American Legacy Business Report
The Next Wealth Frontier Podcast
Legacy Business Market News And Interviews
American Legacy Businesses Report: The Next Wealth Frontier is the podcast where we delve into the opportunities and strategies for investing in undervalued small businesses. Hosted by expert leaders Scott Hauck and Heidi Diemer from Legacy Capital Fund, each episode features expert insights and guests exploring paths to to capitalize on the current economic landscape, the impending retirement wave of legacy business owners, and the unique landscape of private equity investments.
Subscribe for weekly trending financial news as we uncover the secrets to transforming undervalued enterprises into thriving businesses, offering insights into high-return, low-risk investment opportunities across various industries, including web-based technology, transportation, and logistics.
Sponsored By:
Guest Experts:
Eric Simons is a certified financial planner and personal business manager over 40 years of experience in the financial industry.
He's the founder of Simon's Financial Network, a financial services firm based out of New York City and specializes in helping clients make smarter money decisions to gain and keep control of their finances, often called upon to assist with family offices, tax issues, worse planning, risk managed investing and multi general generational estate planning.
JADE MILLER
President, Capital Markets
/ Bourne Financial Group
Board President, Alternative & Direct Investment Securities Association
Jade Miller is responsible for structuring the Bourne investment Programs, sourcing equity with Broker Dealer, RIA, and institutional relationships while managing sales efforts across all offerings and distribution operations.
Jade holds a B.S. in Finance and Economics, and holds both Series 7 and 63 Licenses.
Show Transcript
Randall White (Show Producer)
Welcome to the American legacy business report the next wealth frontier podcast it's the timely podcast with news and news of the current investment and financial climate featuring expert guests from the family office RIA multi-strategy fund and accredited investment communities
I am Randall Scott White, the show producer, proud to introduce our esteemed hosts, Scott Health and Heidi Deemer, Scott and Heidi. Hello, welcome back.
Randall White (Show Producer)
We have a great show today for our listeners, just tuning in for the first time.
Your esteemed hosts, Scott Hauck is the founder and general partner at Legacy Capital Fund, a seasoned professional with, of course, extensive experience in business management, marketing, and private equity, which is why he is the host of this show.
He has over $2.5 billion in revenue to speak for in businesses and clients, successfully completing major M&As, including with uni-shippers, Galileo, trends, solidified for $1.2 billion.
Scott, I am always pleased to produce the show and Heidi Deemer, of course, a wealth management professional with over 15 years of experience throughout her career.
Heidi's followed her passions in this field, pursuing her roles in boutique asset management, investor relations, venture capital. She lives in New York City, bringing her love and gamut.
of experience to legacy capital as our Chief Investment Officer.
Scott Hauck
Yeah, we're excited for this show. We have some great guests lined up today. Well, Heidi, let's get into the news, what’s happening in the financial markets this week.
Heidi Diemer
What's happening in the financial markets this week? Yes, Scott. So definitely a lot going on right now with big implications for markets, so let's get into it.
The first news item up for today is a discussion on this major cybersecurity incident that's caused massive financial impact on multiple Fortune 500 companies.
A recent cybersecurity incident involving CrowdStrike, a major player in the cybersecurity industry, has resulted in significant financial repercussions for Fortune 500 companies.
According to estimates by insurance provider Parimatrix, these corporations are expected to face losses totaling 5.4 billion excluding Microsoft. The incidents stem from a faulty update to CrowdStrike's security software, which caused widespread disruptions to computers running Microsoft's Windows operating system.
This outage affected a broad spectrum of industries, including airlines, banking, and healthcare, highlighting the far-reaching consequences of such technological failures.
The incident has raised concerns about cybersecurity vulnerabilities and the potential financial risks associated with reliance on key technology providers.
It's also brought attention regulatory implications, particularly to the SEC's new cybersecurity disclosure rules for publicly traded companies. This incident serves as a stark reminder of the critical importance of robust cybersecurity measures and the potential consequences of technological dependencies in today's interconnected business landscape.
And Scott, tell me, what is your take on CrowdStrike and the repercussions of what's happened here?
Scott Hauck
Well, with $5.4 billion in losses and costs. including insured losses ranging from $540 million to $1 billion, this event underscores the critical importance of robust cybersecurity measures and the potential financial risks associated with technological dependencies.
For RIA's family office managers and multi-strategy funds, this incident serves as a stark reminder to reassess their exposure to cybersecurity risks, and to consider the potential impact of similar outages on their portfolios
Heidi Diemer
So up next, I've got a story here and it really focuses on something important to us. The family office boom is proving hugely positive for alternative investments.
And so this, this is going into a recent report by investment data firm Prequim, They've revealed a substantial increase in the number of family offices globally, which surged by more than 21% last year to 4,592 tripling since 2019.
North America dominates with the largest share housing 1,682 family offices and holding over half of the global assets managed by these entities.
And this trend highlights the rapid growth rate of family office sector driven by the rising fortunes of high net worth individuals worldwide.
Forbes has described 2024 as a record year for billionaires with the number of billionaires reaching 2,700 181, an increase of 141 from the previous year, and their combined wealth hitting $14.2 trillion, up by $2 trillion from 2023.
Looking ahead, the family office sector is expected to continue its growth with 70 percent of family offices anticipating increase in assets under management AUM in 2024.
So Scott, what can you tell us about what's driving this growth and what it could mean for asset managers such as ourselves?
Scott Hauck
Sure, you know, the anticipated great wealth transfer where millennials are set to become the richest generation in American history is significantly influencing the creation and investment strategy of family offices. This demographic shift is driving a focus from wealth creation to wealth retention and succession planning. As family offices prepare to transfer wealth to the next generation, investment strategies are evolving to ensure long-term sustainability.
Investment managers and advisors should be aware of this shift as it presents opportunities to offer tailored services that address succession planning and intergenerational wealth management.
Randall White (Show Producer)
Well, we'll be covering this topic a lot more today with our expert guests, so that is definitely a timely article.
Heidi, our third news headline this week is?
Heidi Diemer
Absolutely, our third news story of the week focuses on RIA in the relationship with investment firms and how that's changing.
