Ultra HNW on this forum?

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mikejuss
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Re: Ultra HNW on this forum?

Post by mikejuss »

capilano wrote: Thu Jan 06, 2022 11:38 am
mikejuss wrote: Thu Jan 06, 2022 9:06 am
capilano wrote: Thu Jan 06, 2022 7:21 am At the end of 2019, I was forced out of the market by dumb luck, and I reinvested everything in March-July 2020 (again, security selection), and am now 21-26mm.
Good for you. Question: what forced you out of the market at the end of 2019?
You wouldn't believe this. In Sep19 i went all-in into a short fund. The other investors all pulled a couple months later though, so the fund closed and I got the money out, most by Jan/Feb 20. So dumb luck maybe, although I still wonder what if i had been mega short in Feb-Mar20.
Wow--you moved your entire portfolio to a short fund? I wouldn't have the stomach for that. I suppose you bought back into long positions in March 2020?
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
LFKB
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Re: Ultra HNW on this forum?

Post by LFKB »

EddyB wrote: Thu Jan 06, 2022 2:57 am
LFKB wrote: Tue Jan 04, 2022 8:42 pm I don’t know what you consider UHNW but I’m a tad below where you expect some of your friends are. I started as BH and still add to my index funds, but I’ve invested in a number of individual stocks and have beat the market handily every year. I also just made a large ($5M) investment into a private equity fund recently, but it was a situation where I know all the principals and was able to get into the fund after they had made three investments, two of which look to be home runs, and had the benefit of a year of hindsight while getting in at the original cost basis.
The “give away” factor is another good reminder of why most people shouldn’t invest in PE funds.
I think you’re referencing the carry / mgmt fees but I have the benefit of a year of hindsight on their initial investments. I got my first capital call for about $1M two weeks ago and will likely get a return of ~$5M when they sell one of their platform investments in June of this year. This initial deal looks like it’ll be a 10x investment just 14 months after they made it. From there on it’s all upside and they have some other businesses that look to be good investments as well. We’ll see but if this investment returns what it should then even if every other deal is only a 1x it’ll still be a great fund.
mikejuss
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Re: Ultra HNW on this forum?

Post by mikejuss »

LFKB wrote: Thu Jan 06, 2022 11:44 am
EddyB wrote: Thu Jan 06, 2022 2:57 am
LFKB wrote: Tue Jan 04, 2022 8:42 pm I don’t know what you consider UHNW but I’m a tad below where you expect some of your friends are. I started as BH and still add to my index funds, but I’ve invested in a number of individual stocks and have beat the market handily every year. I also just made a large ($5M) investment into a private equity fund recently, but it was a situation where I know all the principals and was able to get into the fund after they had made three investments, two of which look to be home runs, and had the benefit of a year of hindsight while getting in at the original cost basis.
The “give away” factor is another good reminder of why most people shouldn’t invest in PE funds.
I think you’re referencing the carry / mgmt fees but I have the benefit of a year of hindsight on their initial investments. I got my first capital call for about $1M two weeks ago and will likely get a return of ~$5M when they sell one of their platform investments in June of this year. This initial deal looks like it’ll be a 10x investment just 14 months after they made it. From there on it’s all upside and they have some other businesses that look to be good investments as well. We’ll see but if this investment returns what it should then even if every other deal is only a 1x it’ll still be a great fund.
Wow--I guess that anyone who can afford it should be in the PE space. It sounds like it's so easy to net millions.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
halfnine
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Re: Ultra HNW on this forum?

Post by halfnine »

Leesbro63 wrote: Thu Jan 06, 2022 6:56 am
an_asker wrote: Tue Jan 04, 2022 8:37 pm I've a few buddies whose net worth I have no clue about.
Over the holidays, I was invited to a party hosted by an early 60's (age) couple in my condo. He had some sort of tech business that he sold. They have a double unit...the nicest unit in the building. I always assumed they were UHNW and smart about money. Until he made a comment about taking Social Security at 62 "because I'll have to live to <some age that he figured> if I wait". I then commented that some people wait until age 70 because they view SS as longevity insurance, and if they don't make it they won't care, because they'll be dead. His wife looked at him and he got this blank look. The conversation then drifted to something else and I didn't press the issue.

I still don't know what that was all about. I'm sure they are financially OK, but I'm less convinced that they are UHNW, as we would define it. So unless you actually know via some publication, you never know what someone has.
My uncle was UHNW and also took SS at 62 because he bloody wanted some of his taxes back and had plenty of other money so longevity insurance wasn't a priority. This lesson might not be that you don't know what someone has the lesson might be you don't know their motivation.
halfnine
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Re: Ultra HNW on this forum?

Post by halfnine »

The people I know in the 8 figure club didn't get there with a slow and steady approach and for the large majority there is little point in convincing them otherwise when it comes to investments.
GP813
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Re: Ultra HNW on this forum?

Post by GP813 »

I bet there will be more UHNW and HNW bogleheads in the future because of the wealth transfer from boomers dying. A lot of younger generations are more DIY and can Google and research solutions to scenarios they encounter, some will definitely settle right here. I already know a few people who inherited multi-millions of dollars and the fortunes didn't come from a business or dynastic family wealth but from real estate appreciation and a stock portfolio of a regular working family.
afan
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Re: Ultra HNW on this forum?

Post by afan »

I would use ~$30M for ultra high NW. No particular reason for that figure.

Among our friends, some of whom are UHNW by that definition, at least several use investment advisors. Some of the friends made their wealth by founding and running successful businesses. Some therefore have a lot of business experience and invest directly in private companies that they think they can evaluate. I don't know whether any invest in PE funds.

