Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

How the 0.001% invest

economist.com

Post reply on HN
Print view View original

71–80 of 216 posts

Re: How the 0.001% invest

#71

Post by sokoloff »

CompelTechnic wrote: post #66
ThrustVectoring wrote: post #39

Back when I was fantasizing about what I'd do if I won the lottery, I looked into family offices a bit and concluded that there's basically no point as far as the investing advice goes. It's still likely a good idea for some of the ultra-wealthy for estate, tax, and philanthropic purposes, but on the investment side? The standard passive indexing approach used by middle class individuals scales in a cost-effective ma…

There is one point you haven't considered: Even though a pure indexing strategy is appropriate, it is not appropriate to use Vanguard for this. At the billion-dollar level, assuming that the index funds had an expense ratio of .05% (among the lowest out there) you would be paying annually: 1,000,000,000*.0005 = $500,000 For that level of expense, you could instead have a one-man office or other service provider that…

VTSAX is 4 basis points of expense ratio. There are others with 3 bps and Fidelity has one with 0.

Even at 5 bps on a billion, I think you'd be extremely hard pressed to do everything Vanguard does for you for $500K/yr.

I'm at least a factor of 500 away from having to consider this question, but if you told me it would cost me $500K to have one fewer critically important person on my staff to deal with, that would be a good tradeoff in itself.

Re: How the 0.001% invest

#72

Post by whatok »

sokoloff wrote: post #71
CompelTechnic wrote: post #66

Earlier quoted context omitted.

There is one point you haven't considered: Even though a pure indexing strategy is appropriate, it is not appropriate to use Vanguard for this. At the billion-dollar level, assuming that the index funds had an expense ratio of .05% (among the lowest out there) you would be paying annually: 1,000,000,000*.0005 = $500,000 For that level of expense, you could instead have a one-man office or other service provider that…

VTSAX is 4 basis points of expense ratio. There are others with 3 bps and Fidelity has one with 0. Even at 5 bps on a billion, I think you'd be extremely hard pressed to do everything Vanguard does for you for $500K/yr. I'm at least a factor of 500 away from having to consider this question, but if you told me it would cost me $500K to have one fewer critically important person on my staff to deal with, that would be…

Yeah, I don't think it's that great of an idea. Any sort of operational or execution-related risk you introduce by replicating indices with single names could cost you a lot more than $500k and really isn't worth it.

Re: How the 0.001% invest

#73

Post by Blackstone4 »

mruts wrote: post #67
Blackstone4 wrote: post #35

The majority of the world's richest people have their wealth tied up in companies they either founded or inherited.... if they are investing their capital they have limitations most of us do not have to face. If I go from having to invest $1m to $100m to $100bn, my investment universe shrinks each time. For example, a small investor can invest in companies with market cap of ~$50m+....not possible for Warren Buffet.…

On the other hand, if you don't have a lot of money, many investment strategies become infeasible. The move from 1mm to 100mm would definitely increase your investment universe, not decrease it. With 100mm you can do private equity, VC, debt, illiquid and obscure stuff, EM bonds, etc etc. Most of that you can't do with 1mm. But you are right that going from 100mm to 100bn definitely shrinks your universe.

Most PE funds have a minimum of $5m-$10m (less for VC)... so even $100m isn't enough to go directly to a PE firm....typically at this size, you might go through a fund of funds...

Even at a small size, it's possible to invest in alternatives through public markets. I have my pension in listed private equity. You can also invest in private debt BDCs and closed-end funds that do infrastructure and a bunch of other things.

Re: How the 0.001% invest

#74

Post by dx034 »

mruts wrote: post #65
ThrustVectoring wrote: post #39

Back when I was fantasizing about what I'd do if I won the lottery, I looked into family offices a bit and concluded that there's basically no point as far as the investing advice goes. It's still likely a good idea for some of the ultra-wealthy for estate, tax, and philanthropic purposes, but on the investment side? The standard passive indexing approach used by middle class individuals scales in a cost-effective ma…

If I was a billionaire, I would be very very nervous just dumping my billions in a S&P 500 ETF. At that level of wealth, you really ought to have a portfolio manager who can slice and dice your exposure in advantageous ways. I don't think active management makes sense for the majority of folks, but billionaires are exactly the kind of people that it does make sense for. With a billion or two you can probably get your…

You also need to consider overlap of investments with the main source of income. For Bezos, it makes no sense to just buy a NASDAQ ETF since most of his wealth is already highly correlated with it. Either he hedges this effect out or skews investments otherwise. In either case he'll need knowledgeable people that can plan the effects on both financial and tax side.

