Oct. 16, 2023

A business that has helped define South Dakota’s trust industry has a new owner.

South Dakota Trust Co. has been acquired by JTC, which began as Jersey Trust Co. in 1987 — a reference to its headquarters on the island of Jersey, a self-governing British island territory near the northwest coast of France.

The deal significantly strengthens JTC’s domestic trust business. The company is publicly listed on the London Stock Exchange, has 28 offices in 22 countries and offers fund, corporate and private client services.

“SDTC is a great addition to the JTC Group. It is a market leader in the fast-growing personal trust market in the U.S., which in turn is the largest in the world. It has a highly committed, service-focused team with deep client relationships, an outstanding track record of profitability and growth, and is hugely complementary to our existing U.S. operations,” CEO Nigel Le Quesne said in a statement.

“Not only does it bring us greater scale in the U.S., it also provides significant opportunities to offer our wider private client services to their high net worth and ultrahigh net worth family clients. The acquisition also very much delivers on our previously announced strategy to grow a market-leading U.S. personal trust business. We are delighted to welcome SDTC’s valued colleagues, clients and partners, and very much look forward to the significant opportunities ahead of us in this exciting growth market.”

The deal, valued at up to $270 million, signifies the scope and scale South Dakota Trust Co. has achieved in its more than 20-year history.

The Sioux Falls-based company serves more than 1,700 high net worth and ultrahigh net worth family clients, including more than 100 billionaires and 350 centimillionaires. It employs more than 100 people in South Dakota, including 60 trust officers.

“It’s a family business – my group is my family – and it’s kind of emotional,” said Pierce McDowell III, who co-founded the company with Al King and serves as co-CEO. “The reason we’ve been successful is our people … but they really bought us to continue to have us manage their domestic business.”

JTC represented the right deal with the right people at the right time, said Matt Tobin, SDTC’s managing director, who has been with the company since 2008.

“I think at some point owners have to grapple with, ‘What do we do next, where do we go from here, should we expand into other jurisdictions, do we take on an equity partner, do we sell?’ and this opportunity came to them, and first and foremost, they had the sense it had the potential to be a really good fit.”

Pierce McDowell and Matt Tobin 

JTC has a small Sioux Falls office, which introduced the two firms, but its major presence is globally. In terms of business models, the two complemented one another as neither manages money. Instead, money managers often refer clients to SDTC as they learn about the benefits of South Dakota’s trust industry. JTC also offers additional services that could apply to SDTC clients.

The company’s presence in South Dakota “will likely grow,” Tobin said. “We will continue to have a presence here in Sioux Falls as well as in Rapid City. Everybody’s job is safe. We need everybody we’ve got to keep doing what we’re doing.”

Growing an industry

The roots of South Dakota’s globally recognized trust industry might be traced to the mid-1990s, when McDowell and King were graduate students at Northwestern University.

After an estate planning class, McDowell went up to the professor and told him two things.

“I said, ‘We don’t have an income tax in South Dakota,’ and he didn’t even raise an eyebrow,” McDowell said. “Then I said, ‘We don’t limit the duration of a trust,’ and I thought his eyes were going to pop out of his head.”

Years prior, Gov. Bill Janklow had initiated a law to do away with a rule against perpetuities, which limit the duration of a trust to several generations. South Dakota became the only state in the country to offer a long-term trust without a state income tax.

“We really didn’t know what we had, I don’t think, until that goofy question I asked the professor after class,” McDowell said. “He said: ‘That is unique to the world. You’ve got to write about this, and I know just the guy to get you published.’”

As it turned out, his professor was an editorial consultant for Trust & Estates magazine, which published McDowell’s piece in 1993. Shortly after, he connected with King, who happened to be heading up estate planning at Citibank and also attending Northwestern.

Pierce McDowell and Al King

“We got together, and remarkably he was able to convince the powers that be … to set up CitiTrust South Dakota,” McDowell said. “It was part of Citi, and we were the only trust company in America, I’m sure in the world, that was located in an industrial park.”

But despite the uniqueness of what South Dakota offered, the story still needed to be told.