I have a good friend who worked for years in leveraged buyouts and PE, then moved into a senior corporate job in finance but not in the investment industry. They told me that they do NOT invest in PE funds for themselves. Also, no direct ownership of real estate. Just plain old index funds.

I know many people who are high income professionals, not in finance, and probably not UHNW. To the extent we have discussed investing, they just do index funds and do not use advisors.

I am not convinced that an advisor, even a free one, can beat VTI on risk adjusted return. I am not convinced that tax loss harvesting a portfolio of individual stocks that otherwise tries to match the market will beat VTI on an after tax basis. It is a highly tax efficient vehicle. Paying someone to TLH for me, or even worse, try to outperform the market is a waste of money and generates transaction costs and more complicated tax returns.

If I had spend my career running and investing in private businesses, then maybe I would want to continue to hold such a portfolio when I was no longer up to doing it myself. Then, I suppose, I could imagine seeking an advisor who I thought could continue to do it for me.

On the other hand, one set of friends, who by a combination of high income and inheritance, may be UHNW, used to be hedge fund fans. We talked about it some. Once their hedge funds blew up, they settled down in index funds.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
Californiastate
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Re: Ultra HNW on this forum?

Post by Californiastate »

A UHNW individual can afford their own private jet to fly to their helicopter to land on their mega yacht. I don't see Larry Ellison perusing this forum. Money managers will call $10m UHNW to get customers by petting their egos.
Last edited by Californiastate on Thu Jan 06, 2022 1:17 pm, edited 1 time in total.
MarkRoulo
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Re: Ultra HNW on this forum?

Post by MarkRoulo »

realfan wrote: Tue Jan 04, 2022 7:51 pm I have been frequenting this forum for over a decade. I am a rare poster and I DM folks sometimes when I want to impart some of my experience but not share details on the regular forum. I live an odd life in that my wife and I are friends with folks from all over the economic spectrum. We also have friends who are 15 years younger to ten years older - we are in our mid 50s so you can do the math :)

On the younger end, we have friends (as well as our own adult children) who aren’t worth much and are just starting out. I always preach the Boglehead three fund portfolio to this crowd as a great way to start investing. I also have friends on the older side of the spectrum whom I suspect are worth north of $25M (multiple homes, no mortgages, invested in hedge funds, PE funds, stock market, commercial RE, etc.). I also discuss simplified investing with a couple of folks in this crowd and I swear they think I am a simpleton.

My own net worth is less than these ultraHNW folks but clearly well ahead of anyone just starting out - I’m probably being a bit modest here but we’re fine and looking to retire in five years or so. My question at the end of this long ramble is - are there ultra HNW folks on this board that subscribe to the Boglehead philosophy? I myself (although not an UHNW but a regular old HNW) pursue a modified three fund strategy whereby I overtilt to REITs as I have a lifelong love with RE and the benefits they bring. Thus, I am allocated to US Total Stock Market, US Total Bond Market, Total International Stock Market (ex-US) and REITs.

I know that many here feel that the three (or four) fund portfolio is just fine for UHNW folks and that you can add some PE or hedge funds if so desired but is there a natural breakpoint at which one needs to think beyond a Boglehead portfolio? Asking for a friend :D . Thanks.
You might find this: viewtopic.php?p=2575600#p2575600

interesting.
EddyB
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Re: Ultra HNW on this forum?

Post by EddyB »

LFKB wrote: Thu Jan 06, 2022 11:44 am
EddyB wrote: Thu Jan 06, 2022 2:57 am
LFKB wrote: Tue Jan 04, 2022 8:42 pm I don’t know what you consider UHNW but I’m a tad below where you expect some of your friends are. I started as BH and still add to my index funds, but I’ve invested in a number of individual stocks and have beat the market handily every year. I also just made a large ($5M) investment into a private equity fund recently, but it was a situation where I know all the principals and was able to get into the fund after they had made three investments, two of which look to be home runs, and had the benefit of a year of hindsight while getting in at the original cost basis.
The “give away” factor is another good reminder of why most people shouldn’t invest in PE funds.
I think you’re referencing the carry / mgmt fees but I have the benefit of a year of hindsight on their initial investments. I got my first capital call for about $1M two weeks ago and will likely get a return of ~$5M when they sell one of their platform investments in June of this year. This initial deal looks like it’ll be a 10x investment just 14 months after they made it. From there on it’s all upside and they have some other businesses that look to be good investments as well. We’ll see but if this investment returns what it should then even if every other deal is only a 1x it’ll still be a great fund.
No, I was referring to the fund letting you in at “the original cost basis” after “a year of hindsight.” If you weren’t let in now, what would have happened to your share of the profit?
LFKB
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Re: Ultra HNW on this forum?

Post by LFKB »

mikejuss wrote: Thu Jan 06, 2022 11:51 am
LFKB wrote: Thu Jan 06, 2022 11:44 am
EddyB wrote: Thu Jan 06, 2022 2:57 am
LFKB wrote: Tue Jan 04, 2022 8:42 pm I don’t know what you consider UHNW but I’m a tad below where you expect some of your friends are. I started as BH and still add to my index funds, but I’ve invested in a number of individual stocks and have beat the market handily every year. I also just made a large ($5M) investment into a private equity fund recently, but it was a situation where I know all the principals and was able to get into the fund after they had made three investments, two of which look to be home runs, and had the benefit of a year of hindsight while getting in at the original cost basis.
The “give away” factor is another good reminder of why most people shouldn’t invest in PE funds.
I think you’re referencing the carry / mgmt fees but I have the benefit of a year of hindsight on their initial investments. I got my first capital call for about $1M two weeks ago and will likely get a return of ~$5M when they sell one of their platform investments in June of this year. This initial deal looks like it’ll be a 10x investment just 14 months after they made it. From there on it’s all upside and they have some other businesses that look to be good investments as well. We’ll see but if this investment returns what it should then even if every other deal is only a 1x it’ll still be a great fund.
Wow--I guess that anyone who can afford it should be in the PE space. It sounds like it's so easy to net millions.
You sound bitter...I wasn't saying everyone should be in the PE space
LFKB
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Re: Ultra HNW on this forum?