That's also a likely reason why family office holdings often look very odd as they often only provide a hedge in case the main source of income dries up. And therefore, they cannot have any connection with it. Pure performance on a standalone basis is often only second priority.

Re: How the 0.001% invest

#76

Post by dx034 »

comboy wrote: post #70
blazespin wrote: post #41

After some small amount (5 million?) you are less interested in capital growth and more interested in protecting your capital. That’s what drives this the 0.001%

On the other hand, when you have $5M, you may want to protect it because if it goes down to $1M it makes a difference. For those ultra-wealthy though, if their wealth goes down 100x, it does not impact their comfort of living in any way. They just have less power. I'm sure it still does not feel good psychologically so I'm not completely disagreeing with you.

The problem is that most very rich people have very concentrated positions. The family office might only manage 10% of the wealth with 90% being in one company. The investment then has to be structured so that the 10% survive even if the 90% vanish overnight (unlikely but not impossible). The performance on those 10% isn't that important, ownership in the company drives most of the fluctuation in wealth anyway.

Re: How the 0.001% invest

#77

Post by Retric »

adventured wrote: post #58
charlesdm wrote: post #46

Earlier quoted context omitted.

It doesn't matter as he can easily borrow tens of billions against his Amazon shares.

Debt always matters when it's that large of a sum. If he borrows $10b over six years against $65b in shares, he would have been dramatically better off liquidating $10b worth of stock over ~18 months when it was worth $125b-$145b and having zero debt. He's 54, has been at the helm for 24 years and isn't going to run Amazon forever, the market isn't going to freak out if he sells a few points more of stock. Is Amazon…

He owns ~16% of Amazon so dividends on your hypothetical 20+ Billion in profit can cover a ~1 Billion per year hobby. Even ignoring his CEO pay and other investments.

At this point maximizing ROI is probably not a major concern for him.

Re: How the 0.001% invest

#78

Post by mark_l_watson »

It seems like the very rich feel comfortable having a large percentage of their wealth in a few investments. At the opposite end of the wealth spectrum, I like extreme diversification- caring to preserve some spending power in the face of an unknown future rather than maximizing investment gains. I believe that all people need to be happy is a comfortable place to live, good food and fellowship with friends and family. Because of this belief, a conservative highly diresified approach makes sense to me.

Re: How the 0.001% invest

#79

Post by Gustomaximus »

mruts wrote: post #62
potatofarmer45 wrote: post #42

I've worked for a family office in Hong Kong. What was really telling for me was how the rate of return KPI was measured. We were not benchmarked against the S&P 500, or any index. We were measured directly against the fund of another frenemy family. So long as the fund outperformed the other family, all was good. It's crazy because you could be underperforming treasury bonds, and still be good because the other offi…

I've seen the portfolio's of dozens of family offices (I worked at a portfolio analytics company so I had free reign to snoop around), and none of the offices seemed competent. The returns were terrible and the portfolio construction laughable. Instead of striving for out performance, the funds just catered to the whims and idiosyncrasies of the family. Also, many of these funds were too small to make sense, AUMs fro…

A friend of mine who manages ultra wealth people said most people who turn up don't say "How much can you make me" but say "Can you make sure I'm never poor".

It's often about preservation of wealth more than gains for these people.

That said I've discussed some returns they make and it's incredible. I don't want to say what I recall, as it was a couple years back and it sounds like an exaggeration. They said this is partly because they get access to deals that don't hit the wider market and you need serious cash to get in the room to have that chat. And I guess these manager have a bunch of the right people attached to them so it makes an easy stop.

Re: How the 0.001% invest

#80

Post by Klover »

mark_l_watson wrote: post #78

It seems like the very rich feel comfortable having a large percentage of their wealth in a few investments. At the opposite end of the wealth spectrum, I like extreme diversification- caring to preserve some spending power in the face of an unknown future rather than maximizing investment gains. I believe that all people need to be happy is a comfortable place to live, good food and fellowship with friends and famil…

The article clarified that family offices tend to invest in a quite economically healthy way: diverse, and more attracted to startups. Which is why the consolidation of money this time around does not pose the same threat as 1998.

Unless I remembered wrong. I read it on Thursday.

Post reply on HN