“Al was one of those types who was an evangelist. People would listen to him speak,” McDowell said. “People would flock up to the podium; he was that good. It just kind of turned the sleepy trust industry on its head.”

The two traveled the country, “they knocked on doors, they were laughed out of a lot of boardrooms and offices initially,” Tobin said. “And then, it’s just slow and steady wins the race. It wasn’t overnight. It was just a handful of clients here and an opportunity there, and they just kept telling the story and chipping away.”

The state formed a trust tax force that continually reviewed potential changes needed to the law.

“We really had good legal minds to make sure everything we were doing was aboveboard,” McDowell said.

His career trajectory, though, took a turn.

He was let go at Citi shortly after Sept. 11, 2001, after refusing to consider changing the business model to financially manage clients’ assets.

“I went to Mass every day. That was where the solace was,” McDowell said.

“And it was … a very perilous time. You’re just kind of wondering, ‘What am I going to do?’ But Al came to the rescue and said, ‘There’s nobody I can turn to.’ We’re the yin and the yang. I’m the guy who represented South Dakota for him.”

They formed their own company in 2002 and slowly began to grow.

“And the key was hiring great people,” McDowell said. “It’s kind of the nature of the people in South Dakota. They’re just good people. They’re hard workers, they answer the phone. Elsewhere these days, how many times do you get a real person and somebody with some empathy? That hugely makes a difference with the relationship. And this really is nothing more than a relationship.”

Relationships flourish

Today, South Dakota has more than 115 trust companies licensed to do business in the state, a mix of public and private trust companies. A public trust company, like South Dakota Trust Co. or JTC, essentially acts as the trusted third party in a relationship between the person who established the trust and the person the trust was established to benefit. SDTC is the trustee for approximately 4,000 individual trusts.

While public trust companies can do business with anyone and market their services, a private trust company is established solely as trustee for members of a designated family. It’s formed as an LLC, and only family members are clients. The names of the families often aren’t publicly disclosed because there’s no requirement for it.

Tobin estimates that supporting the private family trust companies with corporate, compliance and trust administration services is about one-third of SDTC’s business.

While the private family companies tend to attract the most attention, they’re generally formed because families prefer to populate the operation and its boards or committees with people they know and to tailor processes and procedures to meet the family’s needs. Plus, many such families are entrepreneurs, and that entrepreneurial nature extends to creating a private trust company, Tobin said.

“Usually, the people involved have started companies, they’ve sold businesses, they’ve started others. They’ve made it big, so that spirit of being involved and creating something and making it your own is very much alive with them,” he said.

That spirit of involvement extends to South Dakota, Tobin added. South Dakota Trust Co. established a foundation administered by the Sioux Falls Area Community Foundation about a decade ago. In addition to the company contributing to it and other philanthropic efforts, it’s a way for families served in South Dakota to also give back.

“They’re all willing to give back, they just don’t know where or how, so we’ve tried to facilitate that for them,” Tobin said. “We still have families that give to South Dakota directly in ways they find work for them, which is great, but most of our families give to the foundation.”

The giving benefits many area nonprofits, including those that address food insecurity, the arts and education.

“I want to continue to do that because I think that’s what it’s really all about,” McDowell said. “It’s a gift from God, and you want to do what God wants you to do with it. I want to instill that in my family and instill it in our work family.”

Now 65, he plans to continue helping lead South Dakota Trust Co. while committing to spending more time outside of work.

As he reflects on the industry cluster created in the state, he sees a dual benefit – both for those locating trusts in South Dakota and for the state itself.

“It’s kind of the American dream,” he said. “Those that are fortunate enough to be successful want to be good stewards over what they’ve been blessed with, and there’s a real positive industry here.”

Ultimately, the business has two things to sell, Tobin said: situs and service.

“We sell situs, that South Dakota is the best jurisdiction in the country to locate your trust, and service. We think we’re the best at what we do,” he said.

“You’ve got a state that positioned itself to be the top jurisdiction and be a leader and a couple guys who recognized the opportunity and put this in motion at Citi and were able to step out of that and create their own company. But they really started it in their own kitchen and just took that Rolodex and put a lot of energy and sweat equity behind it, so they just worked hard and treated people right. It’s fun to celebrate when good guys finish first.”