Post by LFKB »

EddyB wrote: Thu Jan 06, 2022 1:25 pm
LFKB wrote: Thu Jan 06, 2022 11:44 am
EddyB wrote: Thu Jan 06, 2022 2:57 am
LFKB wrote: Tue Jan 04, 2022 8:42 pm I don’t know what you consider UHNW but I’m a tad below where you expect some of your friends are. I started as BH and still add to my index funds, but I’ve invested in a number of individual stocks and have beat the market handily every year. I also just made a large ($5M) investment into a private equity fund recently, but it was a situation where I know all the principals and was able to get into the fund after they had made three investments, two of which look to be home runs, and had the benefit of a year of hindsight while getting in at the original cost basis.
The “give away” factor is another good reminder of why most people shouldn’t invest in PE funds.
I think you’re referencing the carry / mgmt fees but I have the benefit of a year of hindsight on their initial investments. I got my first capital call for about $1M two weeks ago and will likely get a return of ~$5M when they sell one of their platform investments in June of this year. This initial deal looks like it’ll be a 10x investment just 14 months after they made it. From there on it’s all upside and they have some other businesses that look to be good investments as well. We’ll see but if this investment returns what it should then even if every other deal is only a 1x it’ll still be a great fund.
No, I was referring to the fund letting you in at “the original cost basis” after “a year of hindsight.” If you weren’t let in now, what would have happened to your share of the profit?
Yes, original investors took some dilution but there was a catch up provision that helped them out (albeit minimally). When you invest in a PE fund investors know there are multiple closes and a target fund size. They hit their cap and did a final close that I came into, nothing nefarious about it and all clearly outlined in the fund docs.
mikejuss
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Re: Ultra HNW on this forum?

Post by mikejuss »

LFKB wrote: Thu Jan 06, 2022 1:32 pm
mikejuss wrote: Thu Jan 06, 2022 11:51 am
LFKB wrote: Thu Jan 06, 2022 11:44 am
EddyB wrote: Thu Jan 06, 2022 2:57 am
LFKB wrote: Tue Jan 04, 2022 8:42 pm I don’t know what you consider UHNW but I’m a tad below where you expect some of your friends are. I started as BH and still add to my index funds, but I’ve invested in a number of individual stocks and have beat the market handily every year. I also just made a large ($5M) investment into a private equity fund recently, but it was a situation where I know all the principals and was able to get into the fund after they had made three investments, two of which look to be home runs, and had the benefit of a year of hindsight while getting in at the original cost basis.
The “give away” factor is another good reminder of why most people shouldn’t invest in PE funds.
I think you’re referencing the carry / mgmt fees but I have the benefit of a year of hindsight on their initial investments. I got my first capital call for about $1M two weeks ago and will likely get a return of ~$5M when they sell one of their platform investments in June of this year. This initial deal looks like it’ll be a 10x investment just 14 months after they made it. From there on it’s all upside and they have some other businesses that look to be good investments as well. We’ll see but if this investment returns what it should then even if every other deal is only a 1x it’ll still be a great fund.
Wow--I guess that anyone who can afford it should be in the PE space. It sounds like it's so easy to net millions.
You sound bitter...I wasn't saying everyone should be in the PE space
I'm not bitter, just fascinated. You seem to have had a golden run as an investor--handily beating the market every year and picking sweet PE deals to invest in. You should write a book; I'm not kidding.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
tmsul100
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Re: Ultra HNW on this forum?

Post by tmsul100 »

Clear thinking on this from Buffett: recommended Lebron James put 90% in S&P/total market index fund and 10% in treasuries. And, as all know, is recommending same for his his family/estate.
EddyB
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Re: Ultra HNW on this forum?

Post by EddyB »

LFKB wrote: Thu Jan 06, 2022 1:34 pm
EddyB wrote: Thu Jan 06, 2022 1:25 pm
LFKB wrote: Thu Jan 06, 2022 11:44 am
EddyB wrote: Thu Jan 06, 2022 2:57 am
LFKB wrote: Tue Jan 04, 2022 8:42 pm I don’t know what you consider UHNW but I’m a tad below where you expect some of your friends are. I started as BH and still add to my index funds, but I’ve invested in a number of individual stocks and have beat the market handily every year. I also just made a large ($5M) investment into a private equity fund recently, but it was a situation where I know all the principals and was able to get into the fund after they had made three investments, two of which look to be home runs, and had the benefit of a year of hindsight while getting in at the original cost basis.
The “give away” factor is another good reminder of why most people shouldn’t invest in PE funds.
I think you’re referencing the carry / mgmt fees but I have the benefit of a year of hindsight on their initial investments. I got my first capital call for about $1M two weeks ago and will likely get a return of ~$5M when they sell one of their platform investments in June of this year. This initial deal looks like it’ll be a 10x investment just 14 months after they made it. From there on it’s all upside and they have some other businesses that look to be good investments as well. We’ll see but if this investment returns what it should then even if every other deal is only a 1x it’ll still be a great fund.
No, I was referring to the fund letting you in at “the original cost basis” after “a year of hindsight.” If you weren’t let in now, what would have happened to your share of the profit?
Yes, original investors took some dilution but there was a catch up provision that helped them out (albeit minimally). When you invest in a PE fund investors know there are multiple closes and a target fund size. They hit their cap and did a final close that I came into, nothing nefarious about it and all clearly outlined in the fund docs.
I didn't suggest it was nefarious, but I do think it's an illustration of the general reason why most people (who don't know all the principals) shouldn't invest in PE funds: all the risk, some of the reward.
ncbill
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Re: Ultra HNW on this forum?

