E195: 7 Lessons on Family Office Investing w/Stephan Roche

What does it take to manage the wealth of America’s most iconic families? In this episode, I spoke with Stephan Roche, Partner at BanyanGlobal, and former senior executive for the Gates and Walton families. Stephan has had a front-row seat to how some of the world’s most sophisticated family offices think about investing, governance, and multigenerational legacy. At Banyan, he now advises enterprising families on ownership strategy and purpose. We explore the frameworks ultra-wealthy families use to structure portfolios, co-invest alongside GPs, and prepare future generations for stewardship—not just of capital, but of mission and values. Whether you’re managing family wealth or building toward it, this is one of the most insightful conversations I’ve had on long-term investing.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Weisburd?

  So multiple people told me I had to chat with you. You are the CEO of Walton Enterprises, the Walton family. You are the COO of Cascade, which is Bill Gates' family. You've been in some of the most prominent families on the investing side. Tell me a little bit about how the portfolios of the very largest family offices in the country look like versus the smaller, quote unquote, smaller, single-family offices.

• 0:23Speaker 01

  Such a good question. And what's interesting about them is honestly, as you scale up, they don't change that dramatically. Of course, you get the benefits of scale. You get the benefits of access to managers because you can write a bigger check. You get the opportunity to do things maybe from a direct investing standpoint that you might not if you're a smaller family office. Those things are absolutely true. And I would say of those, the access is probably the most important. So you're going to be able to get, you know, maybe the top-tier private equity funds, get access to some of the bigger direct investment deals, call it a SpaceX or a Uber back in the day. But the truth is, in many ways, they really are a reflection of how you think about asset allocation

• 1:07Speaker 01

  and the choices you can make in any portfolio. There's really kind of a couple of different models in family offices. And I've not only worked with the Gates and Waltons, but I've also worked across the family office

• 1:24Speaker 01

  universe in many different ways. I have a lot of peers, plus I now am an advisor to those families. And the models that I have seen most often are first the Yale model, which is David Swensen, heavy private equity investment with some additional public equities typically through external managers. That's often a very attractive for a family because they have a very long-term horizon. So the cash flow of a private equity investment makes sense. And think of private equity as not just the big private equity shops, but also venture capital. So anything where you're putting capital into a vehicle with the expectations that it's invested over the long term. And there's of course some great tax benefits to that to push out your returns. There's some.

• 2:06Speaker 01

  Really interesting challenges that come along with that as well, which is you, you right now, there's a huge cash crunch and cash crisis because there's no distributions. But in any case, that model has historically, at least for the last 20 years or so, been very, very attractive. Another model is more of the Warren Buffett models, I like to call it, which is to invest in relatively few, very high quality equities. But in the public markets, that's a strategy that can again be very effective with a long term horizon where you buy and hold. Whether it's Coca-Cola or, you know, any of other Warren's extraordinary investments, you know what you're buying and you buy it for a long period of time. Then the third model is more of kind of the catchall, which is the bespoke model that

• 2:51Speaker 01

  reflects the interests of the principal, the wealth creator. And, and these are ones that can be all over the place. You see this most often in relatively smaller family offices where the investments start to become very real estate focused if the principal made money in real estate. They can be very focused on direct investments in an, in an area of a market segment that is relevant to where the principal made their original fortune. Or it can just be a, a hodgepodge of cats and dogs because families get access to lots of deals that come over the transom and they start placing a lot of different bets. Really interesting, but not necessarily always the most efficient or necessarily driving top performance.

• 3:32David Weisburd?

  If you woke up tomorrow and somebody gifted you $10 billion in cash and you needed to design your portfolio for your family and for future generations, how would you design your portfolio?

• 3:47Speaker 01

  The very first thing I do, David, and I do think this is critically important is, and I mean this, is the first thing I would do is I would try to understand the purpose of my family and how the wealth could serve that purpose. And when you have multi-generational wealth like that, you have to be really thoughtful about what you want to do with that wealth. Because honestly, my first instinct, and I know this is going to sound crazy, but my first instinct is put it all in an S and P 500 ETF and step back and keep doing what I'm doing. I love my job, I love what I do, I could do this until I'm 75. And I know a family member of an ultra-high net worth family who said about his family, he said, boy, I wish my other family members would just put all this money into a nice,

• 4:32Speaker 01

  you know, well allocated public portfolio, fixed income and equity, and go and get a job. They would be much happier. And I laughed and I thought, actually, there's some truth to that. So as I think about that, that's my first instinct. But the reality is, is my family would have very specific things that are related to my values and my principles and my hopes and dreams and aspirations for my children and grandchildren and generations beyond that, that I would want to craft a portfolio that reflects that. And I would think about the purpose and intent of my family. Then you craft the kind of investments that you want to do, then start thinking about the estate planning. Way too many people start with the estate planning.

• 5:16Speaker 01

  The first visit that they have after they come into this liquidity is they go to the tax lawyer. And it's like, tax lawyers aren't strategic, or at least they're not trained to be strategic. And of course, tax lawyers are extraordinarily important and I've met many great tax lawyers and actually count some of them as my good friends. But at the end of the day, they're not thinking about the family in the same way because they have that mindset of what are the tax advantages and disadvantages of certain strategies around estate planning? So stepping back to answer the first question is, I would think hard about my intent and purpose. I would likely, given my own knowledge of what my interests are, my wife and my interests are children, we have 26-year-old triplets who are adults, I'd want to know their thoughts,

• 6:01Speaker 01

  is that I would probably be in a portfolio much more similar to the Yale Endowment. Heavy-duty private equity, some public equities and a little bit of cash to fund our own personal needs, but also charitable needs and others.

• 6:15David Weisburd?

  Let's say you wanted to make sure that this money stayed for many generations, or maybe you wanted to give it away, you know, after you pass away. Why would that change your portfolio allocation at that sum of money? You're not going to be saving up to send somebody to college or buy a yacht. All that is, you know, a small portion of your money. Why would that actually change your asset allocation?

• 6:38Speaker 01

  One is, so that private equity allocation is because just over the last 25, 30 years, private equity has been the source of excess alpha. It really has driven higher returns in a very tax efficient way. And so that's why the private equity allocation would be, you know, quite large. And again, I couldn't put a number on it in the moment, but it would probably be somewhere in the 50 to 60% of that, the portfolio. The idea being that preserves that capital for longer term.