Pressline Investors, a private credit specialist, has just announced a strategic investment in Credent Wealth Management, a 2.6 billion RA.
Echelon Partners, which acted as the investment banker for credence, reported that the second quarter of 2024 saw the second highest Q2 period for M&A on record with 75 transactions.
So Scott, this is a huge change in shift for RIA offices and creates a lot of opportunity. Where would you like to start on discussing how this opportunity can help wealth advisors
Scott Hauck
Yeah, this acquisition seems poised to accelerate M&A expansion strategy for investment managers. This deal highlights the importance of investing in platforms that provide scalable solutions and support for advisors, ultimately driving growth and client satisfaction.
Randall White (Show Producer)
Well, you know, as far as the activity that's happening out there across all of the audiences that tune into the podcast, I think today, even though we're looking at the family office space, our guests coming up are going to equally apply to just accredited investors or RIA's and multi-strategy funds.
I'm really excited to get them on. Let's jump ahead into that segment, pretty excited to have here today
Today, We have two amazingly insightful guests in the family office face. We have Eric Simons and Jade Miller.
Eric Simons is a certified financial planner and personal business manager over 40 years of experience in the financial industry.
He's the founder of Simon's Financial Network, a financial services firm based out of New York City and specializes in helping clients make smarter money decisions to gain and keep control of their finances, often called upon to assist with family offices, tax issues, worse planning, risk managed investing and multi general generational estate planning.
Wow, that's a lot.
Eric Simons
Welcome, Eric. Thank you very much. It's nice to be here in cyberspace.
Randall White (Show Producer)
And we also have joining us today. Jade Miller, president of capital markets, the Bourne Financial Group, as well as the Board President of the Alternative and Direct Investment Securities Association, otherwise known as ADISA, welcome Jade.
Jade Miller
Thanks, Randall. Thanks for having me, looking forward to speaking on family offices and alternative investments this morning.
Randall White (Show Producer)
Yeah, well, you know, you're responsible for structuring the board investment programs, sourcing equity with broker dealer, RIA, and institutional relationships, with nine private placement offerings and over a billion dollars in equity across multiple asset structures and classes.
I'd like to say, wow, thank you for, thank you for being here. This is going to be a great talk.
Jade Miller
Of course, I'm excited about for it
Randall White (Show Producer)
Yeah, well, Scott, Heidi, I'll let you take it away here. I'm excited to hear your answers to these questions that we've all been talking about.
And let's rock.
Heidi Diemer
Yes, welcome both you and Eric and Jade to the show. Thank you so much for being here. very excited.
Would you mind to start with both of you just telling us a little bit about why you chose the family office aspect of wealth management?
Eric, would you like to go first?
Scott Hauck
Yeah, we'd like to welcome you guys to the American Legacy Business Report, and just curious as to how you got into the family office space.
Eric Simons
Okay, well, family office, I actually come from a show business family in New York City. starting back, I don't know, in the 50s or 60s, I think what was a predecessor to family office was what I still call personal business management, where for a client who's so busy earning their money, we take care of everything in between earning it and spending it.
So we end up paying bills, we end up overseeing taxes, investments, planning. If it's somebody in the corporate area, we might file their health insurance reimbursements who are even there submissions for other employee expenses.
And my firm started doing that back in the early 80s, because having been trained as a financial planner with what's now a seven-step financial planner,
planning process. We enjoyed doing true three-dimensional financial management. So, we took care of the day-to-day finances and the future planning services and we've evolved since there.
my firm at this point basically is a women's financial boutique offering one-stop shopping.
Scott Hauck
That's awesome. Thank you for the information and for the background.
Randall White (Show Producer)
Yeah, and Jade, you want to go ahead and tell us what brought you into the family office space?
Jade Miller
Yeah, so my entire career began in college. I was a 20-year-old girl trying to learn about finance and I really thought on and was attracted to hard assets.
was able to understand that. So, my whole career for the past 12 years has been focusing on alternative investments.
And specifically, how we can allow the masses to have access to alternative investments, just not institutions. And so that typically started for us in the retail space.
And then we realized family offices also aren't getting access to what we call mid-sized alternative investments or private offerings.
so that's something that we focus on as an industry at ADISA is how we can help family offices have access to these type of unique funds.
And then, you know, at my company, specifically, where we found family offices and where we've explored relationships with family offices is being able to give them access to kind of creating their own type of deal, how they want it.
Because family offices do have such large pools of capital and they need unique strategies and they're able to do unique things.
so that is where being a smaller fund, being alternative, so we really focus on how we can cater to them and both mutually benefit from working together.
Scott Hauck
Sure. Given the recent volatility in public markets, how are family offices adjusting their alternative investment strategies, particularly in private equity?
Eric Simons
Okay. Depending on the family office, my guess is that it's probably not overly affecting them because family offices tend to take, at least in my opinion, and for what I've shared with other family offices, a longer term view and therefore volatility can be
taken in stride, because if you're looking also at what I think a lot of family offices do is model it after endowments, where we were finding schools like Yale, Princeton, and Harvard, we're making more and more of their portfolios or investing more of it in things like private equity and venture capital, and therefore they would have to have a longer-term view than the typical retail investor, and therefore a lot of their portfolio ends up not being publicly traded securities, and the portion that is publicly traded, they can take the volatility and stride.
Jade Miller
Yeah, I would second, Eric, I think that because they do have a longer-term view and they don't have immediate liquidity needs typically, they're able to take advantage more of what I would say are volatile markets that typically tends to be when people are going to need capital and are willing to give outsized returns.
think because they have patient capital and they don't need income right away or short-term holds, they're able to take advantage of that differently today than they were, say, three years ago when capital was easier to come by and it wasn't as volatile.
Eric Simons
You know, though, if I can add on to that, though, and I might be guessing at some of your future questions, at the same time, a lot of private investments, whether it's private equity, private debt, any of the subcategories, those areas will also provide a higher income these days than might publicly traded bonds or other debt instruments.
And so I'm set weighing into what some of the benefits of private equity or private investments are. But in spite of volatility, if you've got a lot of your money invested,
in these other areas. might be making superior returns than what the average American retail investor can get.
Randall White (Show Producer)
Is there a particular line or segment that you're seeing that ring true?
