Podcast Summary

How I Invest with David Weisburd

Episode E221: "From Citadel to Family Office CIO: Sid Malhotra’s Investment Lessons"
Date: October 3, 2025
Guest: Sid Malhotra, Chief Investment Officer, Cactus Capital

Episode Overview

In this episode, David Weisburd sits down with Sid Malhotra, former Pritzker Group and Citadel investor and current CIO at Cactus Capital, a single family office. The conversation dives into the philosophy, structure, and strategies behind managing a multi-generational family’s wealth, lessons Sid brought from Citadel and Pritzker Group, how to prepare for market sell-offs, the behavioral side of investing, and the nuances of taxes, asset allocation, and absolute versus relative return mindsets. The episode offers a candid look into the nature of long-term, aligned investing from the family office seat.

Key Discussion Points & Insights

Working in a Single Family Office (00:00–03:25)

• Cactus Capital’s Structure:
  Sid describes Cactus as “a single family office, which means that we manage capital for one family. We have no external clients... There's no marketing [or] raising of assets. Our interests are fully aligned with the family...” (B, 00:06)

• Alignment and Incentives:

  • Investment team compensation is tied to both short- and long-term performance.
  • “The investment team has capital invested alongside the family in the entire portfolio...there’s a really good alignment there...makes us think long term and not think short term...” (B, 00:43)

• Governance Dynamics:
  At a single family office, all parties are directly accountable to the family: “If you’re not doing what they want, you’re probably not going to survive in that seat for [the] long term... that is a very good governor and, you know, governance mechanism." (B, 02:22)

Family Office vs. Multifamily Office vs. Institutional Capital (03:25–07:16)

• Control and Focus:
  With sufficient size, a single family office gives full control and alignment to the family, compared to multifamily offices juggling various interests.

• Strategic Value of Family Offices:
  Family offices can add unique value, especially if they have sector expertise or industry connections:

  • “If the family has a background or expertise in a certain sector...that can be very much a value add relative to...other institutions...where there’s maybe no in-house expertise in running a manufacturing business.” (B, 05:40)
  • Their networks and ability to make introductions are also key differentiators.

• Time Horizon:
  Family offices, especially multigenerational ones, “have a longer time horizon than some endowments and foundations” and can weather short-term underperformance. (B, 07:16)

Strategic Flexibility and Outsized Returns (07:16–08:02)

• Family offices can move into new asset classes or early-stage opportunities—for example crypto or warehousing/funding deals before institutional acceptance.
• “...one of those areas where the family office could get outsized returns...also it’s extremely valuable beyond just the check for the managers...” (A, 07:16)

Lessons from the Pritzker Group (08:02–09:31)

• Exposure to legacy and operational expertise—particularly in manufacturing and real estate.
• “It really gave me an appreciation of just the legacy of a family and the wealth that’s been created through it and keeping a business throughout time and shepherding it.” (B, 08:22)
• Investing with operational know-how and leveraging business-owning DNA for value-add.

Absolute vs. Relative Returns (09:31–10:56)

• Absolute Return Focus:
  • “Trying to generate a positive return regardless of market conditions or market performance...” (B, 09:42)
  • Emphasis on not losing money: “Warren Buffett would say, rule two is don’t forget rule number one. And then rule three, I would add, is take prudent risk.” (B, 10:40)
  • Focus on compounding by hitting “singles and doubles” rather than swinging for home runs.

Investment Criteria & Manager Selection (10:56–12:26)

• Both bottom-up (finding best-in-class managers) and top-down (opportunity set must be attractive).

• Alignment: “We want [third-party managers] to have skin in the game...think of us as partners and again, try to avoid those principal agency issues...” (B, 11:48)

• Complete Portfolio Construction:

  • Combination of Rahul Mugdal’s "jigsaw puzzle" (portfolio fit) and "treasure hunt" (best opportunities).
  • Sid’s approach is “best summarized these days as the total portfolio approach” (B, 12:26), balancing risk exposures with opportunistic investment.

Dealing With Market Corrections & Holding Dry Powder (14:02–18:19)

• Preparation Steps:

  1. Always keep dry powder (liquid, safe capital—mostly T-bills).
  2. Mental checklist in a sell-off:
     • Defend: Review all exposures, consider selling vulnerable assets.
     • Hedge: If unable to sell, can some exposure be hedged?
     • Offense: Seek mean reversion, buy oversold opportunities (B, 14:25)
       Quote: “We always have dry powder in case something happens that’s unexpected.” (B, 14:25)

• Why T-bills for Dry Powder:

  • Offers liquidity and a “real return.”
  • "We will invest...in three to six to nine month T bills...we want cash to maintain its value and we want to be able to liquidate cash at the value it’s held at..." (B, 16:30)
  • If yields drop during a crisis, T-bill values can rise, offering a “bonus.”

Behavioral Finance and Crisis Investing (18:19–24:38)

• Challenges of Holding Cash:

  • Acknowledges the cost of “sitting on cash” relative to realized returns.