• 7:08Speaker 01

  The charitable, the piece of that, which I think is critically important, is you have to think about when you invest in charities. And I do think about when you're making grants to charities, it's an investment. It's an investment in the charitable organization and their mission and what they can accomplish. It's an investment in the potential of that organization to drive real change. Do you want to think about it just in that way? You want to have sufficient cash that you can meet the needs of your commitments, not just next year, but multiple years. One of the exercises we would go through, and I don't think it's, it's going to be a surprise to anybody. But when you work with Bill Gates and you're, you're investing money on behalf of the Gates Foundation,

• 7:49Speaker 01

  you have to be very, very thoughtful about any market situation that puts the foundation in a position where it has made commitments that it cannot live up to because there's not liquidity. And you're seeing that right now in college endowments as an example, where a lot of them are trying to, to create liquidity, particularly in their private equity portfolios, because the federal government is pulling back the investment they're making in higher education. It's a big deal. So that's why I think that's a really important piece. And, and the bottom line is when you have $10 billion. You don't need that much to live on. Even if you've got a pretty extravagant lifestyle. It turns out, I mean, we're not talking about the hundred meter yacht crowd. But but kind of normal humans who have, you know, extraordinary wealth.

• 8:34Speaker 01

  You're not going to spend a whole lot of that money. And so you don't need to worry too much about that piece. But at a high level, and I'm, you know, obviously, we're talking very theoretical here. That's how I would think about it.

• 8:44David Weisburd?

  Said another way, these families that make these large foundational commitments is essentially almost like a pension fund having to deploy out proceeds or insurance company give pay doing payouts. It's that kind of forced liquidity that requires you not only to optimize on long term, but also to have short term liquidity.

• 9:01Speaker 01

  It's a great way to think about it. It's really matching liabilities is really important. And and understanding that those cash needs as as you go through that exercise. And of course, when you invest in private equity, you have to be very thoughtful about capital calls. You have to be thoughtful about distributions. You have to be thoughtful about when the capital calls and distributions get out of alignment, which, as you know, they are today. You're not getting the distributions, but you're still getting the capital calls. That can be a huge problem in portfolios where you start to get into a cash crisis, where you've got plenty of wealth because you've got a cash issue. So that's that's a lot of the thinking that you want to be able to do with a portfolio of that size and scale.

• 9:42David Weisburd?

  One of the interesting things about alternative investments and alternative asset class is that there's disagreement on the numbers. There's not like this is the S and P 500. This is the Russell 2000. You you mentioned private equity, which I am assuming you're you mean private equity and venture capital. When pitted against each other, why would you choose private equity over venture capital or vice versa?

• 10:07Speaker 01

  One of my past lives, I actually ran a venture capital fund. And so I actually have some deep insight there. And when I was working at Bain and Company as a strategy consultant, a number of my clients were private equity funds. So I've actually seen both sides up close and personal. And though both are private equity, and in a sense, so one is buyout funds, the other is venture capital. You might also put private credit under that same umbrella. Private credit is very popular right now. The big distinction between venture capital and private equity is frankly the size of the checks you can write and the expectations of risk and reward.

• 10:43Speaker 01

  When you're doing venture capital, you're not writing $50 million checks typically. You're really writing $5 million checks, $10 million checks, maybe 25. In private equity, you can write big checks. If you've got a $10 billion portfolio and you've got to deploy 10 billion in equity or in assets, it's really hard to do that successfully, writing checks to venture capital. Yeah, there are a few big funds, obviously A16Z and Kleiner Perkins and Sequoia, but most venture capital funds really can't handle a check size of $50 million. You would, you would crush them in a sense. Whereas private equity, you can write a check 100 million, 500 million, and they're going to deploy that in a very effective and efficient way. So that's a big difference. The other thing is timing.

• 11:28Speaker 01

  Venture capital, they used to say five to seven years. I'll tell you, venture capital today in terms of expectation of returns, should be probably 10 to 12 years. A lot of these funds are 10-year funds and then they just kind of automatically add a year, add a year, add a year, because they're just not getting the returns that quickly. Whereas private equity, the buyout funds, you really should expect that five to seven year return on the cash. I like that as an investor in the family office space to have that longer timeframe. I also like the QSBS treatment of venture capital

• 12:04Speaker 01

  returns where there's a very favorable tax treatment. So that could be really beneficial with venture. Private equity, you get the benefit of just being able to put your money out there in kind of a zero coupon bond and get the return back. Or an evergreen fund where it just gets reinvested on a regular basis. So that's, those are the two big differences. And then you've got private credit, which is, I think, a super interesting market. But also, I get a little worried about it. I think it has the potential to get volatile, given how the, the spreads on rates have started to be bid down. There's too much money going into private credit, in a sense. That being said, there, it's an enormous TAM. So I think there's a lot of still upside there. But all of those have similar characteristics around you allocate a certain amount of money.

• 12:49Speaker 01

  It gets called, then it gets distributed over time. But there are three very different asset categories within that private umbrella.

• 12:58David Weisburd?

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• 13:43David Weisburd?

  To get the best discount off your NordVPN plan, go to nordvpn.com/invest. Our link will give you four extra months on the two-year plan and you could try NordVPN risk-free with NordVPN's 30-day money-back guarantee. Once again, that's nordvpn.com/invest. That's N-O-R-D-V-P-N.com/invest. You can also find the link in the show notes for this episode below. One of the interesting things about venture capital is that it has QSBS, which is a tax exemption essentially on the gain. You never, it's not a deferral, some tax strategies are deferrals. And also, when you lose the money, you could still take that deduction. So it actually has a negative tax basis or a negative tax effect on your portfolio and that could certainly compound. If I made you choose today on your own portfolio, your $10 billion portfolio,

• 14:27David Weisburd?

  if you could invest in one of two strategies in venture, one is a top, top venture fund of funds and two is a basket of emerging managers. Maybe you're doing direct or via fund of funds. What would you choose if you had to choose one?

• 14:44Speaker 01

  Oh my gosh, that is such a great hypothetical because I actually have a strong belief that fund of funds are a vehicle that particularly within venture capital, that frankly are, there's too few of them, there need to be more of them. And I'll tell you why. Let me talk about that for a moment. There are about 6,000 venture capital funds today, 6,000. I have no idea how many there were 25 years ago, but it was a fraction of that, at least an order of magnitude less. It turns out that when you go to the beginnings of the mutual fund industry, there were about 6,000 public equities. And the mutual fund industry came about because there were just too many equities for the average investor to know what to invest in.