Eric Simons
Mostly in different areas of private debt, as opposed to private equity, actually. Although private equity can even be paying you these days, good 7%.
It might be as low as five, it might be as high as eight. But interestingly, these days on a lot of private debt, you can actually hear anywhere from five and a quarter, five and a half on the low end, to as much as maybe 12% or even higher on the high end.
So by being in these private areas, you definitely reduce your volatility. And at the same time, you might be able to not only increase your income, but your return in the long run.
Jade Miller
Yeah, I would second Eric on the opportunity for private debt right now, especially for family offices again. and groups who can make large equity contributions and take down whole deals.
think with the lending crisis right now or banks tightening their lending, there's a unique opportunity for outside debt. that is where they are going to be able to generate those 12 double-digit returns that Eric was mentioning by doing short-term with lines of credit, even something like a bridge loan that is in high demand right now.
And that's where they're going to be seeing these opportunities due to the volatile markets outside of the equity markets, but even in the debt and credit crunch we're seeing.
Heidi Diemer
Absolutely. I also agree we've been hearing a lot about private debt lately. kind of tying private debt could tie into this question as well that I have for you guys.
How much are you hearing in the family office space with the idea of private equity and alternatives in terms of considering undervalued small and medium-sized businesses, profitable ones?
Jade Miller
Again, they're not competing against anyone, so setting the values and setting future values, it's advantageous right now, probably more so than it will be in 12 months when there is less volatility, so they are able to go and either take out owners or just take over a company very easily with the right expertise.
Scott Hauck
Well, I was just curious if Eric had anything to add to that particular question.
Eric Simons
You know, I missed part of the question and then I was like listening to Jade go into and it's like, wow, but can I ask you to repeat the question the way it was?
Scott Hauck
Yeah, I mean, really the question is centered on, you know, the idea of private equity and alternative investments in terms of considering undervalued,
small and medium legacy businesses. So profitable businesses, particularly with the wave of owners ready to retire or sell. So how are you guys looking at legacy businesses, the owners that are looking to sell soon?
Eric Simons
Well, I come from an entrepreneurial background and the US or America is based on entrepreneurialism, right? Streets are paved with gold, you can build whatever you want.
I love that. Probably 90% of American businesses are not publicly traded. The hardest part ends up being able to find the particular one that might be worth taking over or coming up with an idea that is a twist or something totally new and building something that didn't exist before.
And that's what motivates an entrepreneur. It's not per se about the money, it's about building something better than anybody else.
And when you can find these types of businesses, they might end up of just be moving out of the garage like a Microsoft.
The hard part again is finding them. Now, if you're a venture capitalist who's looking at this all the time, then you probably have places to source these deals from.
But it could end up being that you end up talking to a guy at a coffee shop counter. But once you then find a business that you think's appropriate, a lot of seasoned venture capitalists will already have a network of people where they can then plug in people who can take it to the next level of the business's development.
For somebody at my level, however, I then have to rely on different product sponsors because I'm not necessarily going out there looking for a business to take over.
So I end up attending different types of events and reading different periodicals and speaking to different people to try to identify opportunities.
And then if I can find a venture capital fund that's going to be able to diversify the money into multiple businesses I'm already ahead of the game to top it off if I can then even start to focus it tighter if I wanted to on behalf of a client in something like let's say technology or possibly franchise and then I'm golden.
Scott Hauck
Awesome answers. Thank you very much. This next question ties into the last one a little bit with - with the ongoing wealth transfer to younger generations.
How are family offices evolving their investment strategies to align with millennial and Gen Z values?
Eric Simons
If I can jump right back in - the good family offices in my opinion and this is where I sometimes take on prints and they'll take on prints with my reaction is that if they have hired professionals to run the family office - accountants, attorneys, investment professionals, etc.
They're well head of the game, and they're going to exist for a much longer period of time. However, I am seeing certain family offices where the younger generation, who are now adults, get involved.
They sometimes seem to want to go after investments that have yet to be proven or where they're flying by the seat of their pants.
Examples could be things like cannabis or crypto. And it's a little bit scary sometimes when I run into some of the younger generation who's playing with these types of deals because I'm not particularly confident that they know exactly what they're doing or that they have the right team in place.
And when you've got something that's such a new industry, you really need to have the right professionals helping you to move it along.
But otherwise, I think family offices who have The correct professionals are probably paying a lot of attention to retaining their wealth and maximizing it and not making any bad moves.
Jade Miller
Yeah, I would second, Eric. I think the professionals, the correct and professional family offices, the relationships are already established and the trust is already there.
I think what they are having to do, whether they choose to invest in them or not, is be more informed than they previously were on unique strategies.
Eric mentioned cannabis, crypto, think impact investing I think, you know, a lot of younger generals, and I'll speak to myself, I'm in the millennial generation.
We want to see it. I think that sophisticated millennial family office clients, there's still that need for real estate.
Everyone likes real estate. Everyone likes true private equity. It sounds hot. It sounds cool, but I do think I think learning more about who's on the company. We're seeing a big push for knowing that the executives are diverse or have different backgrounds. What FinTech are they using, digital assets?
I think that is the wave that's coming in and just being informed enough to say ‘we can look at it or educate you on it.
if you want to invest in that and if that's a route we want to go on to be ahead, great.’
But I think having those in your wheelhouse or what family offices are going to need to continue. I also think what I have seen with my peers, millennials, I have a brother who's Gen Z, you're not seeing as much need for yield producing investments.
I think the idea of current income is more senior generation. It was just drilled into us growing up, right?I would say or investing early on income, income, income.
And I think there's a big shift as far as needing that current income is and you're seeing younger generations willing to give that up for higher growth potential, and I think that will play in to what private equity investments family offices are going to look at and present to their clients is there is that transfer of wealth.
Eric Simons
One additional component there I suspect is the personality per se of the family office itself.
Some remain entrepreneurial and want to continue to start new businesses. Other ones want to continue to work in the area where their wealth may have first been generated.
Then there's other ones where they team up with other family offices and then you have what might be called a multi-family office and then they start doing deals together.
So they might be keeping a chunk of the wealth always for what their special interests are. But definitely I agree with Jade impact investing and other things that have to do with what I call ‘Values based investing’ are definitely coming into play.