Post by ncbill »

tmsul100 wrote: Thu Jan 06, 2022 1:44 pm Clear thinking on this from Buffett: recommended Lebron James put 90% in S&P/total market index fund and 10% in treasuries. And, as all know, is recommending same for his his family/estate.
Sure, when you're worth several hundred million bucks already you can support decades of a high-consumption lifestyle on that 10% in Treasuries alone.

Not so much for those worth $10 million or less.
chw
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Re: Ultra HNW on this forum?

Post by chw »

Lee_WSP wrote: Tue Jan 04, 2022 7:56 pm A managed portfolio which simulates the S&P can have a lower tax and expense drag than VTI. The fees may also partially be offset by slightly better returns.

For UHNW families, tax planning is far more important.
This. Most UHNW families generated their NW from a business which likely remains tied to their ongoing NW. Some families may be divesting from the business over time, either to a liquid asset, or passing business asset onto the next generation on some tax efficient way. In my former career as a lender, usually the liquid portion of UHNW client's portfolios were invested in equities to try and exceed the return of the S&P 500. Most of these clients had advisors that usually had these liquid assets invested in a far more complex mix of equities than necessary, but likely needed to justify that they were adding some "secret sauce" to the portfolio.
shess
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Re: Ultra HNW on this forum?

Post by shess »

Lee_WSP wrote: Tue Jan 04, 2022 7:56 pm A managed portfolio which simulates the S&P can have a lower tax and expense drag than VTI. The fees may also partially be offset by slightly better returns.
Your net worth is going to have to be pretty high to compensate for fees. At $30M, VTI is costing you only $9k/year in ER. Wealthfront or Betterment are going to charge you 25bp of AUM, which is $75k. I can't find fees for Parametric, so I'm assuming they're higher than that (*cough*). I suspect that they would earn their fees for the first five years or so after you place your $30M in cash with them, but after that things like TLH opportunities are going to fade, and embedded gains are going to lock your positions in place, so there will be less ongoing advantage unless you keep investing significant amounts. Then you're kind of stuck with it, because I certainly wouldn't want to self-manage an index-replicating portfolio of five hundred or a thousand shares.

[OK, actually I kind of would like to self-manage an index-replication strategy, but I don't think it's a good idea to put myself in the critical path like that. If I become unable to pay close attention to things, VTI will take care of itself for a fairly long time before becoming a problem. With index replication I maybe would need to include a scotch or brandy allowance in my executor agreement.]
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Lee_WSP
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Re: Ultra HNW on this forum?

Post by Lee_WSP »

shess wrote: Thu Jan 06, 2022 4:25 pm
Lee_WSP wrote: Tue Jan 04, 2022 7:56 pm A managed portfolio which simulates the S&P can have a lower tax and expense drag than VTI. The fees may also partially be offset by slightly better returns.
Your net worth is going to have to be pretty high to compensate for fees. At $30M, VTI is costing you only $9k/year in ER. Wealthfront or Betterment are going to charge you 25bp of AUM, which is $75k. I can't find fees for Parametric, so I'm assuming they're higher than that (*cough*). I suspect that they would earn their fees for the first five years or so after you place your $30M in cash with them, but after that things like TLH opportunities are going to fade, and embedded gains are going to lock your positions in place, so there will be less ongoing advantage unless you keep investing significant amounts. Then you're kind of stuck with it, because I certainly wouldn't want to self-manage an index-replicating portfolio of five hundred or a thousand shares.

[OK, actually I kind of would like to self-manage an index-replication strategy, but I don't think it's a good idea to put myself in the critical path like that. If I become unable to pay close attention to things, VTI will take care of itself for a fairly long time before becoming a problem. With index replication I maybe would need to include a scotch or brandy allowance in my executor agreement.]
30 million spits out 600 thousand of dividends. In California, even the ones not taxed as ordinary income are taxed at close to 40%. The tax drag is real.
afan
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Re: Ultra HNW on this forum?

Post by afan »

Lee_WSP wrote: Thu Jan 06, 2022 4:34 pm
30 million spits out 600 thousand of dividends. In California, even the ones not taxed as ordinary income are taxed at close to 40%. The tax drag is real.
Tax drag is real. The question is whether someone can generate better risk adjusted after tax returns with an active index-replicating portfolio that has a lower exposure to dividend-producing stocks. If so, then they could potentially justify being paid to do it. If not, then any fee would just further reduce performance.
If someone can produce a low dividend version of VTI with the other characteristics the same, equal or lower turnover and comparable pretax returns, then this would benefit the investor. I have not seen any evidence to suggest this is possible.
Since many of the large components of VTI pay dividends, getting rid of then would move a portfolio far from the market.

40% of 2% is 0.8% of the value of the portfolio. That is the annual tax cost of the dividends. That would be the maximum one should pay to take the dividends to zero. If some of the $30M is in tax deferred or tax free accounts then the incremental value of the low dividend approach would be less. Dividends in those accounts do not have higher tax rates than unrealized capital gains.
This of course assumes one could take the dividends to zero while maintaining a portfolio that tracked the total market. Seems impossible. Of course, if someone could show they have done it, then I will cheerfully agree that it can be done.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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Lee_WSP
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Re: Ultra HNW on this forum?

