E316: How Family Offices Design Portfolios for 30-Year Outcomes

Summary

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Podcast Summary: How I Invest with David Weisburd

Episode E316: How Family Offices Design Portfolios for 30-Year Outcomes
Date: March 3, 2026
Guest: Zach (former Wellington, TIFF, Single Family Office investor; current founder of Twin Oak)

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Overview

In this episode, David Weisburd interviews Zach, an experienced investor who has worked across top-tier institutional asset managers, endowments, and a major single family office. The conversation centers on how ultra-high-net-worth family offices design portfolios for generational, 30-year+ outcomes, how their approach differs from other investors, and the importance of a long-term mindset, structural advantages, and the enormous (and often overlooked) impact of tax efficiency in compounding capital over decades.

Zach shares hard-won lessons from Wellington and TIFF, the value of backing emerging managers, key differences between family offices and traditional allocators, practical insight into portfolio hedging, and the frontier of ETF innovation for sophisticated, tax-aware investors.

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Key Discussion Points & Insights

1. The True Meaning of Long-Term Investing (00:00–01:18)

• Long-term orientation is foundational:
  Zach stresses how the meaning of "long-term" matures as one transitions from a young investor to managing money for future generations (00:13).

  • Quote: “Making an investment for a quarter or four quarters...means something very different when you're investing for the next generation.” — Zach (00:39)

• Asset owner vs. investor mindset:
  Being an “asset owner” is about letting capital compound to serve not just oneself but the next generation.

2. Institutional Lessons: Wellington & TIFF (01:15–06:14)

• Finding your edge (Wellington):
  Exposure to many styles helped Zach realize he should invest with strategies that genuinely resonate:

  • Quote: “You have to figure out what's true to yourself...what is it that you believe that you can kind of have a repeatable, sustainable competitive edge on.” — Zach (01:29)

• TIFF: True long-term commitment:
  Investing in early-stage managers with lockups up to 15 years brings rigorous due diligence and a new gravity to risk-taking (02:05).

  • Quote: “When you're forced to make a commitment...that's really being long term.” — Zach (02:08)

• Backing emerging managers:
  Fund I–III often outperform; missing early funds often means missing future access too (02:33). Early managers are more aligned (“eat what they kill”) and “if fund one doesn't go well, there is not a fund two” (03:45).

• Risk and Alpha:
  Alpha is created upstream — via doing hard, unglamorous work that large, complacent incumbents may avoid (03:16).

3. Diligence & Alignment in Manager Selection (04:52–05:57)

• Ethics matter:
  The “cardinal sin” is backing managers with questionable character, especially given long lock-up horizons.
  • Quote: “The biggest cardinal thing you can make a mistake in is investors partnering with people who are not good people.” — Zach (05:01)
• Skin in the game:
  Strong alignment is when managers are significant GP investors in their own fund.

4. Structural Edges at Family Offices (07:40–10:25)

• Two main archetypes:
  (1) Steady, low-risk compounding and (2) Higher-risk, opportunistic investing — both rooted in not having existential constraints like layoffs (07:40).

• No buckets, just balance sheet:
  Unlike rigid institutional allocations, family offices can invest wherever opportunities arise, especially in less trafficked, “uncategorizable” niches (08:52).

  • Quote: “Family offices, they don't have buckets. They have a balance sheet.” — Zach (08:54)

• Contrarianism and incentive alignment:
  Family offices can be liquidity providers or contrarians because they don’t follow fads or raise external capital (09:22).

• Incremental return levers:
  “Take the other side” of consensus flows, buy/sell volatility, and continually seek new return streams (10:06).

5. Portfolio Construction & Tax Alpha (10:30–13:36)

• Zach's framework at Twin Oak:
  (1) Security selection, (2) Asset allocation, (3) Structural alpha (“time horizon” and “tax-aware” investing are the big edges) (10:30).

• Case study in tax alpha:
  Even a top 1% manager’s skill can be wiped out by mutual fund tax drag (about 2%/year). ETFs preserve after-tax returns for long-term compounding (11:24–12:33).

  • Quote: “You would have generated two points of tax alpha in the ETF structure relative to a mutual fund.” — Zach (12:16)

• ETF Mechanics:
  Mutual funds pass through phantom gains; ETFs’ in-kind redemptions generally avoid this (12:40).