A lot of the younger generations and a lot of the older generations want to give back And they're doing it in very particular ways which they hope are going to benefit humankind as a whole
Heidi Diemer
with so much of the wealth changing hands as it is or as we're discussing How are famous family offices adapting their governance structures to ensure effective decision-making across multiple generations?
Eric Simons
Well, that's a tough one they usually have some legal or other administrative people involved as far as I know who Get the family together at least once a year not four times a year for family meetings So that they are definitely trying to evolve things like that when they're responsible or leading edge with professional management But I'm not privy to some of the inside details. So past that, I can't answer.
Jade Miller
Yeah, I would echo Eric, it is tough as far as how family offices are approaching it. I do think they are going to probably start using outsourced legal.
I think that's kind of a wave of the entire industry. I entire investment industry where there's just so much legal and compliance coming down the pipeline, it's easier to outsource it and make sure you have someone who is keeping up with governance, whether that be an outside source, you have to be dialed into groups who are lobbying those types of things, just so that you know as you're investing, what you are doing is going to be okay, that you are doing the right thing, but I think technology.
So I think, you are going to see people outsourcing how to track governance, how to keep up with that with technology, and also I think technology of reporting to younger generations, right?
We are so focused on our phones. If I can't log in my phone and see what’s going on or get that update, it's an inconvenience.
And that's only going to continue as smartphones become more prevalent in everyone's lives. So I think that family offices are having to make that true reporting to their clients and their younger clients via phone.
I don't see in-person meetings as much, right? Eric said, probably quarterly is something semi-annually those types of things, but these clients, these younger generations, these investors, they want to be on the go.
They want to know that you are on top of whatever the corporate governance is, whatever rule comes down, they don't want to have to worry about it.
So being able to send those periodic updates, whether it's through an app, a newsletter, some form of technology communication, and being able to see what the portfolios are doing is going to be crucial as there is this transfer of wealth.
Randall White (Show Producer)
Less books in their library.
Jade Miller
Yeah, right. I guess maybe a Kindle now and then, for a lot of people.
Eric Simons
Right, but what's nice is that they are becoming very formalized with their procedures and running it more like a public corporation.
People will have over 100 different family members who were involved there. they could end up as historically has been the case where there could be infighting between people who want to run the family or business or the family office.
So it's nice that there's voting, there's communication and there's policy, etc.
Scott Hauck
What trends are you guys seeing in family office allocations to venture capital, particularly in sectors like tech, transportation or other trending sectors.
Jade Miller
Eric, I can start on this. You probably have more insight. I think tech is always popular. There is a need.
for it, but there's so much equity going into tech these days that it's not going to give you the same risk adjusted returns.
I truly think transportation and infrastructure is a huge opportunity. You're starting to see a lot of emergency funds. I think you're going to see a lot of family office money go to that early on as it's not going to be super popular with institutional equity at first and that's going to give them a unique opportunity.
I mean, I know we're all over the country, right? Every road is being redone. Every time I travel, the airport's being redone.
A bridge, there's so much coming from an infrastructure perspective and groups that are able to get in on those funds and the family offices that are participating in that are going to be on the ground level and get those risk adjusted returns or size risk adjusted returns.
Eric Simons
I totally agree with Jade and I am seeing other areas. And sometimes again, it might be due to the younger generation. And I have here what I call the short list of ideas.
There's everything from venture capital in general to senior and student housing, memory care facilities, health and medical, science and technology, blockchain and crypto.
Direct businesses where you might get into a startup or an operating business, there's retail, there's food and beverage, there's franchising, energy, mining and minerals, agriculture and farmland is one of the newer areas that I've been looking at for the last few years because the population grows and the farmland disappears.
Real estate in general, there's cannabis, there's makeup and cosmetics, there's arts and entertainment like movies and Broadway shows. Leisure industries like hotels and rental homes and mobile homes and aircraft, whether it's private aircraft being built for a family office or commercial aircraft and there's tax-free property exchanges which appeal to family offices of a variety of different types that exist now too.
So I'm seeing money going everywhere and again I think it's based on a lot of the personality of the particular family office both where they came from with the older generations and maybe where they want to go to with the younger generations.
Scott Hauck
What emerging trends have you observed in family office approaches to impact investing over the last three years?
Eric Simons
Jade you start on this one.
Randall White (Show Producer)
Yeah Jade you are the impact investor.
Jade Miller
Somewhat, senior housing is a little bit on the cost but I would say at ADISA we've had a huge focus on educating on that because as we've said numerous times on this podcast. That is where the younger generation is going. think, again, where what trends are we seeing?
I would say measurable impact is where people want to look, where I think they end up jumping in is more on tax impact investing.
It has a more of a direct benefit that you can see earlier on with impact investing, true impact investing.
It's typically a longer term duration and it's typically going to take longer to see any returns or any reward.
I think that that is where the tax side or tax benefit of impact investing is really popular right now.
I do think with the impact investing, what you are seeing are not only ethical practices. What companies are they using? Who are they partnering with? Who's on their board? That's a question we hear a lot when we're educating on impact investing.
They want to see that not all three C-suite look the same. They want to see that there's diversity in backgrounds, different colleges, different ways of thinking, different political beliefs, just to see that there is some diversity and not just what was considered traditional way of thinking.
I do think you're also what I see is that we're also needing more reporting on impact investing and that is where it's lacking.
I think that there's a lot of opportunity for tech companies and specifically family offices to provide technology. I've heard lot of venture capital groups going to family offices who are learning or creating technology to make impact investing easier and so I think that once those platforms are built out you're going to continue to see a bigger wave.
a bigger portion or different types of allocations that family offices are going to be able to participate in an easier way for impact investing.
Randall White (Show Producer)
When I ask if either of you have a favorite platform to try to shop for those undervalued American legacy businesses, do you have a go-to for that?
Jade Miller
I'm going to default to Eric here, know, we specialize in against senior housing, so for us that's more real estate, but it's so asset-specific that I'm not looking specifically at ADISA, have so many sponsors, we have so many partners that are constantly working on that, so I would say when I look, I typically tend to look from within the ADISA membership, which is always a great place to start, but Eric probably has a significant larger stable than I do as it relates to that.
