Family Identity
Creating one will help the next generation understand who they are, and the Family Legacy they will carry on.
“Prepare the child for the path, not the path for the child”. Betsy Brown Braun, a well-known child development and behavior specialist is known for saying this and other expressions. I’ll take it a step further, and say that in my experience, the best guidance on that path is the commitment to a family identity and a consistent message that we, as leaders of our family, have to share along the way. Ours is perseverance and loyalty. We don’t give up on our friends, nor do we take advantage.
There are many families that are able to grasp the beauty in teaching the next generation to be productive. Then there are those that just haven’t been educated yet: “I made my money, and the kids get what they get when I’m gone.” “Giving my kids an inheritance will only make them lazy”. “I will not be one of those dads that creates a trust fund monster”. Living in California, especially in the Silicon Valley where fortunes are made every day, I heard all of these statements at some point from clients and friends. Creating rudderless trust fund babies is a valid fear. However, I truly believe that with effort and communication, we can create that family identity that the next generation buys into, and fosters long after we are gone. Why not have each family member discover their own cause or “impact investment”, and present the case to the rest of the family for consideration? The sooner this is started, the more ingrained the message and identity. I spent the majority of my career discussing ways to get the next generation involved in the family giving discipline either through a family foundation or a simple donor advised fund, but incorporating a thoughtful “impact” strategy is something everyone can do.
Real Estate and Private Equity Funds
The Case for Illiquid Alternatives in the Impact Space as a Teaching Tool
Throughout my 25 year career in wealth management, I have constructed portfolios using a few basic principles:
1) Buy ETF's and/or low cost mutual funds to invest in markets where information is a commodity. Cheap beta.
2) Spend asset management fee dollars on alpha generating strategies where investors can find inefficiencies.
3) Plan for liquidity needs first, and work backwards to find the percentage of the portfolio to be designated for alternative strategies.
4) Listen and communicate.
In my experience, investing is very personal. No one brags about their losses at the neighborhood barbeque, but you sure will know who invested in Facebook or Tesla by the end of the day. For the most part, however, traditional stock and bond portfolios haven't been interesting enough to get families to discuss their strategies with their kids. There are certainly opportunities to invest in Socially Responsible companies and/or funds, but the information the investor receives on a quarterly basis is generic at best. Besides, socially responsible investing, to me, is a defensive way to invest with a conscience. Impact investments are done in a pro-active way by, as Maxwell Drever says, "doing well by doing good".
I believe that through the use of compelling opportunities in the private equity and real estate sectors of the impact investment space, wealthy families can engage in meaningful due diligence that can motivate the next generation to develop a healthy relationship with money. The ongoing quarterly reports, project level progress reports through video streaming, discussions with direct sponsors of the funds, and ultimately seeing the direct impact the money they have invested has on people promotes a sense of direct involvement and pride. This, in turn, provides a forum for for educating the next generation about the positive influence wealth can have, and can be a great way to articulate the family's common value system.
Alpha
why it's important in your family dynamic too
In its simplest terms, when discussing portfolio returns, Alpha refers to the added out-performance of a particular investment when compared to others with similar risk. This is how investors quantify the smart decisions the manager of the particular investment makes in order to generate better returns than his/her piers. Whether you understood the concept before you read that description or not, we all inherently strive to outperform “the market”. When constructing portfolios, as I have said in the past, investors should save their “fee” dollars for this section of their asset mix. Finding inefficiencies in a particular sector of the market can be difficult, but this is why you spend the money to find smart people that have a competitive advantage. Information on the companies in the S&P 500, for example, is so widely available, I wouldn’t pay for advice on how to beat that index with a similar risk profile. On the contrary, since the dot com bubble burst in 2000, and Sarbanes Oxley was passed a bit later, the number of analysts covering the smaller sized companies has dwindled leaving many opportunities for those who have the time and expertise to find them.
In my experience, the greatest inefficiencies however, lie in the “illiquid” alternative investment space. It’s here that we find several forces working in our favor:
1) Variance in operator experience
2) Balance sheet disparity
3) Market Dynamics (size, liquidity premium, etc.)
4) General lack of understanding of the space by outsiders
5) Fragmented competitor base
All of these allow the astute investor to find opportunity where others might not. This kind of due diligence is what I find most valuable when families begin to work together to define their wealth management goals.
We now know what “Portfolio Alpha” is, but what is “Family Alpha”? I define Family Alpha as the amount of work a family puts into defining their identity, and their ultimate legacy above and beyond their piers of equal financial means. The inefficiencies in this space lie mostly with the following:
1) Motivation
2) Access to Superior Financial/Legal Advice
3) Ego
4) Education
5) Pier Group Advice/Bias
It’s been said that families spend more time each year on vacation plans than they do on their wealth planning. They spend even less on estate and wealth transfer planning strategies and discussions. All first generation wealthy families have a terrific opportunity to start learning and/or teaching in a collaborative way through the Impact Investment space. It’s a great way to get the next generation to buy into your family belief systems, and the concept of Social Responsibility. Impact investing can have several positive effects on a family. Not only can it be educational, and psychologically beneficial, but according to a recent article in Forbes, you don't have to sacrifice returns to make an impact!