• 15:27Speaker 01

  And so these mutual funds came in and said, hey, we'll do the hard work for you. And of course, this was before you got to index funds and then, of course, ETFs. They'll do the work for you. They'll identify the best stocks out of those 6,000. They'll put them in a pool so you'll diversify your risk a little bit. You'll be able to get, you know, kind of better returns than average over that 6,000 stock portfolio. Great. We're in kind of the same position today. How do you, as an ordinary investor, even as a family office, have the resources to evaluate 6,000 funds? The truth is, you don't. PitchBook is an incredible resource, no question about it, but it's a flawed resource. It's not a forward-looking resource and it's really not even a real-time resource.

• 16:11Speaker 01

  It's very much a backward-looking. It's a reflection of returns that have happened based upon investments that might have happened three, five, seven, or more years ago. So when you're looking at venture capital, the fund-to-fund model can be very powerful, where somebody is doing the deep dive due diligence on all of these funds. So I think fund-to-funds are great. Now, your question was portfolio, a fund-to-fund of top funds or a fund-to-fund of emerging funds? And this is where, I've done some research in the past. What I've seen in the research in the past is that the third fund is typically the best-performing fund of any private equity, you know, buyout fund, venture fund out there. And there's a kind of an interesting reason for that.

• 16:55Speaker 01

  The third fund tends to be really strong because the first fund, you're essentially, you're burning your network in terms of raising the money and finding companies to invest in. And you only need a couple to go big because you're making smaller investments to really return the fund multiple times over. Great. The second fund, you're getting into your groove. You're building your network. You have more access to startup CEOs. You have more ability to kind of discern between those companies that are going to be great versus those that are going to fail. It's hard, but you're getting a little better at it. By the third fund, you are in the zone. You get it. You know exactly what you want to accomplish. You have a really good idea about the kinds of companies you want to invest in.

• 17:37Speaker 01

  You're very disciplined. You're still hungry as heck. You want to make as much money as you can on each of these deals. Your network of investors of LPs has grown and they're backing you. They're excited about what you've built and the ideas behind it. And you're kicking butt. Then you get to the fourth fund and you've started to make some money and you start backing off all the super hard work that you've done. And you've got more money to invest and so you start widening the aperture of what you're willing to invest in. And that's when the returns start to soften a little bit and maybe go off. So I say all that because I really like emerging funds. I think emerging funds with investors, particularly if you can get GPs who come out of great funds,

• 18:21Speaker 01

  who say, I want to try this on my own, can be a really, really powerful

• 18:27Speaker 01

  way of generating above average returns, excess returns. And as I think about in venture capital, you've really got to be top quartile and your goal really is top decile returns. So I would probably lean a little bit more towards the emerging funds. Because I think the top funds, well, yeah, they get more access for sure. They have an ability to get liquidity by driving strategic acquisitions or getting companies out into the public markets, which we used to do quite a bit. Apparently we've forgotten how to do that. But the big funds are definitely positioned better to just generate more consistent returns. But the emerging funds are the ones where you're going to get the, I believe, you're going to really get the outperformance.

• 19:09David Weisburd?

  So it's not necessarily a venture fund of mature fund managers and not even necessarily true emerging managers, first time fund managers, but kind of the spin outs. Somebody that's been at a Sequoia and recent for a decade, has a track record and still isn't a fun one, has a small fund, has the hunger that you found to be the best.

• 19:33Speaker 01

  And I think that that's where it gets really exciting. You know, at the end of the day, what's really interesting about funds? Funds are just groups of partners. And if you're really doing your diligence, you should know not just the the performance of the fund, but the performance of every partner within that fund. And once you get there, you start seeing there's a Pareto curve everywhere you look. There's a Pareto curve of funds. There's a Pareto curve of the partners within a fund. Now, the worst performing partner in any given top performing fund is often going to get lift because the other partners will only invest in the best deals. They'll get access to better deals than they might otherwise. But you're still looking at a Pareto curve of performance by the individual partners within a fund. And so I even like that better, which is you really finding that the really top partners

• 20:18Speaker 01

  who you can invest in, in their first fund, their second fund, even their third fund. That can be really exciting.

• 20:23David Weisburd?

  This Pareto principle, this 80 20 principle, do you find that reflected among the GPs? Is there a general awareness of who is the stronger and better partner? Or is it more an equal partnership so as not to signal that to LPs?

• 20:36Speaker 01

  It's funny, particularly, I think it's a little bit even easier on the private equity side, quite honestly, the buyout side than it is necessarily on the venture side. But yeah, you, if you dig, and again, this is where diligence becomes important. You should be able to find which is the partner that's really identifying the deals you know in their portfolio that are the top performers and to start to see that pattern. And listen, the whole point of being investors is discerning patterns that other people don't see. And if you discern those patterns, you get outperformance on your portfolio. And it's the same thing when you're looking at a great venture capital fund is to discern underneath the hood, which of the partners are really driving those returns?

• 21:16David Weisburd?

  Have you seen fund of funds, that focus on spinouts? And it seems like an interesting strategy.

• 21:22Speaker 01

  So I don't know of anyone, honestly, who does this. It's funny that I've had this thought in the back of my head that I'm such a big believer in this fund of fund ideas that I should go out there and just do it. But I don't know that anyone has that particular strategy. But the top fund of funds, if you look within their portfolio, they will have funds that are generally

• 21:42Speaker 01

  those funds of spinout partners. Most coming into the industry new and saying, you know, particularly if you're an executive of a very successful company, or you're even better, hey, I did a bunch of startups. I was the executive of the startup, therefore I know how to do venture capital. No, you don't.

• 21:58David Weisburd?

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• 22:41David Weisburd?

  Once again, that's incogni.com/invest, I-N-C-O-G-N-I.com/invest. You can also find the link in the show notes for this episode. Your data belongs to you. Take it back with Incogni. So if it's top venture fund of fund, the point is moot that it's a spin-out because all the emerging managers in their portfolio are spin-outs or the large majority. So segmenting in that way is kind of nonsensical.