Eric Simons
I would say that impact investing is probably one of the most talked about areas, and that could be everything from water to world peace to education, very good, I think human values-based investing.
But at the same time, I think family offices are also looking for areas that will make money, and sometimes they do it very quietly.
So I think that most of the investments made, for instance, in cannabis, are made very quietly by family offices who don't necessarily want to be equated with sex, drugs, and rock and roll.
And yet they know that that's probably going to be making some good money down the road. In order for me to find these types of investments, I end up attending a variety of different organizations such as ADISA, where they've already attracted people who have a booth or who are speakers.
In addition to that, I end up rubbing shoulders with other people. people who have their hand on the pulse of a lot of this.
So, and then there's reading, and then there's different types of articles and email and websites and things that come in.
So with the reading, there can be educational white papers or it might be simply an advertisement. So we just keep combing through whatever ends up coming across the desk and we don't go way out of our way these days to find more information because we already have more than we can deal with.
So I try to narrow it down. What I like about the ADISA organization though is that they are a real professional association that will also lobby in Washington and educate regulators in addition to regulating membership.
And therefore, I know I'm probably getting something that's been looked at a little bit deeper to begin with as opposed to a cold-call pitch.
I got a cold-call pitch yesterday actually and it was very interesting. It was having to do something with medical technology, but had I not known the man I wouldn't have taken the call.
I won't answer a phone call now if I don't recognize the phone number. So we have to be careful about not getting information overload, but we do notice the different trends and the ones that we find interesting because my firm has always been a leading edge investor since the early 80s.
We were doing things well before our competition were, which always surprised me. And sometimes I felt like by the competition not looking at alternative investments, which venture capital would form into that they were not doing an appropriate job.
Randall White (Show Producer)
Wait a minute, you said the early 80s.
Don't tell me you're the guy behind the flow bee.
Eric Simons
Oh, yeah. Well, I'm not allowed to tell. We can't talk about it.
Scott Hauck
That's a yes. Heidi do you want to take the next one?
Heidi Diemer
Yeah, kind of speaking of being an innovator, Eric, with the rise of AI and machine learning, how are family offices incorporating these technologies into their investment decision-making processes?
Eric Simons
You know, they're doing it at various levels, and I'm not sure how much, because this is an area that I'm still having trouble wrapping my head around.
I know that it's going to end up making some money, but at the same time from where I sit, and I'm regulated by at least a half a dozen federal and state regulators, and so we have to be very careful about what we do, and a lot of the time we ourselves are not allowed to use AI, and it's funny because AI in one sense for people in finances, but it stands for alternative investments, here we're talking about artificial intelligence, and we can play with it, but we're not supposed to use it so much, or we have to be very, very careful about how we use it.
So we end up looking over other people's shoulders to see what they're doing with it. We know it's coming, but you know, as soon as I do a very simple Google search, I can't find what I want.
When I want something sophisticated, it seems to come up immediately when I don't even know what the right question or keyword search should be.
So I see it coming about, but it's also not solving my problems, but I think it's gaining at that old statistic about stuff doubling in technology like every 18 months.
It might be going faster than that. So we know it's coming, but I still don't know exactly how to use it.
And therefore, it takes me a longer time before I'm going to invest in it, unless I end up doing it through something as basic as a mutual fund.
And then I might have 50 to 150 different holdings. And so I can start learning a little bit there also, and now I can invest without having to take undue risk.
Jade Miller
Yeah, I would second Eric, it is just a slower space, typically most family office investing, true investments, they're a little bit slower as it relates to technology.
There's a lot of compliance, right? It's a highly regulated industry, so how you're using it is crucial. What I do think I have seen AI be useful for as far as using the technology, enhancing that, you're going to see enhanced due diligence.
They're streamlining due diligence, process analyzing financial statements, they're using it for data analysis as well. I think that is where we're first starting to see it.
Some portfolio optimization, right? A Roboadvisor type thing. It's not perfect, but I do see it starting. starting to play a role, and people are starting to pick it up, the technology is starting to get better for using AI.
Just for the algorithms, can they help take the burden off an analyst? I sat next to a doctor last night on the plane, and he was saying they're able to reduce staff by just using AI for note-taking, and making sure that they have their notes in for their doctor's appointments, and future follow-up, the AI is able to do all of that.
I think that is a great place to start with AI, right, to just reduce overhead, to maximize efficiencies, is personnel.
If there's one less person to schedule, or one less person that needs to type up the update to get it to their clients, if they can use AI to be more informative, that is where you're going to see a huge push starting in financial investments, then I think trickling it to do diligence, and behavioral finance, and data analysis, and that is where it will continue to grow until
Technology gets better and at some point, you know, replaces all of our jobs. Hopefully not any time soon though.
Randall White (Show Producer)
And the flip side of that though, right? Like where Eric you are mentioning Still relying on the people that the family office relies on all the professionals. But like how there was recently a case where a lawyer went into to fight a case and had used chat GPT and it had hallucinated some fake You know some fake previously judged Outcome that he used in the court a lot and it was so If you have these newer generations relying too much on AI for their due diligence, you know, if they are even citing real sources, right?
Eric Simons
Right, I heard about that case and that's dangerous. I've been, the little bit of exposure that I've had first hand has been at some of the very basic levels.
have a fraternity brother who's out of Columbia University was studying something with computer engineering and one of his companies as an entrepreneur has been machine learning where he was selling something that was like going on the side of a garbage truck so that the truck would either know where to stop or if there was anything that was too heavy or if they were going to bump into the curb or something like that.
I heard just a couple in the last couple days while we were at the ADISA conference in Boston that he's now started an additional company with this and then the next thought of mine jumps to things like self-driving cars although then you do hear about like an accident happening here and there - so I still want to walk into it slowly and it bothers me that with the availability of the Internet, that of some of the younger generations are not spending as much time studying things from history. I feel like I'm Captain Picard from Star Trek, you're telling you, you know, number one, you'll have to read more about history.
Because it's bad enough if you don't learn from your own mistakes, but if you're really smart, you'll also learn from other people's mistakes so that you don't have to repeat any of them.