In 2016 - Don’t Freeze to Death in Equities
Consider Strategies that can Grow, Protect AND Teach
Following seven years of increasingly strong equity returns, Ultra-High Net-Worth Family Offices have begun to see the value in not staying frozen in equities, while now proactively investing in strong, cash and alternatives based solutions. Also, critically important, for alternatives is to participate in sectors of the market that ideally have imbedded opportunistic inefficiencies, and/or illustrate “necessities of life” safety.
Consider participating alongside some of the historically prescient, wealthy families in the U.S, and around the world. They’re wealthy for a reason: they’re forward thinking and they mitigate their potential losses! By focusing specifically on three strong, legacy family offices, and the business models that created the wealth they control, we understand their capacity to not only survive uncertainties andfiscal traumas that are punctuated over decades, but to also thrive when others run. Their formula is simple, but not easy. They continue to focus on what they do best: striving to improve their disciplined work which protects their capital, while simultaneously generating outsized returns.
There is no question in our minds that Maxwell Drever’s, Marcelo Tomaszewski’s, and Randy Slifka’s families have demonstrated that they belong in this category.
The outstanding performance of Randy Slifka’s investment programs in both good times and in volatile markets is legendary among his peers and his inner circle of investors.
Marcelo Tomaszewski and his team have led the ten Brazilian families he works with to remarkable returns even as the Brazilian economy falters. They are true masters at locating value as others panic.
Likewise over four decades, Maxwell Drever’s “necessity of life,” housing investments have generated outsized returns.
Impact Investments
Additionally important to us, in our search for responsible, high quality social and environmental Impact Investments that consistently deliver Alpha, we believe the Tomaszewski and the Drever Families have hit the mark.
Slifka
Randy Slifka (Randy@slifka.net), has run his own family office for over 2 decades and is one of the most experienced hedge fund investors in the world.
He concentrates on non-market correlated strategies that, in conjunction, have generated for his family and his investors highly attractive risk adjusted returns in the high teens for nearly twenty years.
Slifka's portfolio of approximately 35 managers has less than 5% equity market exposure, combined with virtually no traditional credit exposure. This is a proven and winning strategy. He and his team are, alternatively, laser focused on managers who generate "pure" Alpha, or what Randy refers to as a specific definable "edge."
They emphasize "niche" strategies such as appraisal rights, settlement payouts, ETF arbitrage, and Market Neutral Multi Factor Variable Quant, which use big data analytics to process information at ever increasing efficiency. The majority of managers have Alpha/Cash Flow streams that are completely independent of the performance of the traditional markets.
A testament to Randy’s impressive agility and intelligence in the market in our opinion was when he posted a positive return in 2008. Not many can say that.
Drever
Maxwell Drever’s (maxwell@drever.net) strategy of cost-effectively providing “necessity of life” housing for critically under-served workforce families and retirees has been continually improved upon for over four decades. At the foundation is firstly, buying and building only at a low basis price along with low debt in relation to their peers. These tenets are coupled with their delivering a residential ambiance that translates to strong residence satisfaction as they pass the savings on to residents. As Maxwell aptly states: “it’s hard to hurt yourself falling out of the basement.” This strategy seamlessly and advantageously drives down costly turnovers of its units, a critical component in posting outsized returns to his legacy families and institutional investors.
Another unusually strong legacy driver is the fact that five Drever progeny are partially or fully engaged in improving their residential communities and resident services. Like Randy, Maxwell and his family rich team have generated returns averaging in the high teens with some ‘side car’ investments (reserved for current fund investors) garnering even greater success. The feature that make Drever’s investments additionally attractive to us are they are impact investments in critically under-supplied workforce housing that is indeed a necessity of life, which makes them intrinsically dependable to continue to generate out sized returns.
Drever Capital is currently closing out two club funds, and a sidecar JV, each with their own unique return of capital , and strong cash flow characteristics. We are told that in March 2015 Drever partnered with a major private equity firm that facilitated financing at 180 bps above LIBOR to acquire a portfolio of 20 workforce apartment communities as a seed for the Lightning Fund. The current multifamily portfolio is tracking to generate 10% cash flow payouts paid monthly vs. similarly focused REITs and other Real Estate funds hoping to acquire properties that will generate 5-7% returns.
Tomaszewski
Of the many strategies Marcelo Tomaszewski (marcelo@symbiosisinvestimentos.com) and his group of families relies on, we believe the effort to restore Atlantic Tropical Rainforest vegetation in the Northeastern region of Brazil is the most compelling. Eight years ago, a group of Brazilian families with very successful backgrounds in sectors ranging from Banking to Petrochemicals, Media, Research, Packaging, Construction, Mining, Logistics, and Food and Beverage decided to make impact investments in sustainable timberland that would help to restore part of the tropical forests in Brazil. Through their investment entity, ‘Symbiosis’, they developed a groundbreaking Silvicultural model dedicated to the restoration of degraded land in a sustainable and scalable operation. Among the senior members of the team is a 40 year veteran PhD Forest Engineer whose past assignments include director of Vale's forestry reserve/restoration of degraded lands operation.