Post by Lee_WSP »

afan wrote: Thu Jan 06, 2022 5:09 pm
Lee_WSP wrote: Thu Jan 06, 2022 4:34 pm
30 million spits out 600 thousand of dividends. In California, even the ones not taxed as ordinary income are taxed at close to 40%. The tax drag is real.
Tax drag is real. The question is whether someone can generate better risk adjusted after tax returns with an active index-replicating portfolio that has a lower exposure to dividend-producing stocks. If so, then they could potentially justify being paid to do it. If not, then any fee would just further reduce performance.
If someone can produce a low dividend version of VTI with the other characteristics the same, equal or lower turnover and comparable pretax returns, then this would benefit the investor. I have not seen any evidence to suggest this is possible.
Since many of the large components of VTI pay dividends, getting rid of then would move a portfolio far from the market.

40% of 2% is 0.8% of the value of the portfolio. That is the annual tax cost of the dividends. That would be the maximum one should pay to take the dividends to zero. If some of the $30M is in tax deferred or tax free accounts then the incremental value of the low dividend approach would be less. Dividends in those accounts do not have higher tax rates than unrealized capital gains.
This of course assumes one could take the dividends to zero while maintaining a portfolio that tracked the total market. Seems impossible. Of course, if someone could show they have done it, then I will cheerfully agree that it can be done.
Unlike mutual funds, there is no good data on wealth management outfits. They're black holes for a separate, but related reason. I can tell you what they invest in and how in a general sense. But I cannot tell you the risk adjusted returns after fees and taxes.

The assumption that they pay high fees may also be wrong.
afan
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Re: Ultra HNW on this forum?

Post by afan »

Vanguard's Balanced Fund and Tax Managed Balanced fund differ in SEC yield by 0.29% (tax managed is lower). But the tax version uses munis rather than taxable bonds. I don't know whether there is any difference in the stock component of the funds. The tax version has a 2 basis point higher expense ratio.
To the extent that the taxable yield difference is due to munis vs taxable bonds, one can get that for free.

If you invest in VTI -SEC yield 1.14% for 50% and munis for the rest, the effective taxable yield across the $30M would be 0.57%, or $171,000.
Fees would be 0.03% x $15M =$9,000 for the stock component and
0.06% x $15M=$18,000 for the bond component. (using VTEB)

If you invest in Vanguard tax managed balanced fund, same 50/50 allocation, your expense ratio would be 0.09%
0.09 x $30M= $27,000 same as the DIY mix

0.98% of $30M=$294,000, all taxable.

And that is with Vanguard doing the tax management for you at Vanguard prices.

VTI plus VTEB is going to be hard to beat from a tax perspective.

As for fees, some, such as Fidelity and the large number of RIAs that work with Schwab do publish their fees and their tiers. I have not seen any that are below 0.09%, the cost of the Vanguard tax managed balanced fund or 0.045%, the cost of the VTI + VTEB portfolio.

As to data: If there are no data on the performance of the private managers, then there is no basis for assuming that they reduce taxes by enough to earn their fees.
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Re: Ultra HNW on this forum?

Post by Lee_WSP »

All I can tell you is that part is a portion of their net worth.
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Re: Ultra HNW on this forum?

Post by afan »

Lee_WSP wrote: Thu Jan 06, 2022 5:43 pm All I can tell you is that part is a portion of their net worth.
Without data, how can we know what is typical? Or what effective yields or expenses one can expect?
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Re: Ultra HNW on this forum?

Post by Lee_WSP »

afan wrote: Thu Jan 06, 2022 5:45 pm
Lee_WSP wrote: Thu Jan 06, 2022 5:43 pm All I can tell you is that part is a portion of their net worth.
Without data, how can we know what is typical? Or what effective yields or expenses one can expect?
Exactly.
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Re: Ultra HNW on this forum?

Post by mikejuss »

Lee_WSP wrote: Thu Jan 06, 2022 5:20 pm Unlike mutual funds, there is no good data on wealth management outfits. They're black holes for a separate, but related reason. I can tell you what they invest in and how in a general sense. But I cannot tell you the risk adjusted returns after fees and taxes.

The assumption that they pay high fees may also be wrong.
I guess that raises a question: why is the performance of alternative-investment managers a secret?
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Re: Ultra HNW on this forum?

Post by shess »

afan wrote: Thu Jan 06, 2022 5:38 pm If you invest in VTI -SEC yield 1.14% for 50% and munis for the rest, the effective taxable yield across the $30M would be 0.57%, or $171,000.
Fees would be 0.03% x $15M =$9,000 for the stock component and
0.06% x $15M=$18,000 for the bond component. (using VTEB)

If you invest in Vanguard tax managed balanced fund, same 50/50 allocation, your expense ratio would be 0.09%
0.09 x $30M= $27,000 same as the DIY mix
The DIY mix has half the costs of the balanced fund. I mean, your overall point still stands!
afan wrote: Thu Jan 06, 2022 5:38 pm As to data: If there are no data on the performance of the private managers, then there is no basis for assuming that they reduce taxes by enough to earn their fees.
Not knowing the fees and not knowing the performance, it's natural to assume that the performance must justify the fees, right? Ha! My assumption is that if anyone had conclusive outperformance net of fees, they would immediately publish that and suck up everyone's assets. In my opinion, the obfuscation is evidence enough for likely underperformance net of fees. White papers are not a substitute for audited results.

All of that said, I think that people with $30M portfolios likely have better things to worry about than a few $10k of yearly fees. Personally, I'm totally happy to manage my own portfolio, but that has been scale invariant - I was happy to manage it at $100k, I've only gotten happier about it as I've added digits. But many people would NOT be happy being in charge of $30M, and might rather have someone else making those decisions even if they suspected that the decisions made were sub-optimal. Basically structuring their money relationship around sins of omission rather than sins of commission, so they can live with themselves.
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Re: Ultra HNW on this forum?