And then you're going to have some idea of what has transpired in the past, and that can very often make it easier to decide how to do things in the future.
And I was at another actual family office meeting where an entire town on Long Island got hacked, and so their 911 system went down and surrounding towns were helping them with it for a while, and they had to bring in - everything went down - from taxation to the police and they brought in a lot of younger people who had to help field the 911 calls but things now had to be done and documented on paper and a lot of the younger people were unable to do it because they were so used to doing things on a computer screen that they just couldn't even do it with paper and pen which amazes me.
Same thing like not learning how to do cursive writing. We need to be learning things from the past so that if there is an electromagnetic pulse and a lot of what I do is risk management and there's only three electric grids in the United States and if they're subject to terrorism or a sunspot and they go down and it's already rickety - we are not going to have our computer records and we're going to have to go back to using textbooks and paper and pen, and so it's important I feel to continue to learn from history.
Randall White (Show Producer)
Did we mention that Eric is also the most optimistic investor.
Scott Hauck
Well, switching gears here just a little bit. In light of recent geopolitical tensions, how are family offices adjusting their global investment strategies, especially in emerging markets?
Jade Miller
So, I'll jump in and Eric, I'm sure you have way more to add on this, but I think what you are seeing is they're focusing more on diversification.
Specifically, just looking at what regions and sectors are going to be less exposed and monitoring that. I think the asset allocation and asset classes to mitigate that risk is a central focus right now.
I think that also creates a lot of opportunity as it relates to defensive sectors. You're seeing investment opportunities, healthcare technology, consumer stables that are going to be less sensitive to any type of geopolitical fluctuation.
Randall White (Show Producer)
Well, isn't that also the impact investing can be impacted by, you know, you want to try to make a difference in the world and, in like, Ghana, doing some kind of infrastructure project there.
Is it mostly domestic that family offices consider or how far outside of America will those dollars reach?
Jade Miller
And the impact investing space, know, we had a colleague who was over to Disa, did global, his was all global, but I think he had a hard time getting traction, right?
I think that it's everyone likes the idea, but it's more of a tip toe into it. And I think you were, it's harder to get those tax benefits.
That's an easier sell. It's an easier way to see a return while feeling like you're doing impact investing when you go global.
And so I think from the impact investing, you're going to see it most of that staying relatively on U.S. Soil -
right now, as far as where equity is being allocated. That's not to say there's not numerous opportunities, but I think family office for those types of allocations are still going to be mostly domestic versus global, and that also eliminates some of the geopolitical tensions.
But of course, everyone loves oil and gas, as far as the returns and structures, and there's numerous renewable energy falls into that, and that's going to be where geopolitical tensions can have a big impact.
We've seen that before, and so think making sure they're diversified and where people are investing in oil and gas and impact investing is huge, and you're seeing lot more due diligence going to the background of the company, the background of the investment, and locations of providers, right?
I think that's also, I say geopolitical, but something we've learned in the last week, and there are a lot more questions about what technology providers you have, what the backup plan is. I think we've seen that from bank, know, it started with banks.
Who's your lender? What's the plan? What is their backup plan after the Silicon Valley thing? And I think now it's even technology again after last week's fiasco with cyber security.
Randall White (Show Producer)
You know, they're offering $10 Uber Eats cards to say they're sorry.
Heidi Diemer
So. So. Yes. Well, that happened to me and it was an $80 Uber to and from the airport to go nowhere. The $10 did not cover it.
Randall White (Show Producer)
Yeah.
Eric Simons
Well, before we had terms like impact investing or socially responsible investing or ESG, which is environmental, social and governance, family offices or the wealthy already had their fingers onto most of the continents on the planet. There really are, I believe, only 10 people running the whole planet.
The money has gone everywhere. So whether it's going to be science and technology, or food, or beef, or oil, and other energies, family offices with emerging markets, I would think that they are already there.
In addition to which it's not just their money, it might also be their citizenship, or their additional homes and other currencies.
There's a man here in Connecticut who consults with billionaire family offices. And when he was at a conference that I attended last autumn, it's an annual conference in New York, where you go to explore buying citizenship in other countries.
And he was the morning speaker, and I was still on my coffee, and he got up and started with you better have at least seven past reports if you want to protect your wealth.
And then it's like the day went on from there where if you go into other countries with as little as $300,000, which means starting a business there or buying a home or making a contribution to an educational institution where you could argue that you're doing well by doing good, you're able to now get a passport for that country.
And if we end up having like another attack on Washington, D.C., and you feel the need to jump on your private aircraft to leave the U.S., you've got someplace you can go where you have a home and where you also have money in that foreign currency.
So it's not just like where they're investing, it's the protective move to go to developing markets or stable countries.
Although I have to tell you, a lot of these are, they might be stable, but they're definitely emerging or what we would even call frontier markets.
They're really just on the horizon starting to come onto the world stage economically, if not with standards of living like health care and food.
Heidi Diemer
Just kind of saying on trend of the discussion was going to ask how our family offices approaching cryptocurrency and blockchain investments in 2024, given the volatility and regulatory changes that we've been seeing.
Eric Simons
Well, they're still there. And I think that they are heavily invested. It might be that it's going to take a longer time for them to be able to make some money.
And my guess is that the cryptocurrency marketplace will wind up having to shake out the different currencies that don't make sense to anymore.
But I still think it's not understood enough by the masses for that shakeout to happen. We're going to find that some of these currencies are built on underlying businesses or related areas.
other currencies are simply a replacement for paper money, fiat money. So it's long term, but they're there. And they've probably been there from very early on family office money in crypto.
Randall White (Show Producer)
Jade, do you have a pulse of what percentage of a portfolio might be allocated from family offices to crypto?
Jade Miller
I wouldn't say that I have, you know, a pulse on percent allocation. I do think, again, as you're emerging into these younger generations, my brother started my brothers in his 20s. He started investing in crypto and blockchain when he was in college.
So I think that's trendy. I think that the younger generations still see that as a future, as Eric said, there are a lot of underlying values.
So I don't know what the allocation is right now, but I will say it's growing. It's something that we're focusing on as an industry, educating, making sure we're aware of it.