• 23:07Speaker 01

  No, I don't think it's nonsensical. I think there are a lot of funds out there for people who just think they can raise money and invest. But my guess is, is if you look at the fund of funds out there, probably they are going to lean more towards that model. But honestly, I don't know. And do I think there's a space for that? Absolutely. And I think if you can invest in the spin-out partners, and then you can invest in the co-investment opportunities to put more capital to work in their best deals. You can't guarantee anything. You know as well as I do, there's so much risk in venture. But does it mitigate some of that risk? Does it put greater odds of your success? Absolutely.

• 23:48David Weisburd?

  You mentioned co-invest. I just had Professor Steve Kaplan, who's one of the eminent researchers on private equity and venture capital. Something that he said that was really interesting is if you think about a 25% gross return in private equity, it's roughly a 19% net return on a yearly basis, obviously. So. Having a co-invest, your returns are actually increased by 6% per year, which is enormous alpha. So a lot of the top investors are actually, it's highly rational to come in, invest in these funds and get co-invest exposure. And if 50% of your investments are in co-invest, your entire portfolio is increasing by 3%.

• 24:30Speaker 01

  Exactly. And Steve Kaplan is a good friend of mine. Steve Kaplan and I are actually working on a major project around family offices together. I don't know if you had a chance to go into that with him. He is absolutely one of the smartest investors and thinkers about investments and particularly within private equity out there. And he's brilliant. He and I absolutely agree. I like to think of co-invest as buying down your fees, but what you're saying is kind of the inverse of that is it's essentially buying up your returns. Same thing. I think about not just putting 50%, but I would do a one-to-one ratio. So if I'm putting, writing a $10 million check to a venture capital fund, I would think about setting aside $10 million for co-invest

• 25:16Speaker 01

  rights. You've just bought down your 2 and 20 to 1 and 10. That's a pretty darn good place to be, particularly as you think about that as friction on your returns. And with that co-invest, it actually, there are signals that you can get out of the portfolio to give you confidence that the co-invest is not just invested at an equal basis, but perhaps is invested with a slightly higher probability of that return, which so it's in a sense, it's actually transforming it from just, not just that, hey, I can get the 26% return in your example on average, but I may actually be getting a higher return on that part of my capital, not just because I'm not paying fees, but also I'm getting into the better deals.

• 26:00David Weisburd?

  My curiosity, what are the signal that this co-invest is something that you should really lean in on versus another co-invest?

• 26:07Speaker 01

  It's all about where they are in their stage of development. You typically don't have a co-invest right at a seed stage investment, because seed stage investments are typically relatively small, and there's not enough capacity for that company to take on additional capital. And then you get to the, you know, the A series investment, you might have a small co-invest right there. So maybe they're raising 25 million and you'll be able to put in an additional, you One or two million as a co-invest is usually at Series B and beyond that you're going to have the large, you'd be able to write a large enough check for this to make sense. And so it's simply that when a company gets to Series B, they've already proven that they've gotten over the hurdles of seed stage and Series A.

• 26:50Speaker 01

  And it's typically the, you know, go to market strategy, the product market fit, it's actual customers in the market, it's potentially even understanding the P and L, the, you know, the underlying cost drivers of the business and whether they can be controlled. Do they have the triple, triple, double, double opportunity on the top line potential? All of those factors combined puts you at a higher probability of success.

• 27:15David Weisburd?

  One of the signals, of course, is having a good relationship with the GP and having a good line of communication. Brass stacks is the degree of the relationship, the proportional amount of your check size into the actual fund versus a fund size. I know a lot of people say it's this and that, but is that like 80% of the value of the relationship to the GP or is it truly many different things that they care about?

• 27:40Speaker 01

  It depends on the fund, of course, but I will tell you, when I think about Semper Verens and when I think about the relationship that we had as an LP into GPs in my prior experiences, there is so much more potential in that relationship with a GP than simply writing a big check. And in fact, often the biggest checks don't want any relationship at all. You know, typically it's institutional capital and they're moving on to the next, the next fund and the next fund. They've invested in you, they've done the diligence, they believe in you, now go do your work. As a family office, it's different. It really is. And I think as a family office investor, you have an opportunity to build a different type of relationship with a GP. And if you're a GP, you should be thinking very differently about those family office investors.

• 28:25Speaker 01

  And at some point, we'll probably talk a little bit more about, well, even how do you find a family office investor? But on this specific question. What does a relationship look like? A great relationship with a family office from the GP standpoint, you can get exposure and network to additional family offices. You can get the opportunity to really understand that family offices portfolio beyond just the investment they made in you and where there might be some synergies. Because a great, a really well-run, great family office investment portfolio has some consistency to it that links back to the success of the original principal and the wealth creator to the core business that they created.

• 29:08Speaker 01

  And if you're a great venture capital firm, you see that and you say, how do I get more deeply connected into that expertise to make that part of my ecosystem for deal sourcing, for deal diligence and potentially even for deal performance or for the performance of that portfolio company we invest in. So from a GP, that's what I'd be thinking about is the value of that relationship is much more than just the dollars they give you. And a family office that writes a check for $25 million, but then moves on to the next deal because they're more institutional class, isn't as valuable sometimes as that $5 million check with a much tighter relationship with your firm.

• 29:45David Weisburd?

  As I reflect back on my own career as a GP, there's, there's like different buckets. There's even a signaling bucket. You could have an institutional investor for a small check. That's extremely valuable. You could argue that that translates into its own check size. $5 million from you and maybe implicitly like a $500 million check from everybody else, but there's signal, there's obviously check size and there's also just who you like to be around. Thought partners, all those things. So there, there are different buckets and, and ideally you have all three and somebody, but it's, it's, it's rarely the case.

• 30:21Speaker 01

  I know a, an investor who would put a million dollars into different direct investments.

• 30:29Speaker 01

  And the reason he did that is he wanted a relationship with really smart CEOs. And he would ask a team of able to do the diligence on these deals. And the team would come back and say, you know, we don't see it. We don't see the product market fit. We don't see the TAM. We don't see the the true upside opportunity. And this individual would still invest in the deal because they said at the end of the day, I want to be able to have dinner with this CEO once a quarter. And you know what? If it takes a million dollars to to buy that, right? I'm willing to do it. That's totally legitimate. That's how family offices can be so different than an institutional investor. Cowper's, cowsters, I mean, the people would be in uproar if they knew that that was why they were making an investment.