Post by DarkMatter731 »

HanSolo wrote: Wed Jan 05, 2022 9:32 pm
realfan wrote: Tue Jan 04, 2022 7:51 pm I know that many here feel that the three (or four) fund portfolio is just fine for UHNW folks and that you can add some PE or hedge funds if so desired but is there a natural breakpoint at which one needs to think beyond a Boglehead portfolio?
Needs...? I'd say no. But if they feel like it, then I don't see why not.

Warren Buffet bet a million dollars that a portfolio consisting of hedge funds couldn't beat the S&P over a 10-year period. Buffett won the bet.

So I don't think anyone needs to go beyond the standard Boglehead-type portfolio, but they can if they want to. For example, in my IRA, I have some non-Boglehead-type stuff going on (actively-managed funds, tilts, gold funds, valuation-based adjustments, etc.). I don't think there's necessarily a "right" or "wrong" about it. Some people gamble in Las Vegas. I don't, but who am I to say they're "wrong"? It's their money.

Try telling them to put everything in a Target Retirement fund and call it a day. That might be a fun conversation.


Which ignores the purpose of hedgefunds and private equity firms completely.

If I'm an institutional investor, I want uncorrelated returns and firms that generate alpha. A firm that returns 10% a year with a volatility of 5% is much more preferred than a firm that returns 12% with a volatility of 12% a year. Private equity and hedgefunds exist for a reason - institutional investors aren't dumb, they also understand how index funds work. But putting it in an index fund won't generate alpha nor will it be uncorrelated with the market.
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Re: Ultra HNW on this forum?

Post by Lee_WSP »

shess wrote: Thu Jan 06, 2022 6:09 pm
afan wrote: Thu Jan 06, 2022 5:38 pm If you invest in VTI -SEC yield 1.14% for 50% and munis for the rest, the effective taxable yield across the $30M would be 0.57%, or $171,000.
Fees would be 0.03% x $15M =$9,000 for the stock component and
0.06% x $15M=$18,000 for the bond component. (using VTEB)

If you invest in Vanguard tax managed balanced fund, same 50/50 allocation, your expense ratio would be 0.09%
0.09 x $30M= $27,000 same as the DIY mix
The DIY mix has half the costs of the balanced fund. I mean, your overall point still stands!
afan wrote: Thu Jan 06, 2022 5:38 pm As to data: If there are no data on the performance of the private managers, then there is no basis for assuming that they reduce taxes by enough to earn their fees.
Not knowing the fees and not knowing the performance, it's natural to assume that the performance must justify the fees, right? Ha! My assumption is that if anyone had conclusive outperformance net of fees, they would immediately publish that and suck up everyone's assets. In my opinion, the obfuscation is evidence enough for likely underperformance net of fees. White papers are not a substitute for audited results.

All of that said, I think that people with $30M portfolios likely have better things to worry about than a few $10k of yearly fees. Personally, I'm totally happy to manage my own portfolio, but that has been scale invariant - I was happy to manage it at $100k, I've only gotten happier about it as I've added digits. But many people would NOT be happy being in charge of $30M, and might rather have someone else making those decisions even if they suspected that the decisions made were sub-optimal. Basically structuring their money relationship around sins of omission rather than sins of commission, so they can live with themselves.
That’s the other shoe. If you are making $10,000 an hour or more, then the last thing you care about is learning about tax loss harvesting, EMH, or everything else. Let alone manage the tax loss harvesting, private equity vetting, etc. Or, you just don’t want to work at that net worth. Or you want to do something else. Their time is more important.
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Re: Ultra HNW on this forum?

Post by AlphaLess »

The big clarification required from you is what is Ultra High Net Worth?

I have friends colleagues (as well as our own household) with NW north of $10M, and high earners (7-8 figures).

And almost all of them are bogleheads. A few of them are venturing into PE due to some benefits from their job.

Most of the crowd I am talking about are hedge fund / bulge bracket investment bank / fintech / startup crowd.

Complicated financial arrangements start at $100M net worth, IMO.
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Re: Ultra HNW on this forum?

Post by afan »

Agree that at that level, one can hire someone to do work for you that those with lesser assets would do themselves.
But the beauty of a 3 fund portfolio is that there is no work to be done.

Market correlations:
VTEB has a low correlation with the stock market. And it is almost free.

I do not believe there is evidence that hedge funds as a class generate alpha. I do not believe there is evidence that hedge fund performance persists.

If someone is investing in hedge funds because they think they will get positive alpha, it would be fascinating to know what mental gyrations they went through to come to that conclusion.

I sort of see the appeal of direct ownership of real estate once someone has the means to be diversified across property types and geography. I am not sure $30M is enough for that. When investing some portion of $30M, one is likely still using funds. Perhaps private funds, but not likely to own a dozen properties across the country.
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Re: Ultra HNW on this forum?

Post by AerialWombat »

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Re: Ultra HNW on this forum?

Post by AlphaLess »

RubyTuesday wrote: Tue Jan 04, 2022 8:22 pm There have been several threads over the years soliciting surveys of bogleheads’ net worth. Of course self-reported… who knows accuracy…

There are reportedly many bogleheads with NW over $10M, which is the figure I see batted around for UHNW definition.
I disagree.

I think the wealth management folks would not define $10M as Ultra High Net Worth.

I would think that the UHNW threshold is closer to $50M.
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Re: Ultra HNW on this forum?

