How the 0.001% invest • Hacker News Board

Re: How the 0.001% invest

#121

Post by vharuck » Mon, Dec 17, 2018, 4:36 PM UTC

dgudkov wrote: post #112

I struggle to understand the point of the article. >Rich clients have taken a closer look at private banks’ high fees and murky incentives, and balked. OK. Rich clients were not happy with the way external managers managed their funds and decided to do it themselves. I get it. >As they grow even bigger in an era of populism, family offices are destined to face uncomfortable questions about how they concentrate power…

The author floats and addresses possible worries, especially because populism focuses on comparing the "haves" and "have nots."

The say "family offices create inequality" could be a worry, but that it has no merit. From the article:

>The most obvious of these is the least convincing—that family offices have created inequality. They are a consequence, not its cause.

Re: How the 0.001% invest

#122

Post by cascom » Mon, Dec 17, 2018, 4:42 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…

you're missing a couple of other factors, one is timing and being bale to move quickly, a perfect example is the warren buffet's investment in GS during the financial crisis [1]. GS didn't show that deal to the world - it went to someone that they knew could act quickly (one decision maker) and stroke a big check....

[1] https://qz.com/67052/heres-how-warren-buffett-made-3-1-billi...

Re: How the 0.001% invest

#123

Post by jartelt » Mon, Dec 17, 2018, 4:43 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…

Think of it like a venture capital deal. If you wanted to invest in Uber in their seed round, you couldn't get in the deal unless you had a fund set up or you were an accredited investor and had a connection to the founders.

This type of deal can get you huge returns but is also very risky.

Re: How the 0.001% invest

#124

Post by mikestew » Mon, Dec 17, 2018, 4:44 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…

Is it because the rich investors are needed to bring some level of expertise or connections to the investment to make it work?

My first thought was regulation. See: accredited investor. One can sell to accredited investors, and caveat emptor, or get buried in a whole new ass-load of paperwork and butt-microscopes selling to retail.

My second thought was scaling, or selling in volume. Why do companies sell wholesale? Because they don't want to deal with nickel-and-dime buyers, there's a whole new set of infrastructure and process needed for that. Take a little less profit to sell one big block rather than doling it out to retail investors.

Re: How the 0.001% invest

#125

Post by SilasX » Mon, Dec 17, 2018, 4:45 PM UTC

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…

There was a line from the first season of the TV show Silicon Valley: "Are you kidding? [Rich VC] would spend a million dollars just to mildly annoy [competing VC]!"

Re: How the 0.001% invest

#126

Post by thesausageking » Mon, Dec 17, 2018, 4:56 PM UTC

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…

> The standard passive indexing approach used by middle class individuals scales in a cost-effective manner to the billions of dollars of assets

Family offices are more like endowments and follow similar strategies that will have a portfolio that includes a mix of public equities, bonds, private equity, hedge funds, and real estate. Many of these investments are illiquid and have long holding periods, so aren't available to normal investors but can provide much better returns than index funds.

In addition, when you have >$100m in wealth, consistent, predictable returns become very important and index funds don't give you that. It took 8 years for the S&P 500 to recover from the dotcom crash and 6 years for the 2008 crash.

Re: How the 0.001% invest

#127

Post by petra » Mon, Dec 17, 2018, 5:01 PM UTC

alehul wrote: post #116

barrow-rider wrote: post #103

Earlier quoted context omitted.

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.

To offer a better and less political answer: the reason that an UHNWI doesn't park their entire net worth in an index fund is because there is some probability, however minute, that the markets will collapse and never recover. Additionally, we could say that success in active investing is (often) a function of how much you're willing to spend to find the right opportunities. For an UHNWI, this is likely enough to bea…

>> we could say that success in active investing is (often) a function of how much you're willing to spend to find the right opportunities

Is this also true at the level of the small investor ?

Say I'm willing to spend a few hours a day learning and researching about stocks. Does this mean that over time, I'll be able to significantly beat the index funds ?

Or is it, more likely, a fool's errand, because that as a small investor, I don't really have enough bandwidth and money to significantly diversify ?

Re: How the 0.001% invest

#128

Post by charlesdm » Mon, Dec 17, 2018, 5:02 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…

Example: if I'm an entrepreneur and I see an opportunity, and I have a friend with the resources to support me and who also thinks this is a good idea, then I'm not going to go out and raise funding from random strangers.

You'd be surprised how many deals like that are out there. Many entrepreneurs do business with a few solid partners during their lifetime.

Aside from that, there are other reasons:

1. You don't want to invest everything in the public markets, i.e. acquiring an interesting existing business and growing from there could be a good idea.

2. Some of these businesses might be less prone to losses during a recession or stock market correction, so they might serve as a buffer for cashflow and income.

3. These deals might have higher upside, because of information asymmetry or something that isn't blatantly obvious to other people. Alternatively, you might have access to different channels that could easily grow the business.

Re: How the 0.001% invest

#129

Post by drewrv » Mon, Dec 17, 2018, 5:03 PM UTC

dgudkov wrote: post #112

I struggle to understand the point of the article. >Rich clients have taken a closer look at private banks’ high fees and murky incentives, and balked. OK. Rich clients were not happy with the way external managers managed their funds and decided to do it themselves. I get it. >As they grow even bigger in an era of populism, family offices are destined to face uncomfortable questions about how they concentrate power…

At a micro level, taking money out of a deposit and investing it does not create inequality. At a macro level, the fact that simply having wealth begets more wealth in a way that labor cannot accomplish is a driving force behind inequality.

Re: How the 0.001% invest

#130

Post by captainbland » Mon, Dec 17, 2018, 5:03 PM UTC

dgudkov wrote: post #112

I struggle to understand the point of the article. >Rich clients have taken a closer look at private banks’ high fees and murky incentives, and balked. OK. Rich clients were not happy with the way external managers managed their funds and decided to do it themselves. I get it. >As they grow even bigger in an era of populism, family offices are destined to face uncomfortable questions about how they concentrate power…

> How on Earth is it related to populism?

In this case I suspect the author is talking about a popular interpretation of populism where a politician in question intends to make sweeping changes to constitutions and rights where those are seen to be working against the popular interest.

In this case the answer might be to curb the rights of specific types of family investors somehow, for instance in European property markets (to take an example from the author) where this is seen as distorting the markets and causing pain to people - for instance not being able to afford housing, or ending up in negative equity because such funds pull out of the market and cause a bubble to collapse.