10:16 AM EDT on Monday, July 10, 2006

Berkshire Hathaway -- the public investment company in Omaha, Neb., that is run by billionaire Warren Buffett -- has deep roots in Rhode Island.

The history stretches back through generations of the Chace family, a long line of entrepreneurs, manufacturers, bankers and businessmen who became rich managing and investing in the company.

Malcolm G. "Kim" Chace III, an heir to the family fortune, ranks as one of the wealthiest men in Rhode Island. He is a private investor, a founder of Bank Rhode Island, where he remains chairman, and a benefactor of local arts and culture.

The family money was spun from textiles.

In 1806, Chace's ancestor, Oliver Chace, founded the Berkshire Textile Mill in Swansea. His ancestors had come to America from England in 1630 in the fleet with Governor Winthrop.

The son of a farmer, Oliver Chace learned carpentry and millworking while working for Samuel Slater, who set up the first water-powered textile mill in Pawtucket in 1790 and spawned the industrial revolution.

Chace later bought an ownership stake in another mill and equipped it with spinning frames and ideas he learned from Slater. He joined other investors to move and expand the spinning and cotton-weaving plant, renamed the Troy Mill, to Fall River.

Chace and his partners, and Chace's sons, acquired other mills in the region, including the Valley Falls Co., the Albion Mills, Tar-Kiln Factory in Burrillville, Manville Mills, and Moodus Cotton Factory in Connecticut.

By the early 1900s, the families that controlled the mills began to consolidate.

In 1929, several textile operations with common ownership through the Chace family merged with Berkshire Cotton Manufacturing Co., founded in 1889, to form the Berkshire Fine Spinning Association.

The company became a textile giant that spun a quarter of the nation's fine cotton in the 1930s; the Berkshire textile plants used 1 percent of all the electricty generated in New England.

Kim Chace's father, Malcolm Chace Jr., worked in the mills as a boy one summer and later told Forbes magazine that the work was "absolutely terrible. . . . I think they call it character building."

He moved up into management and eventually ran the company.

At its peak in 1948, Berkshire earned $29.5 million and employed 11,000 workers at 11 mills.

In 1955, Chace Jr. put together the merger of Berkshire with Hathaway Manufacturing Co., founded in New Bedford in 1888 by Horatio Hathaway, to form Berkshire Hathaway Inc. (Hathaway had no relationship to the shirt company advertised with a man wearing an eyepatch.)

By the 1960s, the Berkshire mill empire had declined to seven plants and 6,000 people, but still annually produced one quarter of a billion yards of material that sold for more than $60 million.

The assets, and a sizable amount of cash on the balance sheet, caught the eye of Buffett, an up-and-coming but little-known investor from Omaha.

Buffett, who had founded Buffett Partnership Limited to make investments, started buying stock in Berkshire at $7.60 a share. He eventually paid an average of $14.86 a share, or a total of $14 million, and took control of the company on May 10, 1965.

By then, the company had declined to two mills and 2,300 employees.

Buffett used Berkshire Hathaway as his investment vehicle, took the chairman's job in 1970 and acquired dozens of companies.

He wrung cash out of what was left of the textile business until about 1985 and reinvested it in growth companies.

Chace Jr. continued to serve on Berkshire's board and negotiated Buffett's acquisition of Diversified Retailing Co., a chain of 80 stores based in Baltimore. He remained one of Berkshire Hathaway's largest individual shareholders and his wealth grew as the stock price appreciated. (Forbes reported the cost basis was 25 cents for some of his stock that eventually became worth tens of thousands of dollars for each share.)

His wife, Beatrice (Oenslager) Chace, a trustee of the Providence Preservation Society, used some of the money from the family's textile holdings as seed capital for a company that bought a rundown section of Benefit Street in Providence and converted properties into a handsome row of historic homes.

She died in 1992. Chace Jr. died in 1996 at the age of 92.

Kim Chace replaced his father on the Berkshire board. He and other family members continued to be among the biggest individual investors in Berkshire Hathaway.

Currently, he owns 1,243 shares, or 0.099 percent, worth about $110 million, based on current prices. By comparison, Buffett, now 75, who is ranked among the richest people in the U.S., owns about 474,998 shares, or 38 percent.

Chace, 70, remains chairman of Bank Rhode Island, in which he is the single largest shareholder with 10.5 percent of the stock.

In 1998, Forbes magazine reported Chace owned 13,000 shares of Berkshire Hathaway and estimated that he controlled a fortune adding up to $910 million. Chace later told The Providence Journal that the number has changed and the money has been spread throughout the family.

Kim Chace and and his wife, Elizabeth "Liz" Chace, are active in community affairs. In 1999, they kicked off a fundraiser for Trinity Repertory Co. by donating $1.2 million and helping to bring in $20 million.

Other members of the Chace family are well known in the community. Kim Chace's cousin, Arnold "Buff" Chace, is a downtown developer who has helped spark Providence's revitalization.

While active in business and civic affairs, Kim Chace has never sought the public spotlight. In one of his rare interviews, he told Forbes magazine, "I do consider myself lucky."

Information for this column came from several sources, including: Representative Men and Old Families of Rhode Island, J.H. Beers & Co, 1908; Of Permanent Value, the Story of Warren Buffett, by Andrew Kilpatrick.

jkostrze@projo.com / (401) 277-7330