Post by AlphaLess »

bling wrote: Wed Jan 05, 2022 9:03 pm
GP813 wrote: Wed Jan 05, 2022 8:49 pm According to Investopedia: Ultra-high-net-worth individuals (UHNWIs) are defined as people with investable assets of at least $30 million.
even that seems low to me. we're talking ULTRA high net worth! it should be $100M.

but for these people, it's all about tax planning and preservation of wealth. it's more important to stay in the 3 comma club than it is to get market returns.
It is probably fair to define that with percentiles.

Some wealth management firms have those numbers.
10%
5%
2%
1%
0.5%
0.25%
0.1%

I would think that Ultra High Net Worth is somewhere in the ballpark of 0.25%.

I think 1% might be around $10-15M, but that might be 2018 or 2019 data.
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Re: Ultra HNW on this forum?

Post by AlphaLess »

ClassII wrote: Wed Jan 05, 2022 9:12 pm I have a friend who’s family is in the 3 comma club. I’ve never had the courage to ask how it all works for them but I would love to. And of course I fantasize about winning the Powerball (cough, $630M this week, cough) some day and wonder if suddenly being at that level would require any changes to handle that wealth. Does VTSAX and chill really scale?
You should just ask. You can learn a lot from rich people, in the tax avoidance, accounting, and other ways. When Mitt Romney IRA information was disclosed due to presidential candidacy, it was a watershed moment for accountants.

You don't think something is possible until it is possible.

A $250K Roth IRA, if invested well, with a bit of risk, could grow to $10M.
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Re: Ultra HNW on this forum?

Post by AlphaLess »

afan wrote: Thu Jan 06, 2022 7:37 pm Agree that at that level, one can hire someone to do work for you that those with lesser assets would do themselves.
But the beauty of a 3 fund portfolio is that there is no work to be done.

Market correlations:
VTEB has a low correlation with the stock market. And it is almost free.

I do not believe there is evidence that hedge funds as a class generate alpha. I do not believe there is evidence that hedge fund performance persists.

If someone is investing in hedge funds because they think they will get positive alpha, it would be fascinating to know what mental gyrations they went through to come to that conclusion.

I sort of see the appeal of direct ownership of real estate once someone has the means to be diversified across property types and geography. I am not sure $30M is enough for that. When investing some portion of $30M, one is likely still using funds. Perhaps private funds, but not likely to own a dozen properties across the country.
In order to generate excess returns using hedge funds, you have to know how to pick hedge funds.
But that is the same problem as picking stocks.

SO, yea, you can not outperform the market using hedge funds.

With $30M, why would you want to chase real estate? Real estate investing is extremely inefficient, because it is hard to get scalability.
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Re: Ultra HNW on this forum?

Post by afan »

And of course, qualified dividends are not taxed at ordinary income rates.
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Re: Ultra HNW on this forum?

Post by andypanda »

"I think that people with $30M portfolios likely have better things to worry about than a few $10k of yearly fees."

The few I know don't worry about spending money to make money. Their time is valuable and after a certain point they can't justify doing it all themselves. They hire people to look after their money and properties and I don't mean some Wall Street firm. One couple in particular finally reached a point years ago they had to set up a private office with someone handling investments, another doing taxes, etc. He was a stock broker, she is a lawyer. They made a lot of money, stayed in their original house, invested a lot of money, inherited a lot recently, and find themselves now in possession of income producing properties in LA, local warehouses and single family units, property in San Francisco and Hawaii and lots of stocks and bonds, etc. The last I heard they finally topped $100 million and their federal taxes ran to well over 200 pages.
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Re: Ultra HNW on this forum?

Post by mikejuss »

andypanda wrote: Thu Jan 06, 2022 7:54 pm They made a lot of money, stayed in their original house, invested a lot of money, inherited a lot recently, and find themselves now in possession of income producing properties in LA, local warehouses and single family units, property in San Francisco and Hawaii and lots of stocks and bonds, etc. The last I heard they finally topped $100 million and their federal taxes ran to well over 200 pages.
Gosh--at that point, why not simplify one's life?
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Re: Ultra HNW on this forum?

Post by afan »

DQYDJ says the top 1% is ~$11M networth
Top half percent is ~$17M.
Top 0.1% is $43M
Just depends on what you consider "ultra"

Of the people with billion dollar networth, many would consider themselves broke if they fell to a lousy $43M.
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Re: Ultra HNW on this forum?

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Re: Ultra HNW on this forum?

Post by AlphaLess »

mikejuss wrote: Thu Jan 06, 2022 7:57 pm
andypanda wrote: Thu Jan 06, 2022 7:54 pm They made a lot of money, stayed in their original house, invested a lot of money, inherited a lot recently, and find themselves now in possession of income producing properties in LA, local warehouses and single family units, property in San Francisco and Hawaii and lots of stocks and bonds, etc. The last I heard they finally topped $100 million and their federal taxes ran to well over 200 pages.
Gosh--at that point, why not simplify one's life?
Exactly my point.
Sell everything, get one or two accounts (Vanguard and FIDO), and book, life is simple.

Why complicate ones life.
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Re: Ultra HNW on this forum?

Post by HanSolo »

DarkMatter731 wrote: Thu Jan 06, 2022 6:11 pm Which ignores the purpose of hedgefunds and private equity firms completely.
Nothing was ignored. I clearly said it's fine if people want to do that, just as it's fine for me to invest in stuff other than index funds (including some that are uncorrelated with equities). The OP's question was whether there's "a natural breakpoint at which one needs" those kinds of investments. My opinion is, no, there isn't. But if they want to do that, and understand what they're doing, there's nothing wrong.
AlphaLess wrote: Thu Jan 06, 2022 7:45 pm I think 1% might be around $10-15M, but that might be 2018 or 2019 data.
Top 1% by net worth in the US was $4.4m in 2021, according to the Knight Frank Wealth Report (source).
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Re: Ultra HNW on this forum?