• 31:12Speaker 01

  But for an individual investor as a as a family office, that's totally legitimate. And actually can be a really interesting way for that person to build relationships. And you as a GP, David, you probably love that kind of of connection into people who are, you know, can be part of that huge ecosystem that you build that creates the value that ultimately that you're monetizing through the investments you make.

• 31:36David Weisburd?

  And the word for that is a relationship check. I guess it has a negative, but could also have a positive connotation as well. So today you're at Banyan Global. So tell me about Banyan Global. One thing that I've learned from talking to hundreds of investors, founders and business leaders is that planning for the future isn't just about growing assets. It's also about protecting the people who matter most. Life comes with a lot of important milestones. Maybe you're buying a home, starting a family, planning for college, or simply thinking more intentionally about your financial future. As those responsibilities grow, it's worth making sure you protect those you love. Not sure what kind of life insurance you may need? Concerned about how much it may cost? Think life insurance is too complicated? Your local State Farm agent can help answer those questions.

• 32:20David Weisburd?

  They can help you explore your options for life insurance and choose coverage that you can adjust as your family's needs change over time. Financial protection for your loved ones when it matters most. Learn more about life insurance at statefarm.com. Like a good neighbor, State Farm is there.

• 32:34Speaker 01

  So Banyan Global is a leading family enterprise advisor firm.

• 32:41Speaker 01

  What we do is we're not wealth advisors. We're not strategy consultants. We're not advisors on, you know, M and A activity. We really focus exclusively on governance and ownership of families that have shared assets. And a shared asset could be a family business, could be a family office, could be a family philanthropy. And families understand when they have these shared assets that they have very different. They're in a very different situation than the average American family. The average American family doesn't need to get together and decide on big decisions related to a family business, a billion dollar family business. They don't get together at dinner and say, should we do this acquisition or not?

• 33:24Speaker 01

  But families who own these shared assets together do. And what Banyan does is we help support better, more strategic ownership and governance of these assets. And think about situations like you're transitioning ownership from the second generation to the third generation of owners. How do you do that successfully? How do you make sure that next generation is ready to stand up? When the second generation is ready to stand back and step away from the business? It's a moment in time that has a high probability of failure. And so Banyan comes in and helps facilitate the best decision making possible across the family system to make that transition successful. Another thing we do quite a bit is we help families with understanding

• 34:08Speaker 01

  what is their purpose of owning this shared asset together? The family business, the family office? Because a lot of families, honestly, maybe shouldn't own a business together. Maybe shouldn't have a family office together. What we try to do is help the family make the better decision about what is the right for them on a multi-generational basis. And I would say our superpower and something that I love to do is don't think one year, three years, five years, seven years out. Think 25 years out.

• 34:37Speaker 01

  Think about the generation that is unborn. And that's really hard to do. Humans are not well adapted to thinking about not their children, not their grandchildren, but their great grandchildren. Their great grandchildren who will be second cousins with each other. I don't know about you, David. I couldn't name a single second cousin in my family. I've got 26 first cousins. Hard enough to keep track of all them. Way too many second cousins. And so in a family of multi-generational wealth, one of the things that I admire most and one of the things I love about this role, working with Banyan, is working with great families who have figured out how to make that work successfully. And it ain't easy.

• 35:18David Weisburd?

  You've met one family that's in the 99th generation. I think that's probably some kind of record, but also ones in 10, 20, 30. What's the secret to success? What allows them to keep the family wealth together for so many generations?

• 35:35Speaker 01

  The truth is, it's actually quite simple to keep wealth. Simple may be an overstatement, but there's one simple thing you can do to keep wealth for 10 generations, 26 generations and beyond. And the answer is primogeniture. The answer is ruthlessly pruning the branches of the tree. Because if you don't ruthlessly prune the branches of your tree, it's very hard to make wealth last that long. I have not done the math and I think there's, somebody should create a very simple formula for what we call the rabbit problem. And the rabbit problem is families grow in size over time. We have more babies, those babies grow up and have babies and those babies grow up and have babies. So the wealth then gets divided.

• 36:17Speaker 01

  The returns you need to generate in order to make sure that the wealth per person within a family stays constant or increases is well above the rate of growth that most families can achieve, particularly because a lot of them allocate too much of their portfolio to non-performing assets, airplanes, yachts, houses, stuff that doesn't generate money. It just, it absorbs capital. So. Rule number one, don't buy a lot of non-performing assets if you want multi-generational wealth. Rule number two, really think about how you allocate your wealth through future generations. Quite honestly, if you want to have wealth at 99 generations, it has to go to one member of the family in each generation and it has to go 100%.

• 37:03Speaker 01

  And what they do in some cultures, which I think is really interesting, not something you see very often in America. One of the things I love about America is we want all our kids to have things equally. It's kind of cool. Most families are like that. But the reality is, if you want that wealth to last, if you keep it in one family member and that family member who inherits all of the wealth has a fiduciary obligation to support the family, but controls the wealth. It can be a really interesting way of knowing that that wealth can persist. The family business, keeping a family business like in, you know, I think Japan is a culture you hear about family businesses that are owned for, you know, five, 10, 15 generations or more.

• 37:47Speaker 01

  Those families are really, really thoughtful about how to keep that that business in the hands of one family member, the one who is best suited to own and run the business. So that's the truth about how to keep it wealth together for 10 plus generations. The truth is, as an individual, that 10th generation, I mean, you have been dead for so long, you really have to question, is that actually that important to me? Or do I want to think differently about my wealth? And the opportunity to spread it, to have more family members who have that wealth. And it serves as this foundational element for them to do, as Warren Buffett says, have enough money to do whatever they want, but not so much money that they do nothing.

• 38:33David Weisburd?

  As you were talking about the the math behind inheritance, if you have three kids per generation, you would have to triple the real value of the wealth every generation without regards to taxes. And if you assume a 50% estate tax, that's a 6X compounding over from generation to generation.