6. Building Scalable, Hedge-Enabled Portfolios (15:33–20:34)

• Tail risk in portfolios:
  Families fear “black swan” losses and tail hedging is sought after — but buying plain S&P puts is too expensive (15:33, 17:56).

• ETFs for hedging:
  Twin Oak offers an ETF that systematizes tail risk hedging across 40+ strategies, making it accessible, cost-effective, and liquid for rapid portfolio rebalancing post-drawdown (16:55, 18:57, 20:20).

  • Quote: “We try and deliver an outcome, a solution where you get equity like returns, but with reduced drawdowns in extreme tail environments.” — Zach (20:20)

• Rebalancing advantage:
  Hedge funds often can’t immediately reinvest after payouts due to typical lock-ups—ETFs enable immediate action to capture market recovery (21:01).

7. Optimal Public Portfolio Design for Long-Term Families (22:57–24:10)

• S&P 500 as a case study:
  A (frictionless) 30-year S&P 500 holding compounds 25x, but taxes, fees, and suboptimal behavior usually erode this (23:15).
• Private markets mindset for public markets:
  Seek to maximize tax-deferral, reduce frictions, and align incentives for maximum compounding (23:56).

8. The Underappreciated ETF Evolution (24:16–26:36)

• Adoption is only beginning:
  Many sophisticated investors don’t realize ETFS’ tax advantages or the breadth of their application (24:16–25:19).

  • Quote: “People ask me what inning we are in the ETF evolution. And I say like the third inning. There is so much more to do...” — Zach (24:18)

• Shifts in allocator incentives:
  More fee-only, client-aligned managers (RIAs, MFOs) are driving focus on after-tax, long-term performance (25:19).

• Tax code = persistent edge:
  “A superior knowledge of the tax code is one of the most competitive edges you can have as an investor.” — Zach (26:45)

9. Sustainable Alpha in a Low-Alpha World (27:35–28:28)

• True alpha is fleeting; tax alpha and deferral — selling against slow-moving government policies rather than hyper-efficient markets — is a more persistent path (27:35).
• “...tax deferral, it's not tax elimination. We're not getting rid of your tax obligation... But can we remove the frictions along the way?” — Zach (28:07)

10. Lessons for Young Investors + The Nature of Differentiated Strategies (28:28–30:15)

• Collect diverse experiences:
  “When you see the same problem everyone else has seen, you'll see a different answer.” (28:42)
• Alpha is found in difference:
  Many dismiss new approaches if they don’t match prior patterns—not realizing “difference is the source of alpha” (29:21).
• Early adoption advantage:
  What’s new and different now will become mainstream (and commoditized) later (29:42).

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Notable Quotes & Timestamps

• On true long-term investing:
  “Making an investment for a quarter or four quarters...means something very different when you're investing for the next generation.” — Zach (00:39)

• On finding your edge:
  “You have to figure out what's true to yourself...what is it that you believe that you can kind of have a repeatable, sustainable competitive edge on.” — Zach (01:29)

• On early-stage managers:
  “If a fund one doesn't go well, there is not a fund two.” — Zach (03:45)

• On family office structural edge:
  “Family offices, they don't have buckets. They have a balance sheet.” — Zach (08:54)

• On tax alpha:
  “You would have generated two points of tax alpha in the ETF structure relative to a mutual fund.” — Zach (12:16)

• On compounding for families:
  “A (frictionless) 30-year S&P 500 holding compounds 25x, but taxes, fees, and suboptimal behavior erode this.” — Zach (23:15)

• On ETF innovation:
  “People ask me what inning we are in the ETF evolution. And I say like the third inning. There is so much more to do...” — Zach (24:18)

• On tax knowledge as edge:
  “A superior knowledge of the tax code is one of the most competitive edges you can have as an investor.” — Zach (26:45)

• On diverse experiences:
  “Collect the most diverse set of experiences you can as an investor, because when you see the same problem everyone else has seen, you'll see a different answer.” — Zach (28:42)

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Key Segment Timestamps

• [00:00–01:18] – Long-term investment mindset & compounding for future generations
• [01:18–03:45] – Wellington, TIFF, and the edge of early-stage manager investing
• [04:52–05:57] – Due diligence, alignment, and avoiding character risks in managers
• [07:40–10:25] – Family offices’ unique position and structural advantages
• [10:30–13:36] – Tax alpha and robust portfolio design at Twin Oak
• [15:33–21:01] – Portfolio tail hedging, ETF solutions, and the need for liquidity in crisis
• [22:57–24:10] – Designing optimal public portfolios for generational compounding
• [24:16–26:36] – The coming ETF revolution and aligning incentives for tax-aware investing
• [27:35–28:28] – The sustainability of alpha & tax efficiency as edge
• [28:42–30:15] – Lessons for young investors and the challenge (and opportunity) of “different” strategies

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Memorable Moments

• Zach’s analogy of avoiding only the “10 worst days” and missing out on the “10 best” that follow (21:01):

  • Illustrates the traps in conventional hedging and the importance of rebalancing and capturing recoveries.