Post by smectym »

GP813 wrote: Wed Jan 05, 2022 8:49 pm According to Investopedia: Ultra-high-net-worth individuals (UHNWIs) are defined as people with investable assets of at least $30 million.
>>$30 million

Yes, that is the usual UHNW breakpoint I see batted around. Though agree with other posters that number isn’t quite set in stone.
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Re: Ultra HNW on this forum?

Post by mikejuss »

AlphaLess wrote: Thu Jan 06, 2022 8:10 pm
mikejuss wrote: Thu Jan 06, 2022 7:57 pm
andypanda wrote: Thu Jan 06, 2022 7:54 pm They made a lot of money, stayed in their original house, invested a lot of money, inherited a lot recently, and find themselves now in possession of income producing properties in LA, local warehouses and single family units, property in San Francisco and Hawaii and lots of stocks and bonds, etc. The last I heard they finally topped $100 million and their federal taxes ran to well over 200 pages.
Gosh--at that point, why not simplify one's life?
Exactly my point.
Sell everything, get one or two accounts (Vanguard and FIDO), and book, life is simple.

Why complicate ones life.
We--and by "we" I mean "I"--are clearly poor people. :(
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Re: Ultra HNW on this forum?

Post by DarkMatter731 »

afan wrote: Thu Jan 06, 2022 7:37 pm Agree that at that level, one can hire someone to do work for you that those with lesser assets would do themselves.
But the beauty of a 3 fund portfolio is that there is no work to be done.

Market correlations:
VTEB has a low correlation with the stock market. And it is almost free.
VTEB produces returns that even my 80-year-old grandfather would not be happy with. Yes, it may not be correlated with the market (0.10 correlation if me running it through PV is correct) but it's got a return of 3% a year. Institutional investors may not want to 'beat' the market but they still want higher returns than 3% a year.
If someone is investing in hedge funds because they think they will get positive alpha, it would be fascinating to know what mental gyrations they went through to come to that conclusion.
I think a lot of people do. It's not about the hedgefund industry as a whole - clearly, people believe the funds they invest in are generating alpha.
I sort of see the appeal of direct ownership of real estate once someone has the means to be diversified across property types and geography. I am not sure $30M is enough for that. When investing some portion of $30M, one is likely still using funds. Perhaps private funds, but not likely to own a dozen properties across the country.
I do like real estate as an asset class. It's not the most 'Boglehead' opinion out there but people will always need somewhere to live.
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Re: Ultra HNW on this forum?

Post by Nysoz »

People that grow their net worth to 8-9-10 figures have the risk tolerance and personalities to keep going. They simplify their lives by hiring people to do parts of their lives they don't want to do. Also moving goalposts are a thing. The first $1M is great, then it becomes a goal to get to FI, then fatFI, then 8 figures, then 9 figures, then 3 commas.

People that de-risk and stop playing once they've won the game don't get to that level of wealth. They're happy with $3-5M and they cash out and get more conservative to preserve wealth rather than the goal to accumulate more.
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Re: Ultra HNW on this forum?

Post by Leesbro63 »

Nysoz wrote: Fri Jan 07, 2022 5:27 am People that grow their net worth to 8-9-10 figures have the risk tolerance and personalities to keep going. They simplify their lives by hiring people to do parts of their lives they don't want to do. Also moving goalposts are a thing. The first $1M is great, then it becomes a goal to get to FI, then fatFI, then 8 figures, then 9 figures, then 3 commas.

People that de-risk and stop playing once they've won the game don't get to that level of wealth. They're happy with $3-5M and they cash out and get more conservative to preserve wealth rather than the goal to accumulate more.
Good analysis. But I think for the $3-$5M folks, the big question is HOW do you preserve wealth? Stocks are richly valued and bond yields are barely above zero. What is the 2022 plan to preserve wealth in real terms?
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Re: Ultra HNW on this forum?

Post by LFKB »

mikejuss wrote: Thu Jan 06, 2022 1:39 pm
LFKB wrote: Thu Jan 06, 2022 1:32 pm
mikejuss wrote: Thu Jan 06, 2022 11:51 am
LFKB wrote: Thu Jan 06, 2022 11:44 am
EddyB wrote: Thu Jan 06, 2022 2:57 am

The “give away” factor is another good reminder of why most people shouldn’t invest in PE funds.
I think you’re referencing the carry / mgmt fees but I have the benefit of a year of hindsight on their initial investments. I got my first capital call for about $1M two weeks ago and will likely get a return of ~$5M when they sell one of their platform investments in June of this year. This initial deal looks like it’ll be a 10x investment just 14 months after they made it. From there on it’s all upside and they have some other businesses that look to be good investments as well. We’ll see but if this investment returns what it should then even if every other deal is only a 1x it’ll still be a great fund.
Wow--I guess that anyone who can afford it should be in the PE space. It sounds like it's so easy to net millions.
You sound bitter...I wasn't saying everyone should be in the PE space
I'm not bitter, just fascinated. You seem to have had a golden run as an investor--handily beating the market every year and picking sweet PE deals to invest in. You should write a book; I'm not kidding.
I’ve mostly just beat the market by being long NVIDIA, Google and Amazon for a number of years. I’ve done well in some other names and had a few losers along the way as well. It wasn’t rocket surgery.
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Re: Ultra HNW on this forum?

Post by andypanda »

"Gosh--at that point, why not simplify one's life?"

They did that years ago. They hired people to manage the money and the properties and hired people to manage those people. They know what's going on, but they don't trade stocks, manage acquisitions and development and properties, balance the books, do the taxes or any of that.

And go-getters always find something new to do. Start a little business to meet a local need, volunteer, etc.
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