From a pure portfolio construction standpoint, forestry is among the least correlated strategy to other asset classes, and provides an excellent hedge against inflation. Correlation coefficients to major asset classes:
- Commercial Real Estate: 0.00
- Corp Bonds: 0.01
- Russell 3000: 0.26
- S&P 500: 0.26
In addition, Marcelo and his team base their model on several diverse species in order to not only lower the biological and fire risks, but also to mitigate commercial risks from demand depression in one particular sector thus diversifying the investment even further.
With returns, again like Randy and Maxwell, projected in the high teens, Marcelo and his team estimate that with a 20-year investment horizon, their strategy can also be used in many estate-planning structures as wealthy families determine their own unique intergenerational transfer strategies.
In the End:
Accept the fact that it never feels good to invest during volatile times. Equally, be proactive with experienced investors and take advantage of opportunities when presented. We believe that finding alternatives that have withstood the test of time such as hedge fund investments with Slifka and impact investments with Drever and Tomaszewski, you will ultimately win with proven hedges in today’s volatile market.
All three families have periodic offerings. Please contact them directly to receive their investment particulars.
Drever Capital Management Symbiosis Investimentos Slifka Asset Management
From Prescription to Addiction: One Family’s Struggle
Shatterproof Blog (7/31/17)
A little over two years ago, the mother of my three teenage kids, Wynne Doyle, passed away from a prescription pain killer overdose. She had just checked out from the hospital where she had been recovering from kidney stone surgery five days earlier. Unfortunately, as is so common, no one checked her records for prescription substance use disorder signals. She had been hospitalized at that same facility over 50 times during the previous 15 years for everything from drug and alcohol overdose to self-mutilation in order to get a prescription filled. Over the five days she was there, she was secretly detoxing from the massive numbers of pills she was taking on a daily basis. She quietly checked out with her seven prescriptions, went home with my two sons, and took enough pills that night to bring her body back to the level she had been taking pre-surgery. Her heart stopped at some point during the night, and my boys found their mother the next morning.
My wife’s addiction affected the entire family. I moved out in 2008 after a tragic eight-year downward spiral stemming from opiates prescribed to Wynne after our third child was born via Caesarean Section. The prescriptions never stopped and, in fact, escalated along with the anger and shame she felt. The incidents we endured were too extraordinary for many to believe so I began to write what I could remember. Much of my motivation was anger at the circumstances that had led to her demise. The more I wrote, the more emotion poured out of me. What had started off as a beautiful seven-year period of dating, starting a family, and building my successful career had ended in a slow death as I tried to ‘fix’ the situation. If only she could realize what she was doing, I thought, then she’d stop and come back to us.
She attended 13 rehabilitation institutions; some of them considered the best in the country. She never recognized that she had a problem, and therefore didn’t embrace the treatment nor the people trying to help her. The shame she must have felt, coupled with the anger at me for continually trying to fix the situation made for a toxic environment that set her up for failure at every turn.
I decided that the kids deserved to have their mother’s life mean something so I became involved with Shatterproof, the only organization I felt understood what we as a family had figured out: Shame and stigma are perpetuating this disease. Wynne never intended to hurt us. She fell into a trap and she couldn’t get herself out. I ultimately had to leave with the kids to save ourselves from complete financial and emotional ruin. I knew I had to share my story to help other families. I was part of a Shatterproof delegation that testified at the CDC prescription guideline hearing in January 2016. I took part in a HBO documentary, Warning: This Drug May Kill You, about the opioid epidemic directed by Perri Peltz. During filming, Perri mentioned that I should write a book to fill in more of the details. I looked at the notes I had kept throughout this time, and I realized they were mainly rants that were not going to help anyone understand what happened any better, and I was not proud of the venom I had spewed (even though for me it had been cathartic to a certain extent). So I started writing and recently published my book, Sedated: The Secret That Everyone Knew.
The book shares many of the extraordinary stories that led to Wynne’s death, but it also details the failures and triumphs we, as a family, had along the way. I’m hopeful that readers who have something similar going on in their home or nearby will not only find compassion for the person suffering from a substance use disorder, but connect in some way to our experiences, and make more informed decisions. In many cases, there is no right answer, and often we had to choose between two no-win situations. But today I am full of gratitude for our experiences, and that we have the ability to talk with others about them—because we all need to know and share our experiences if we want to come to grips with the heartbreaking and humbling national epidemic of opiate addiction.
Author Note: I am donating 50% of the proceeds from my book, Sedated: The Secret that Everyone Knew to Shatterproof. Please support my fundraiser by purchasing the book on amazon.com or by making a donation to Shatterproof today.