And I would say how we look at it as an industry is probably very similar to how family offices are looking at it.
We are making sure that we are in touch and prioritizing well-regulated and established platforms and working with regulatory like within the regulatory landscape knowing what legislation is coming down because that has been one of the biggest pickups or I would say for bearances and cryptocurrency and blockchain is what platform do you get on?
How do you get it? Is it regulated? Is it going to shut down? Is it going to be one of these?
Is it going to go under the SEC? Is there an actual asset behind it or is it Dogecoin? You know? I do think there's a lot of high potential in those tokens but I do think where you are seeing family offices spend a lot of time right now is ensuring the compliance to mitigate the risks but more the blockchain applications such as like supply chain digital identity and seeing the broader potential of what blockchain and cryptocurrency can be. I think those types of investments are going to balance the high risk, high reward with more stability.
Eric Simons
As people learn more about that, they're also learning the difference between blockchain, which is the technology, and cryptocurrency, which is per se a money.
As those two get understood better, I think the investments will begin to diverge a little bit. So, cryptocurrencies based on blockchain, but so is everything else from insurance to banking.
So, the investment money can go in different directions. The issue though for losing my thought here in my old age, as an investment advisor, however, I would tell you that from what I see and what I would recommend, crypto and blockchain investments still tend to be probably well below 5% of an overall investment portfolio.
Randall White (Show Producer)
I was feeling five was the number.
Eric Simons
Yeah, I did, you know, smaller. Now, if somebody's backing a blockchain investment, as opposed to simply investing in it, they might have a higher allocation.
But my guess is, is it still would be under 5% of what the family wealth is.
Randall White (Show Producer)
You can only go to Vegas with so much.
Eric Simons
That's the smart way. Only what you can afford to lose.
Scott Hauck
Well, and moving on to a less popular topic, inflation. What strategies are family offices employing to protect against inflation risks in their portfolios?
Eric Simons
Let me just jump in and say, I don't know, because sometimes when you're just that wealthy, you don't care as much about inflation as somebody else might, because...
You just have a steady income coming in, and if you've still got your site set on long-term growth, you're probably not as worried about it.
Now I've probably been very ignorant or unsophisticated about my answer here because I'm sure the families often are worried about inflation, but they're also like insiders very often in the government.
And sometimes it's government contacts that end up getting the family office money, as I've known over the last 30 years or so, to end up in places like South America where one of our own treasury secretaries was putting all of his own money starting in the 70s, so it's actually like a 50 or 60 year plus trend.
And if you go back to like Arm and Hammer, who was dealing with oil in the Soviet Union or Russia, it really goes back.
So inflation has got to be part of their consideration, and if they've got a professional portfolio management team, I'm sure they're paying a lot of attention to it, but I also just think that sometimes it makes a little bit, or rather it's not quite as important because they've got enough income always coming in that they can afford to sit and wait for their long-term growth investments.
That's the same whether it's going to be a university endowment or when I was new in the business in the 80s, I took a guy in New York whose father had owned a portfolio of New York City apartment buildings that were left to the sun and he had his rental income and all of the rest of his money was in triple-tax exempt bonds, so he didn't really care about growth investments or stocks whatsoever because he had enough income coming in consistently between the real estate and the bonds that he didn't care.
Jade Miller
Yeah, and I'll jump in here. This is what our whole industry is built on if you think about alternative investments, right?
That is the idea behind it is to be a hedge against inflation, a hedge against the markets. so while family offices are already ahead on that curve, most family offices are already looking at alternative investments, what I think you will continue to see as we are seeing a surge in inflation is more diversifying possibly less into operating businesses such as startups, angel investing.
think that is not going to be a great inflation hedge as it's really hard to say whereas pricing power in the future.
Real estate, that's always going to be an inflation hedge for the most part, especially if you can go in all cash, which family offices are able to do right now or to work with asset managers or sponsors to be able to take down all cash deals in real estate.
Again, infrastructure, but mostly, mostly assets that have pricing power. That's huge in an inflationary environment. Can someone go in and increase rents if it's multi-family?
Are they able to reset loans terms? What does that look like? And that is going to be a huge focus, I would think, over the next three years, as we balance out on inflation and what that looks like.
Because if you're locked into apartment and you can't afford it or if the apartment is too cheap, you're not making money on that real estate asset anymore as it relates to operations.
So that's why the hard asset needs to be there to protect against it. And then the operations needs to be something that's easily adjustable to be able to protect against that right now.
Eric Simons
Yeah, in that vein, by the way, historically, family offices or the wealthy will also hold physical gold. There's always been sort of a black market, which I got exposed to through a neighbor as a kid, where gold will still continue to change hands without regulators or governments knowing about it.
And there's not a whole lot of gold on the planet. There's something like enough to fill two Olympic-sized swimming pools.
So, by the way, the Olympics start today, speaking of that, which great, because it starts talking about world peace, which then hopefully moves over into financial markets.
gold and other hard assets, Jade was saying, whether it's going to be oil or coal, gas, which will be cleaner than both of oil and coal, and as long as they have some of those holdings, those are also going to be inflation hedges.
Scott Hauck
What about co-investment opportunities? Like how are family offices leveraging co-investment opportunities with other services or institutional investors in the current market?
Jade Miller
Yeah, I'll jump in on that one. Right away, I would say if you're a family office and you are hearing this and you are not talking to your sponsors or your applicators about co investment opportunities, you are missing out. Equity is really hard to come by in today's market.
So I speak for my firm and many of the sponsors and peers who come to the alternative investment space in our specific niche industry.
It's a really good time to buy. So we are giving more advantageous opportunities than we were three years ago, two years ago, just to be able to take down deals and that's looking like anything from a limited, you know, that they could be the LP, the GP, and that's going to give them more, more upside on the carry as well as on the ongoing fees.
And they're able to dictate that. So I think right now, large allocations from a co invest or alongside an institution are even available.
For my space right now, or my company's perspective, if we have a family office, who is willing to do a large check right one large check that's ideal for us we don't have to work with the bank, we already have the equity to take down a deal you know all cash we're we're willing to be either the GP and let them be the entire LP or they can participate on the general partner side and the fees and that is something that we were not looking at or even offering two to three years ago and I don't know how long that window lasts. But right now family offices are able to go and dictate those terms if they have the equity.