• 38:59Speaker 01

  Did you also have to take out spending charitable gifting? Anything that is a, a, um, a draw on those, those assets? And that's where you get into trouble because it, you know, taxes are a big deal. You can do a lot though, to manage and mitigate your taxes. You're always going to pay taxes and, and you should pay taxes. But you're also spending money. And that's when you've got to think about, gosh, if I buy that yacht and then I'm paying, you know, I think you know, the rule of thumb is 10% of the, the value of the yacht you spend on operating expenses. You have to think about that. You're never, you, yeah, you're not going to get the value of the yacht back. I mean, back, it's going to depreciate and you're spending 10% a year. That is a terrible way of helping you get to that six X, uh, compounded return generation to generation.

• 39:42Speaker 01

  So it, those are the kinds of things I'd be thinking about.

• 39:46David Weisburd?

  Tell me about the difference about a family that's in service of the wealth versus the wealth that's in service of the family.

• 39:52Speaker 01

  I, I love this concept. This also goes back to, you want your, your family to have a purpose. Not that the wealth has a purpose. One of the things you hear a lot about is, gosh, are, are those families a good steward of their wealth? Who wants to be a steward of their wealth? Who wants to die and on their tombstone be told, hey, these were the best stewards of their wealth? Eh, that does, that's not very interesting. Am I a great investor? Yeah, that's interesting, but a steward of the wealth, not really. What you want to be is known as, I was a great steward of our purpose and we accomplished our aspirations as a family. And so as I think about wealth, you want that wealth to be in service of that, those aspirations. How does the wealth provide the resources to allow this family to do great things?

• 40:36Speaker 01

  And there are different archetypes of family. There's families that are great entrepreneurs. There are families that are great civic leaders. There are families that are, are, do other, um, things in ways that, that maybe it's a particular industry. Maybe it's the sports industry, whatever, where this, the family is known as they're the Rockefellers. And look at the extraordinary things they've done in philanthropy as an example. If you think about how does the wealth, uh, how can the wealth be in service of that? That's a really fun and interesting conversation. But if you're in service of your wealth, what that means, which is the inverse, it means the wealth has essentially become the thing that overwhelms you day to day.

• 41:16Speaker 01

  And I've seen this and I've seen it in, in many families where all of our time is spent worrying about the wealth and the things that the wealth has, has bought for us. When you get to, when you own a home, a home is hard. Yeah, every once in a while you have to replace the roof. It leaks, you've got to, you know, make sure the yard is mowed. You've got to, you know, make sure you, you keep it clean. Great. When you have the second house, okay, I've just doubled the problem. Then you get to five houses or, or big piece of property. And they say, okay, well, that's okay. I'm going to hire property managers. Well, then who's going to manage the property managers? Oh, I'll buy an estate or I'll hire an estate manager. Well, who's going to oversee the estate manager? Well, we'll have a family office. Well, who's going to oversee the family office?

• 41:57Speaker 01

  And one of the things I've said about my role is honestly, you really don't want a Steven. I think I was a pretty good family office leader, quite honestly. And I really enjoyed the job. But it's a pain in the ass to have a Steven. There needs to be great communication. There needs to be regular meetings. They need to hire and fire me if in case they, I don't do the job that they expect me to do. You need to have a successor in place. You need to think about the, the board and the board responsibilities of, of that individual. That's a lot of work. That's when your wealth is starting to, to manage you. When your money manages you, you kind of failed.

• 42:38Speaker 01

  When you're managing your money and managing your purpose and, and supporting your family and doing great things with your life, whatever those are, then you're thriving. That's the, that's how I think about having your wealth in service to the family, not your family in service to the wealth.

• 42:56David Weisburd?

  This principle applies to any level of wealth, past kind of basic means. What are some best practices to avoid having your wealth essentially own you?

• 43:08Speaker 01

  I love the fact that you said that, David, because I do think that's really important is understanding this isn't just for ultra high net worth families. It is really for all of us to think about what is the role that that money and assets and resources play in our lives. And and it's something that I think maybe we have forgotten a little bit, and I'm not sure why. But it's, you know, what I like to say is when I'm in a group, you know, where my family is or my friends are like on July 4 weekend, we had a big family reunion. There were 23 family members from my wife's family. And it and I looked around, I said, this, this is what it's all about. This, these relationships is fun. Was it always, you know, was it, you know, all giggles for four days? No, because it's a family and families

• 43:52Speaker 01

  have conflicts and there's, you know, the rough edges and friction. But the reality is it's still, that's what this is for. And to the degree that in my particular family, I don't have multi generational wealth. My wife does not have multi generational wealth, but we're very, you know, affluent and live a really, really nice life. It was 23 people at a family property, living life to its fullest. That's what it's about. So what does that mean? It means don't let yourself get managed by your money. Don't get to that third or fourth house where you starting, you know, let me, let me tell you a story about somebody who I was private, flying on their private jet. And I said, Well, this is pretty nice. It's a really nice lifestyle.

• 44:37Speaker 01

  This was pretty early in my career. It was the first time I'd ever flown on a private jet. And I thought, this is pretty great. And I said, what's it like owning a private jet? And he said, Stephen, it's a lot harder than you think. And of course, my, you know, flag went up. And I thought, Oh, is it that hard to own a private jet? And he said, here's why. He said, I now think about all the time, how do I use this asset? Because I now have this thing called a private jet. So how do I make the most use of it? How do I make sure that I get value from this thing? And he said, it's actually hard. And so he said, I started planning trips just so I could make use of this jet so that it got utilized. And I thought, well, that's, that is interesting, because I don't have to worry about that. I know that there's a regularly scheduled jet service from Alaska Airlines out of Sea-Tac that I can go pretty much most

• 45:19Speaker 01

  places I want to go in the US and many places globally. That's pretty great. Having a private jet is both freedom.

• 45:27Speaker 01

  And bird. So thinking through if I have a level of aspirations for myself and my family, what level of wealth do I need? How do I ensure that I can achieve that? And then make sure I don't get to a place where I get on the hedonic treadmill? And I start seeking more and more and more and allow myself to be really happy with a family reunion with 23 people at a family property that is just extraordinary. And that's pretty good living.

• 45:58David Weisburd?

  Wondering how much of this is just perspective? I have a second home. Sometimes I rent it out. Sometimes it gives me issues, just like anything can give you issues.

• 46:11David Weisburd?

  I have cultivated this thankfulness for that opportunity. I guess humility, for lack of a better word. And versus before, I would almost have like, why is this guy calling me? Like, why do I have to deal with this guy? And I wonder how much of that is mindset in terms of who owns what? Do your assets own you versus do you own your assets?

