How the 0.001% invest • Hacker News Board

Re: How the 0.001% invest

#101

Post by dev_dull » Mon, Dec 17, 2018, 3:10 PM UTC

desdiv wrote: post #81

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…

VIIIX's[0] Institutional Plus Shares (with a $100 million requirement) has an expanse ratio of 0.02%, so that's $200k. It would be hard to find someone at this salary level who can match the tracking performance of Vanguard. If they achieve a tracking error that's 1% higher than that of Vanguard's, that would mean an annual loss of approximately $800k compared to Vanguard (1,000,000,000 * 8% * 1%). [0] https://instit…

This really is a no brained. With such a small fee with such a large investment you’d be extremely hard pressed to beat that performance (if all you wanted was to match an index).

Re: How the 0.001% invest

#102

Post by fujimotos » Mon, Dec 17, 2018, 3:13 PM UTC

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…

> 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.

Why? A couple of billions should still be a tiny drop if compared to the market cap of S&P 500. What do those active portfolio managers provide to you?

Re: How the 0.001% invest

#103

Post by barrow-rider » Mon, Dec 17, 2018, 3:14 PM UTC

whitepoplar wrote: post #68

mruts wrote: post #62

Earlier quoted context omitted.

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…

My guess is that most UHNWIs would do better to simply park their money in Vanguard index funds and call it a day.

Depends on risk tolerance and how flashy they want to be.

Donald Trump, if his public finances are to be believed, would have roughly the same net worth had he just invested the money his dad gave him in mutual funds. Instead he managed to create a series of failing companies and questionable ties... but managed to live the high life and stamp his name on bloody everything.

Re: How the 0.001% invest

#104

Post by wil421 » Mon, Dec 17, 2018, 3:21 PM UTC

barrow-rider wrote: post #103

whitepoplar wrote: post #68

Earlier quoted context omitted.

My guess is that most UHNWIs would do better to simply park their money in Vanguard index funds and call it a day.

Depends on risk tolerance and how flashy they want to be. Donald Trump, if his public finances are to be believed, would have roughly the same net worth had he just invested the money his dad gave him in mutual funds. Instead he managed to create a series of failing companies and questionable ties... but managed to live the high life and stamp his name on bloody everything.

Well it got him into the White House. I guess for Trump the image of being an important business man is worth much more than money.

Re: How the 0.001% invest

#105

Post by mruts » Mon, Dec 17, 2018, 3:27 PM UTC

fujimotos wrote: post #102

mruts wrote: post #65

Earlier quoted context omitted.

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…

> 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. Why? A couple of billions should still be a tiny drop if compared to the market cap of S&P 500. What do those active portfolio managers provide to you?

You don’t consider 100% exposure to purely US equities a problem? It’s a huge risk, especially in this market.

With a couple billion you can get yourself some nice deals in a bunch of different asset classes. Also with that kind of money you can put a chunk of your money in illiquid investments that potentially could provide some great returns.

Re: How the 0.001% invest

#106

Post by savanaly » Mon, Dec 17, 2018, 3:44 PM UTC

Gustomaximus wrote: post #79

mruts wrote: post #62

Earlier quoted context omitted.

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…

>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.

This is something I hear a lot and I just don't get. Are the people on the other side of those deals just...not greedy? After all, you are implying that the deal has better expected returns than what people are buying on margin in public markets, so why doesn't the person on the other side of the deal take a little more for themselves by selling there instead (at a slightly more favorable interest rate)?

Is it because the rich investors are needed to bring some level of expertise or connections to the investment to make it work? If that's the case, and it seems likely, I would not say they are getting "access to better deals" per se. More like they are getting a normal rate of return and they have a valuable asset that they are renting out as well (their expertise or connections), and it all gets rolled into one number. But complaining about the rich having valuable assets is different from complaining about them having access to better investment opportunities.

Re: How the 0.001% invest

#107

Post by gberger » Mon, Dec 17, 2018, 3:46 PM UTC

barrow-rider wrote: post #103

whitepoplar wrote: post #68

Earlier quoted context omitted.

My guess is that most UHNWIs would do better to simply park their money in Vanguard index funds and call it a day.

Depends on risk tolerance and how flashy they want to be. Donald Trump, if his public finances are to be believed, would have roughly the same net worth had he just invested the money his dad gave him in mutual funds. Instead he managed to create a series of failing companies and questionable ties... but managed to live the high life and stamp his name on bloody everything.

Wait, you're telling me he could have turned $1M into $3B just through investing in mutual funds?

Re: How the 0.001% invest

#108

Post by isoskeles » Mon, Dec 17, 2018, 3:48 PM UTC

EADGBE wrote: post #97

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…

> We were measured directly against the fund of another frenemy family. So "keeping up with the Jones'" is something no one outgrows then... Interesting.

This is a single anecdote.

Re: How the 0.001% invest

#109

Post by whatok » Mon, Dec 17, 2018, 3:50 PM UTC

savanaly wrote: post #106

Gustomaximus wrote: post #79

Earlier quoted context omitted.

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…

>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. This is something I hear a lot and I just don't get. Are the people on the other side of those deals just...not greedy? After all, you are implying that the deal has better expected returns than what people are buying on margin in public markets, so why doesn't the…

The sole reason that the path to public markets is a long and compliance-ridden one is enough to seek private investment. It's much harder to raise money in public markets than private ones.

Re: How the 0.001% invest

#110

Post by toast0 » Mon, Dec 17, 2018, 4:00 PM UTC

savanaly wrote: post #106

Gustomaximus wrote: post #79

Earlier quoted context omitted.

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…

>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. This is something I hear a lot and I just don't get. Are the people on the other side of those deals just...not greedy? After all, you are implying that the deal has better expected returns than what people are buying on margin in public markets, so why doesn't the…

Deals outside the wider market likely carry more risk, but when they work out, more reward. The other side of the deal may have time pressure and also doesn't have so many investors to shop their deal to, so they may not be able to be that agressive either.