• The “third inning” of ETF adoption (24:16):

  • Reflects both awareness and innovation gaps even among sophisticated allocators.

• The practical advice for young investors on gathering diverse experiences (28:42):

  • “When you see the same problem everyone else has seen, you'll see a different answer.”

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Takeaways

• Family offices, unbound by institutional constraints, can leverage greater risk tolerance, flexible structures, and a focus on long-term (even generational) compounding.
• True investment edge is often structural (time horizon, tax code mastery) rather than merely picking winners.
• ETFs offer under-appreciated after-tax benefits—an important but under-exploited avenue for generational wealth compounding.
• Tail risk hedging should be both sophisticated and accessible; ETFs can provide solutions that merge institutional sophistication with flexibility for rapid reinvestment.
• In a world of fleeting alpha, improving alignment, minimizing unnecessary frictions, and maintaining diverse perspectives is the sustainable path to outperformance over decades.

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Transcript

[Interviewer]

So you've worked at some of the top investment firms in the world. Wellington, tiff, at a top single family office. What are some principles that you learned that you apply to your day to day investing career?

[Zach]

The starting point is have a long time horizon. Right when you start your investing journey, everyone tells you think long term. And for someone who's 21 years old, that's never had a job before, like that's very hard to really put that into effect. But I think as I roll forward and I worked at TIFF and I worked at with family offices, long term means a different thing. And I now have a true appreciation for what that means. Making an investment for a quarter or four quarters, even if that could be long term in the public equity investing world, means something very different when you're investing for the next generation.

[Interviewer]

And why is that so important?

[Zach]

It gets back to the idea of are you an asset owner or just an investor? And I think you can put great investors, can be both, but the idea is you deploying your capital and letting it compound and continue to, to drive value for you, for you for a very long time. And when I think about my investment philosophy, it's how can you unlock the potential inside of a portfolio? And I think there's different levers you can pull, but it's really about aligning it with the time horizon that you have.

[Interviewer]

What were your lessons from your time at Wellington?

[Zach]

It's a great place to start your investing career because you see so many different disciplines. You see growth, large cap, small cap, international, you see a lot of different tools being deployed. And I think for me, what that taught me was you have to figure out what's true to yourself. What is it that you believe that you can kind of have a repeatable, sustainable competitive edge on. And for me, I was very clearly a value investor and I was looking for high quality businesses that had something that caused price and value to diverge.

[Interviewer]

And you went from Wellington, you went to tiff, almost the opposite end of the market. You went from the public markets to investing into early stage fund managers. What were your lessons at TIFF and what is something that you learned that was very counterintuitive?

[Zach]

I thought I was long term before I got there. And then when you're forced to make a commitment to something that has potentially a 15 year old lockup and no path to exit, that's really being long term. And I think that brings with it a level of rigor and due diligence that was pleasantly surprising.

[Interviewer]

And at tiff, you focused on funds one through fund three, why take the risk investing early in a manager's career? What's the upside?

[Zach]

The statistics are fund one to fund three are a manager's best performing funds. And so if you miss those, you lose two different ways. One, you miss those funds, but you also miss the chance to access those managers later because once they're identified, it can be hard to get into.

[Interviewer]

By the time that the manager has beaten de risked, everybody sees us, the LP alpha is no longer there. So you have to go in earlier where there's higher risk, higher return, and

[Zach]

you want to align your incentives with the manager, right? So those early fund managers, the funds are typically smaller. They're not making a lot of money off of the management fee, they make their money off the carry dollars, you know, whereas a KKR is going to make a great return just from the management fee. And so you just have different incentives.

