The Family Office Playbook

Manager selection isn't just important in private markets, it's pretty much the whole game.

Some surprising takeaways here.

The headline 20%+ returns are eye-catching, but focus on the dispersion in returns across strategies (2002-2019 vintages, PitchBook data as of 12/31/24).

Top-decile funds wildly outperform in almost every asset class, but the spread between top and bottom is night and day.

→ Real estate? One wrong pick leads to giant opportunity costs for that capital. Massive dispersion between top and bottom performers.

→ Buyout strategies (private equity) show tighter ranges and higher median returns. Aka more "operational math," which led to better outcomes on average. Bigger PE funds don't "shoot the moon" as often but tend to be the safer option for retail capital.

→ Venture Capital still has the widest power-law tails (top decile at 31.7%, but plenty of 12+ year, -7%+ horror stories).

Across the whole diversified private capital universe?

Median ~11%, which would have handily beat the stock market over that time period.

Plus, that 11% has been dragged down recently by 2018-2019 vintage VC deals.

This number would be closer to 13-15% if A) the limited partner exercised any amount of valuation discipline late cycle or B) if their portfolio had fewer real asset investments (infrastructure and timber) which is typically the case in the portfolios we recommend today.

Regardless, 11% is still a compelling return profile given the extra income and uncorrelated return stream / lower volatility vs. stocks.

We think this data is encouraging for most investors given the goal is to not invest in the average. And unlike the stock market, the top managers tend to endure in private markets (aka you can find them).

So, the point isn't to "pick the hot strategy".

It's that in private markets, the difference between average and exceptional comes down to who you back.

Therefore, look for groups that have demonstrated the ability to compound through cycles.

In a world where public markets feel increasingly efficient, alpha / manager edge still exists in private markets.

1 of 5,000 reasons we stopped investing in California.

I used to believe the "CA Premium" was worth the headache. Nope, not anymore.

To drive long-term real estate returns, you now have to be obsessive about local and state regulatory risk.

It affects everything. Cash flow is near impossible to underwrite and your exit value is a giant question mark.

Here's what we're seeing:

→ Insurance:
It's not fire risk alone pushing carriers out. Regulatory burden is doing the heavy lifting. You pay decades of premiums, then your policy gets pulled on short notice. The system is broken at a structural level.

→ Transfer taxes:
Cities are layering in new closing fees on larger transactions with zero warning. Your basis math changes overnight.

→ Rent control:
Sacramento keeps inching toward hard CPI caps. Absent a political miracle, they'll get there eventually.

→ Lawsuits:
You will get sued. It will likely be frivolous. CA juries treat anything that resembles private equity like a piñata. The $100M awards are detached from actual damages.

I know the knee-jerk response some will have to this insurance issue. "Boo hoo, how ever will the poor mansion owners survive?"

Living in a fire-prone area is a choice. This was the risk.

However, the dysfunction at the state level compounds these risks.

I love living here, just can't invest here. Unless something dramatically changes, I recommend our clients / investors avoid the state for new investments.

Most people think family offices are only for billionaires.

But once your income and tax bills reach a certain level, simple advice like max your retirement accounts, buy a few index funds and rebalance yearly is woefully lacking in value for an uncapped 1% AUM fee.

This video is about using the family office mindset to maximize wealth. It means running your personal balance sheet like a business and building evergreen income from your investments so you don’t have to sell assets to fund your lifestyle.

That’s how the wealthiest families compound capital and pass on generational wealth.

I’ve worked for / with a number of these family offices. I assure you they’re not selling 3-4% of their stocks (conventional retirement advice) each year to pay the bills.

This email is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. Any investment opportunities referenced are available only to accredited investors and, where applicable, qualified purchasers, and will be made solely pursuant to formal offering documents.

Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Forward-looking statements are based on current expectations and are subject to change without notice.

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