• 46:33Speaker 01

  Oh, yeah. Gratitude. You know, everyone's talking about gratitude today for good reason. Gratitude matters and gratitude is just being

• 46:42Speaker 01

  grateful, thankful for your friends, for the things you own. And understanding and that call that you get, that's that is because, you know, somebody is reaching out to me for help. They might be yelling at me over the phone. And the first thing I say is, hey, you seem angry. What can I do? How can I help you? To me, it's about reframing, which is what you're saying. It's perspective, but reframing whatever situation you're in and having the patience to step back, take the beat and say, what is this really about? So that I can be successful in this moment, but more importantly, be successful as a human. And I think I shared I have 26 year old triplets. And I get asked all the time about how the triplets doing.

• 47:26Speaker 01

  And the thing that I talk about is they're thriving. Now, are they always thriving? No, they're not. They haven't always, they won't always. But in this moment, they actually are. And then they say, well, what does that mean? And I say, well, they're 26. Nobody peaks in their twenties, but my three kids are have good, healthy relationships. They have great friendships. They've got really strong relationship with their, their cousins and their aunts and uncles and, and us. They've got jobs that pay for the lifestyle that, that they are used to living. They know that they have mom and dad as a backstop support, but, but we're not, you know, spending money on them today. They, they, we've given them opportunities to step up and, and into their own lives, which they're thriving in,

• 48:09Speaker 01

  which doesn't mean we're not there for them when they need it. It's one of the great privileges that they have, but they get it. That's thriving. It's always defining what it is to mean to thrive. Because are they driving, you know, the ultimate cars they want to drive? Do they, none of them own a house yet. None of them are making the kind of income they think they, they might be able to make one day. But are they in this moment thriving? Yeah, that's a pretty good place to be.

• 48:34David Weisburd?

  Have you ever read Bill Perkins, Die With Zero?

• 48:36Speaker 01

  Not only do I, have I read it, but I've recommended it to dozens of people. I'm a huge fan.

• 48:41David Weisburd?

  What are your takeaways from that?

• 48:42Speaker 01

  It's a great question because there are two takeaways that I particularly took. I'm 55 years old. And I got to the section where he talks about when you should start spending down your wealth. And in my, you know, worldview, starting from a very young age, when I first got into business, my assumption was you build, build, build wealth until you retire. And then you hope like heck that you've got additional income. So you don't have to start eating into that wealth. And then you keep building that wealth. And then at some point, well, I've got to start spending down my principal because I've got to live.

• 49:18Speaker 01

  Okay, that's a pretty common model that people have. And I didn't have in my head, by the way, back then, building multi-generational wealth. I got into the whole ultra-high net worth family office space about halfway through my career. So it wasn't part of that initial mindset. But what Bill says, which is so cool in Die with Zero, is you should start spending down your wealth when you're still alive. Start spending it when you've got the energy and you've got the friendships and you've got the opportunities to do extraordinary things. And it turns out, that's typically kind of in your 50s. And we have been empty nest for about, gosh, 10 years, when you say when my kids went to college and a little bit fewer since they graduated

• 50:03Speaker 01

  from college. But that that has given my wife and I some real opportunities to go do extraordinary things. As an example, this year, we were invited in a very last minute, it was about a month before the trip, to go on a two-week trip to the Gobi Desert in China to look at ancient Buddhist paintings in these caves called the Dunhuang Buddhist caves in Dunhuang, China. And it was honestly a once-in-a-lifetime opportunity. And we said yes. We said yes immediately. And then I turned to my wife after she hung up the phone after saying yes. And I said, how much is this going to cost us, by the way? And the number was astronomical. We had never spent anything like this on a trip, nothing even close. And in Bill's book, he

• 50:47Speaker 01

  talks about hiring this a band. I'm assuming it was Rolling Stones. I don't think he ever actually says it in the book, but hiring a band for his, I believe it was 50th birthday. And this was kind of our hiring, you know, maybe not the Rolling Stones, but hiring a great band for a 50th birthday kind of price for a trip. But my wife is a is a Asian art scholar. She's the president of the Board of Trustees for the Seattle Art Museum. This is something super important to her culturally. I love these kinds of trips because they really opened my mind around history and civilization, because we were looking at caves that were created in the fourth century AD during the Silk Trade Route days. And it was the integration of

• 51:26Speaker 01

  Christianity, Buddhism, Islam, and there's one other, which other great religion, am I forgetting? Anyway, all these religions in one place.

• 51:38Speaker 01

  And these paintings were the first representative sample of Chinese painting that you would see even today. So it was one of these incredible trips. So we said, yes. That's what I learned from Bill Perkins' book. And I can tell you honestly.

• 51:55Speaker 01

  I would have been substantially less likely to have said yes without that mindset that Bill has of the book was start spending down your wealth now when you can. Because I couldn't do that trip at age seventy five. So do it now. Have fun, live your life. That was one of my huge takeaways out of that book.

• 52:14David Weisburd?

  One of the concepts I learned from it, two important concepts, one is memory dividend. So you have this fifty fifth birthday and now you could remember it with your wife for twenty, thirty years. So it's almost like this compounding interest on dividends. And then it's kind of obvious thing in retrospect, which is when you're seventy five, you may not be able to do the same trip. You might not have the same physical function. So some things you can actually do later. You can't just defer it, even if you wanted to, and even if you plan to do it. There's this new meme on the third marshmallow, the second way to actually fail the marshmallow test.

• 52:50David Weisburd?

  So there's a very famous, very famous psychological study where they gave one marshmallow and they would tell the kids that, I think it's kind of kindergartners, that if they waited, they would get a second marshmallow. The reason it's so famous is it's so predictive of future life success. It shows impulse control and all these things. But there's this new meme of the third marshmallow, which is some people basically delay infinity and they fail the marshmallow. There's two ways to fail the marshmallow test. One is to take the marshmallow in the beginning. Another one is never to take the marshmallow to let it to die with a billion marshmallows is also a failure of the test. I think a lot of people gain anxiety when they hear die with zero and it's a really smart memeable title.

• 53:32David Weisburd?