• Behavioral Biases:

  • “Everyone says they’re going to be greedy when people are fearful. And it doesn’t really turn out to be the case...” (B, 18:59)
  • Importance of a disciplined plan: Dollar cost averaging in tranches during sell-offs (B, 20:48)
  • Cognitive dissonance: Difficulty selling losers in publics to buy discounted privates during crises (B, 22:33)

• Alpha Reframed:

  • “It might be difficult to do a lot of work on [an] asset class. That’s time alpha, maybe difficult to structure the right deal, that’s structural alpha... that’s essentially patience or patience alpha or behavioral alpha.” (A, 24:38)

• “War-Gaming” Crisis Responses:

  • Reference to CalSTRS running simulations while markets were calm, which helped execute when crisis hit (A, 24:38)

Lessons from Citadel (26:31–29:21)

• Embrace both the “simple” (stock picking) and “complex” (exotic options) paths to returns.
• “There’s a lot of ways to obviously make money...some of them can be very, very simple...others extremely complex and involve exotic options...” (B, 26:41)
• Innovative Mindset & Flexibility:
  • Holistic capital structure analysis led Sid to always seek multiple avenues to express an investment view (e.g., thematically expressing a view through public markets, privates, equities, or credit).
  • “What Citadel taught me was just a framework of just thinking holistically and being flexible in your mindset...” (B, 28:51)

Views on Multi-Strat Firms as an LP (29:21–32:58)

• Multi-strats offer internal diversification across PMs, teams, and strategies; reduce key person risk; and can opportunistically reallocate capital.
• “They can definitely allocate capital to teams that have the best opportunity set at any given point in time and maybe reign in capital from teams where the opportunity set is maybe not as compelling.” (B, 31:09)
• Downsides:
  • Potential for being “too ruthless” in cutting teams (B, 32:30), but overall sees the adaptability as a plus.

Portfolio Construction & Tax Considerations (32:58–35:46)

• Tax Efficiency:
  • Prioritizes private investments for their favorable long-term capital gains but is willing to accept higher taxes if a strategy delivers uncorrelated returns.
  • “If we’re investing in a multi strat, the way I...think about it is the higher tax...is an additional fee you’re paying. And so if they’re providing a return stream...that’s uncorrelated...I would argue it deserves higher fees. And one of those fees is a higher tax rate.” (B, 33:04)
• To diversify, you must also accept diversified tax profiles; optimizing for taxes alone can reduce true diversification (B, 35:13, 35:46).

Sid’s Career Advice (36:05–37:53)

• Importance of Network:
  • “One thing that comes to mind...is just the network I built...Some folks do similar investments...some do stuff that’s totally different, but they’re very, very helpful.” (B, 36:05)
  • Advises younger professionals to focus early on relationship building—even while working hard on their core job—as those relationships compound long-term.

Memorable Quotes & Moments

• On Alignment:

  • “The investment team has capital invested alongside the family in the entire portfolio...Skin in the game...” (B, 00:43)

• On Family Office Difference:

  • “You’re at the whim of one family. And that if you’re not doing what they want, you’re probably not going to survive in that seat for long term.” (B, 02:22)

• On Absolute Returns:

  • “One, don’t lose money. Right. Easier said than done. And then as Warren Buffett would say, rule two is don’t forget rule number one.” (B, 10:40)

• On Behavioral Alpha:

  • “A lot of people discount behavioral finance as a soft thing. But when you look at people’s returns...sometimes those behavioral [returns] are the real returns in the market.” (A, 24:38)

• Citadel Mindset:

  • “What Citadel taught me was just a framework of just thinking holistically and being flexible in your mindset and trying to find the best way to express a view or investment...” (B, 28:51)

• On Building a Network:

  • “It is important to get out of the office, not just to have fun and some balance, but to meet other folks, to get other perspectives. Some of them may agree with you, others may not.” (B, 36:43)

Timestamps for Major Topics

• 00:00–03:25: Structure and alignment at Cactus Capital
• 03:25–07:16: Family office vs. multi-family/institutional; strategic advantages
• 07:16–08:02: How family offices get outsized returns and flexibility
• 08:02–09:31: Lessons from Pritzker Group
• 09:31–10:56: Why focus on absolute returns
• 10:56–12:26: Manager selection, investment criteria
• 12:26–14:02: Portfolio philosophy: total portfolio approach
• 14:02–20:41: Market corrections; holding dry powder; hedging
• 20:41–24:38: Operationalizing crisis investing; behavioral alpha
• 26:31–29:21: Citadel lessons: flexible, holistic investing
• 29:21–32:58: Multi-strategy firms: pros and cons for LPs
• 32:58–35:46: Tax impacts on portfolio construction
• 36:05–37:53: Career advice: invest early in your network

Overall Tone and Takeaways

The conversation is candid and practical, blending high-level investing theory with on-the-ground insights into family office dynamics. Sid Malhotra emphasizes long-term alignment, the behavioral side of investing, and pulls on direct experiences from premier institutions like Citadel and Pritzker Group. The tone is collegial and educational, offering unique perspectives for both institutional allocators and those curious about the inner workings of sophisticated wealth management.