothy B. Moore (a director for 24 years), Winthrop Rutherfurd, Jr. (20 years), and Ward W. Woods (20 years). It is a privilege to welcome William H. Moore, IV and Basil P. Zirinis to the board.
We are fortunate that our firm is well grounded, with a solid foundation of private ownership and a singular focus on wealth management. Our family office mindset, client-centric philosophy, and collaborative culture will remain at the core of our ethos. We are convinced this structure and approach provide an ideal environment for our employees to build lasting careers based on dedication, hard work, and integrity.
As always, we would like to thank our clients for the trust they have placed in us. We will continue to look for ways to improve how we serve clients, and we look forward to keeping you informed of our progress.
Stuart S. Janney, III
Marc D. Stern
Chief Executive Officer