The 10X Capital Podcast: What Will Family Offices Invest into in 2025? with Hansen Ringer

Release Date: December 3, 2024

In Episode 117 of The 10X Capital Podcast, host David Weisburd engages in an in-depth conversation with Hansen Ringer, a key figure from Sepio Capital, a multifamily office and institutional asset manager overseeing approximately $6 billion in capital. The discussion delves into the evolving landscape of family office investments, focusing on strategies, asset allocation, and the shifting preferences in the investment world as we approach 2025.

Introduction to Sepio Capital

Hansen Ringer begins by introducing Sepio Capital, highlighting its foundation in San Francisco in 2017 and its longstanding relationships with clients spanning decades and multiple institutions.

Notable Quote:

"Sepio Capital is a multifamily office and institutional asset manager. We oversee about $6 billion of capital on behalf of a limited number of clients." (01:03)

Differentiated Investment Process

Ringer emphasizes Sepio's unique investment approach, which moves beyond the traditional asset allocation framework of equities, fixed income, alternatives, and cash. Instead, Sepio employs a role-based framework that categorizes assets into four primary buckets: growth drivers, diversifiers, inflation-sensitive, and deflation-sensitive assets.

• Growth Drivers: Focused on long-term portfolio growth, primarily through equities (both private and public) and high standard deviation assets.

• Diversifiers: Low or negatively correlated assets to stocks and bonds with return targets similar to equities, comprising complex and esoteric investment opportunities.

• Inflation-Sensitive: Real assets like real estate and commodities that perform well during inflationary periods.

• Deflation-Sensitive: Core bonds and cash that stabilize the portfolio during deflationary times.

Notable Quote:

"Our role-based framework really helps us assess the underlying risks and the reason why we hold these various assets in the portfolio at a deeper level." (01:37)

Portfolio Construction for Family Offices

Diverse family offices have varying asset allocation strategies based on their risk profiles, liquidity needs, and time horizons. Sepio tailors its approach accordingly, managing portfolios for growth-focused families, foundations with defined giving amounts, and institutions with specific liquidity constraints.

Notable Quote:

"Risk profile and liquidity constraints are the biggest, maybe two variables. I think time horizon affects that dramatically." (03:22)

Asset Class Outlook: Private Credit vs. Venture Capital and Private Equity

Ringer provides a nuanced view of the current state of different asset classes:

• Private Credit: Currently a "hot" asset class, though possibly peaking. Sepio sees opportunities in distressed credit and non-performing loans, which offer attractive risk-adjusted returns.

• Venture Capital & Private Equity: These areas are perceived as overheated, especially in late-stage growth sectors. Sepio anticipates a market repricing, presenting potential investment opportunities despite the current cooling.

Notable Quote:

"In areas like private credit, distressed credit lean in and out quite heavily." (05:39)

The Role and Challenges of Hedge Funds

Hansen discusses the declining appeal of traditional hedge funds among institutional investors due to high fees, illiquidity, complexity, and a recent lack of alpha generation. Sepio prefers hedge fund strategies that offer genuine diversification benefits, such as managed futures and trend-following systematic strategies, rather than expensive hedges on equity indices.

Notable Quote:

"We have a very high bar for any partnership vehicle, particularly if you're giving up daily liquidity for something that is less liquid." (13:56)

Diversifiers: Enhancing Portfolio Resilience

Diversifiers play a crucial role in Sepio's investment strategy, offering low or negative correlation to traditional asset classes. Examples include distressed credit, managed futures, and absolute return-focused hedge funds. These assets aim to improve the portfolio's Sharpe ratio by increasing returns while reducing volatility.

Notable Quote:

"Diversifiers are assets with a low correlation to both stocks and bonds, but have return targets more similar to equities over a full cycle." (02:44)

Benchmarking and Performance Measurement

Benchmarking is integral to Sepio's asset allocation and performance assessment. They utilize benchmarks tailored to each asset class, focusing on both relative and absolute performance based on client preferences. For instance, while some clients prioritize beating the S&P 500, others are more concerned with the overall risk-return profile of their portfolios.

Notable Quote:

"On the asset class basis, even within equities, small cap equities tend to be less efficient. There's more room for alpha and active management in small cap than there is in large cap." (30:40)

GP-Led Secondaries and Evergreen Funds

The conversation explores the nuances of GP-led secondaries and evergreen fund structures. Sepio finds GP-led secondaries attractive due to strong alignment with general partners and opportunities to invest in high-conviction assets. Evergreen funds offer flexibility but come with concerns about liquidity mechanisms and investment horizons.

Notable Quote:

"GP LED seconders, you often have really strong alignment from the general partners that they still have conviction in their deal." (16:39)

Due Diligence and Partnership Dynamics

Building strong relationships and conducting thorough due diligence with general partners (GPs) is paramount. Sepio emphasizes the importance of assessing partnership stability, succession planning, and alignment of economic interests to mitigate risks associated with GP turnovers or strategy shifts.

Notable Quote:

"Making sure the track record of the firm matches the current investors. Oftentimes if you've had a few great funds, you were very successful." (26:45)

Learning and Adaptation in New Investment Spaces

Ringer reflects on Sepio's journey, noting the vastness of the investment universe and the importance of a collaborative, team-oriented approach to explore and penetrate new investment strategies. Continuous learning, leveraging advisors, and engaging with a broad network of GPs are key to their adaptive strategy.

Notable Quote:

"We've staffed up and tried to get in a place where we can diligence really anything in the investment landscape." (34:08)

Conclusion and Future Outlook

As the podcast wraps up, Hansen Ringer underscores Sepio Capital's flexible investment mandate and readiness to explore innovative strategies to meet client needs. He invites listeners to engage further with Sepio to understand their asset allocation and high-conviction investment opportunities.

Notable Quote:

"We welcome any opportunities to look at interesting strategies. We're also more than happy to dive in and talk further about our asset allocation, our high conviction investment opportunities, and what we're looking at now." (41:34)

This episode offers invaluable insights into the strategic considerations and evolving preferences of family offices as they navigate the complex investment landscape toward 2025. Hansen Ringer's expertise provides a clear roadmap for institutional investors looking to optimize their portfolios amidst shifting market dynamics.