Eric Simons
Yeah and from my feeling I think that there is more joint venture stuff going on sometimes it at the level where one family knows another and they decide to do it together other times I think it might be that there's some type of syndicate that's been put together and everybody gets to share the risk and bring in the brain talent so I don't know exactly how it ends up coming together but I would say it's probably a trend
Heidi Diemer
What challenges and opportunities do you guys perceive for family office in the growing field of private credit?
Eric Simons
Jeez, that’s a hard one, Jade, do you have a pulse on that?
Jade Miller
Yeah, I do, again, I think that's a huge opportunity right now. You have a, I want to say specifically to senior housing, have one and a half trillion of debt coming to you in the next three years, and then if you look at multifamily, that's even more extrapolated.
So what does that mean for family offices as it relates to private credit, right? The lenders are tightening half of these banks may not even be in business.
In 12 months, I think the Fed said something that they expect 65 banks to fail or risk a failure before the end of the year.
So getting debt is really hard right now. And to be able to get, you know, you have a lot of, again, loans coming due, buyers who don't want to sell.
And so by refinancing or takedowns until they can get the equity to go out and make new acquisitions, you have this large opening for the need for private credit.
Similar to what we saw, I would say in 09 in the emergence of, you know, BDCs, but at a different level, family offices are coming in and able, or able to structure a bridge loan deal.
Or as we talked about earlier, you know, they can go in and make a private credit fund and get a 12% yield just because buyers need the capital and or they need the financing and they can't get it right now.
So I think you're going to see a lot of private credit funds over the next two years, as long as interest rates remain high.
And, you know, I, as much as I wish they wouldn't, I don't think that interest rates are going to go or going to go back down anytime soon.
We might get a hundred basis point, know, we might get three moves in the next year, I just don't see it being six or anything significant.
We're probably not ever going to go back to this, you know, zero down like we had in COVID, time, and so the cost of debt isn't going anywhere, and the lending requirements are going anywhere with the number of, with the number of companies, the number of businesses that are foreclosing that are pushing bad assets off their balance sheet, and the banks are being stuck with them, and that's not giving them liquidity.
And so the family office can step in and take that place and generate high yield.
Eric Simons
Yeah, I agree. And I think until probably 2026, we'll see some of decent returns out there. The credit markets, they keep inventing like new products, collateralized loan obligations, et cetera, business development companies, there are also closed in interval funds, there’s senior secured debt, there's
All sorts of stuff because of when the banks left in 08 during that debacle that the private markets ended up stepping in.
So there seems to be a ton of opportunity in these areas. And right now everybody's making money. So you want to be careful though about who you're with after about 2026 to make sure you continue to make money in these private areas.
Randall White (Show Producer)
Eric you just educated me not only in that but my whole life I've said debacle not debacle. I've been saying it wrong.
Eric Simons
Well I don't know we'll have to look it up.
Eric Simons
I sit and watch Star Trek and I have to keep looking at my dictionary.
Scott Hauck
Wow this has been great. We are up against the clock. Is there anything else either of you would like to add and have the audience know as a final takeaway from today's show?
Eric Simons
I simply had a short list of benefits and drawbacks, one, if I can list them. One was alternative asset classes by going into private investments, whether they're equity or debt.
And I already listed like two dozen options, but alternative classes, you can't but that are available on the side.
cost you a little bit more money, but they're there. There can be a lot less volatility, sometimes based on lower market fluctuations, because it's not priced priced on a daily basis subject to what we would call noise, where little things with political markets or Microsoft going out, although that hardly affected the markets, but little things that can make your investments go up or down.
And some of that is appears because these products will only be priced periodically, quarterly or once a year. You can get higher returns, you can get higher income, you can get lower taxes, you can do values based or impact investing, and you can also just, there's a human factor of greater enjoyment, fun and adventure by going into some of these other alternative areas.
The drawbacks, however, can be that. The products can be much more sophisticated. There's investor suitability, which is outlined by different government entities, often based on generally your net worth or your income, and it really ought to be a sit-down test, which they've now given you the opportunity to do actually.
You can, now as an individual investor, go out and get a securities license, and then you can now pass suitability to invest in a lot of these products.
There's also greater risk depending on what you're investing in, and the risk can either be lost at principle or it can be regulated risk or tax risk. And sometimes the regulators and the IRS don't link up like on cryptocurrencies. It's what the definition of it is, like property versus securities.
And another drawback could be higher minimums, also illiquidity and longer time horizons. But as long as you go on with your eyes open right here at the basic level and then learn about the product that you're investing in, at least enough that you trust the person putting you in it, or that you know the particular business, which is how a lot of family fortunes were made.
Somebody knew their own business inside and out. And if they take the time to go into the same industry, which I find a lot of entrepreneurs do, I have a client out of Sweden.
In fact, he sold his security company. And then he went invested in some more security companies where, you know, it's like alarm systems for your home.
He also works for the King of Sweden so I find that a lot of people will put their money back into an area they know so it's important to you to trust the people putting you in or to know the area that you're going into.
Jade Miller
Yeah and I would echo that what Eric said I would say you know if you're a family office listening to this I would just continue to educate on new products you're see a lot of new emerging products in the next 18 months and technology advancements and I think that is where the industry is going to be able to retain the younger generation if you are not doing it your competition is doing it or they will get a pitch from somebody else right that's inevitable so the relationships continue to be important but also showing that you're providing value being educated on any regulatory constraints new products new opportunities and bringing fresh ideas while there are unique buying opportunities which is what we're seeing in today's market is going to be crucial over the next six months.
Scott Hauck
Well, great insights. Thank you very much. This has been such an insightful interview. Thank you both so much for being on the American Legacy Business Report today and for sharing your wealth of knowledge with us. We appreciate you guys, and it's been great to get to know you a little bit.
Heidi Diemer
Really appreciate it. Great conversation, wonderful insights, and really appreciate both of you so much.
Jade Miller
No, thank you again so much for having us. And I think this was a great podcast. And I hope that everyone gets value out of it.
Eric Simons
Yeah, thank you I was thrilled to be here.
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