  And it's not meant to be taken literally, but also I think that a little bit goes a long way. It's the Pareto principle. For a lot of people spending any money, I myself, first generation immigrant, you know, self-made guy, it's difficult to even do a little bit and doing a little bit goes a long way versus literally dying with zero, which Bill Perkins doesn't even advocate, but it's just a, it's a clever title. So I think for those struggling, like many probably listeners of this podcast, doing a little could go a very long way.

• 54:05Speaker 01

  I'll tell you the other thing about die with zero that can be a little confusing is I think some people misinterpret that as spend all of your money on yourself. And that's not what he's suggesting. He's not suggesting, hey, you made it, you spend it. And by the way, it's your money. If you've made it, you can spend it. That's, that is your decision and that is a decision that you should have control over. But that's not necessarily what he's saying. What he's saying is there are three paths, three things you can do with money. Oh, four things. You could spend it, you can invest it, you could give it away, or you could pass it down to your heirs. And no matter which path you're going with your money, do it so that the day you die, you're essentially at zero.

• 54:47Speaker 01

  Now, it's nearly impossible to get that right, of course. And so if you literally tried to do that, you would almost certainly miss that zero by, you know, plus or minus, you know, maybe five years. But the reality is, it's the thought process of if I'm going to give it away, give it away now. There's nothing more valuable in a, in the world of charitable organizations than getting a dollar today. A dollar today is worth more than a dollar a year from now and worth much more than a dollar 10 years from now on your death. Even if it's worth $5, then it is still worth more today. So give it away now. Not all of it, but, but start that process of giving it away. If you're going to give it to your children, think really hard about how do I get it to my children sooner than

• 55:28Speaker 01

  later? Don't give it all to them on your deathbed. Don't give you, oh my gosh, David, we know somebody in the ultra high net worth space who is giving 100% of their wealth. And let's just say it's in the billions. 100% of the wealth gets dispersed the day after this person dies. Not literally the day, but you know, some point after probate and everything, all the money will be dispersed. And we sit with him and say, gosh, don't you want to see the benefits of that today? Don't you want to see the, you know, the impact that your gift can have? Even if it's anonymous, right? It's not about having your name on a building today. It's not necessarily about having a lot of media exposure.

• 56:12Speaker 01

  It's just seeing the impact. And this person said, no, no, I'm comfortable giving it the day after I die. So that's a choice. That's not the choice I make. My wife and I try to be as generous as we can today because it's really kind of fun to see our money start to have impact today with our children. If I can help my kids today, a down payment for a house, a help them with buying their first car, help them, you know, get an apartment because they need the first month, last month and, and a month of, of deposit. I'd much rather do that than having them know that, hey, the day I die, you're going to become a millionaire. It's like, well, that's no fun. Like that's, I'm dead. That's not great.

• 56:53Speaker 01

  So that's a piece with Die With Zero is not about spend all your money so that no one gets anything. It's do the things with your money you want to do today because frankly, it's a lot more fun to spend it today. It's more fun to give it away today. It's more fun to see what your children can do with your resources today and you can help guide them more successfully with it. And so that's the kind of thinking. And by the way, investments are great and it's a lot of fun, but you don't need nearly as much money after you turn 80 as you did when you're 55. And a lot of people imagine that they're spending the same rate at age 80 as they are at 55 and they're just not. And so they end up stuffing, you know, too many acorns away for that moment. So like, anyway, very powerful book. I really did enjoy it and I recommended it to every listener.

• 57:38David Weisburd?

  Well, we'll put in the show notes. As a lasting thought, what financial or planning advice would you give a G1, a first generation patriarch or matriarch? That's built the wealth and that's looking to have the most impact with their wealth as, as we've defined today vaguely, which is what they want to do with it. But what, what one piece of advice, actionable advice, would you give them?

• 58:04Speaker 01

  I'm sorry, that's too hard. I'm going to give two, but the first piece of advice is develop a, a letter of intent. That you can share with the next generation, with your children. And the letter of intent is a way of articulating the story of where the wealth came from. That can be so important. Your children may have been sitting at the dining room table with you during much of that that journey of creating the wealth. But they haven't always heard all of the story. They haven't heard about that time that you nearly ran out of money or that time that you had a lawsuit that that could have put you out of business, but that you were able to successfully work your way through it. That time that that things were so difficult that you had to be really creative. And maybe it was a stressful time in your life.

• 58:47Speaker 01

  And maybe that was the time of your life when you were a little bit angry around your kids and the kids can then say, I understand it. I understand what my dad was doing or my mom was doing and when they were on this wealth creation journey. That story matters to the narrative. The second part of that letter of intent talks about how you think about the wealth, what your hopes and aspirations are for that wealth. And the third piece is not necessarily giving, being directive, but providing guidance on how you think about the children can best utilize that wealth to help achieve the family's purpose and their own personal purpose. So I think that letter of intent is a thing that that too few wealth creators have have really sat down and done. A lot of wealth creators think that's too woo woo. It's too soft. It's, you know, it's visiony.

• 59:32Speaker 01

  That may all be true, but it's worth doing. The second thing I'd say about this, about your wealth is don't do a thing with estate planning, with hiring a investment manager, with building out a family office. Don't do any of that without being first really thoughtful about this letter of intent and your purpose so that you can actually do that in a way that that is consistent with what you're hoping to do with this wealth. Because too many people go down a path that they, I can't tell you how many family offices have been started to build and then they fire everybody and they say, you know, that's not the direction we wanted to go. And I gotta be honest, it can be really harsh and cruel to the people. I know too many examples

• 1:00:16Speaker 01

  of people who had these wonderful jobs working with a G1 and suddenly they're fired because the G1 decided to go a different direction because they hadn't quite worked it out. Don't do that. Don't be that person. Be someone who's really thoughtful, intentional, can do the kinds of things that allow you to build your family office in exactly the same strategic way you built your business, because a family office is a source of strategic value for your family and on a multi-generational basis. It is not just a cost center. That's my second piece of advice.

• 1:00:43David Weisburd?

  Those are both great. Thank you. Well, on that note, thanks for taking the time and look forward, there's many topics we didn't cover. Look forward to doing this again soon.

• 1:00:52Speaker 01

  I'd love to do that, David. Thank you.

• 1:00:54David Weisburd?

  Thank you. Thanks for listening to my conversation. If you enjoyed this episode, please share with a friend. This helps us grow, also provides the very best feedback when we review the episode's analytics. Thank you for your support.