[Interviewer]

And if you think of Alpha as extremely scarce, you have to think upstream of that. What generates alpha, it's typically really difficult things. It's looking for companies in the middle of nowhere, it's doing that extra work, it's working 100 hours a week. And somebody that's making millions of dollars or in some cases tens of millions dollars a year in management fees on the incremental deal, they may not actually pursue it, they might not pursue that alpha because it's too costly. From a, from a personal standpoint, if

[Zach]

a fund one doesn't go well, there is not a fund too. And so they're going to work out the companies in their portfolio when things aren't going well, they're going to maintain a high bar when they're making, deploying new capital because their sustainability is on the line. And so that's actually phenomenal incentive alignment. And as a, as an allocator, you really need to try and assess that, right? You need to try and trade, calculate that risk return, trade off for making that. And I actually think that's like a skill set that direct investors really capture. Well, there's no perfect investment out there. If someone finds one, I'd love to hear about it. But there's something wrong with almost every investment that you make. And it's calculating that risk return framework and emerging managers, that's kind of the same thing. There's something wrong. It could be a short track record, it could be a small team and you have to kind of look through that. And the people who have done that really well, they get into early managers, they stay with those managers for a very Long successful career and mit, Yale. Those endowments are kind of core to how they've invested and how they've generated a lot of their outperformance.

[Interviewer]

When you look at early stage managers, you said there's something wrong with every manager. What's something good that could be wrong and what's something clearly bad that you don't want a manager to have?

[Zach]

The biggest cardinal thing you can make a mistake in is investors partnering with people who are not good people, right? That when there's an ethical concern or some reason why maybe they were fired from a prior firm because of something and you really need to try and spend your diligence unpacking. Is that just a story or is there something fundamentally flawed there? Because to what I said, like you're in these investments for 15 plus years, that commitment will likely outlast your time at the place where you made that commitment. And you need to avoid those mistakes. The thing that you can best align yourself with is doing whatever you can to increase the alignment. So managers who make a very large kind of GP commitment to a deal where they're the largest investor in their own deals, right, they're eating their own, killing what they're killing. And so that's a phenomenal way to partner, right? Someone who's going to put 20% of the capital to work themselves and you're really there to amplify their capacity.

[Interviewer]

After tiff, you went inside a single family office. So you went from a large institution in Wellington to TIFF, which is today roughly a $9 billion pool of capital, to a single family office. What changed when you joined that family office and how did you view your investing mandate?

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[Zach]

over the last 20 years, I feel very fortunate to have met a lot of family offices. And I'd kind of put them into two camps. Starting point is they've all already made generational wealth, and so their incentives could be very different from other investors incentives. There's one camp that let's just be steady. Let's compound and kind of continue to incrementally grow our family's balance sheet to support the future generations. And then there's others where they have a much higher. That manifests as a much higher risk tolerance. They can afford to have a 30% drawdown because they're not taking food off the table. They're not having to make layoffs. And so that can give them kind of a higher risk tolerance. And therefore they can make investments that are different from the investments that you and I might make personally. And so I think I put that into kind of the structural edge that can be developed at family offices. And I think the best family offices try and develop a structural edge in

[Interviewer]

how they deliver

[Zach]

their returns.

[Interviewer]

What's one or two examples where family offices can create a structural advantage versus other investors in the market?

[Zach]

I mean, I like to always. The one that I like is buckets, right? If you look at a lot of allocators, they have buckets, right? They have a large cap manager, they have a small cap manager, they have their US bucket, their fixed income, et cetera, et cetera. Family offices, they don't have buckets. They have a balance sheet. And so they're able to. To maybe go into things that don't fit into a traditional bucket. That's always been kind of my favorite place to fish as an investor is something that doesn't fit cleanly into something else because there's fewer people looking at it, and so there's more opportunity for mispricing.

[Interviewer]

I oftentimes think about it as going contrarian against certain trends in the market that deserve contrarianism. Right now, everybody needs liquidity. So being a liquidity provider is a really good business to have in other cases, other people are very bullish on something. You know, selling into that bullishness could be very lucrative. And the reason why family offices are uniquely able to do that is because it's their money. They don't have this need to raise new funds on hot trends and gain management fees on things that are topical. They're just focused on compounding their money and they're incentivized to take the right action where capital sources with outside money are not incentivized to do.

[Zach]

Being contrarian. You know, if people want to sell calls, buying those calls cheaply, if people want to buy calls, selling them those calls expensively and just trying to take the other side of some of those flows to kind of incrementally keep adding different return streams and levers that you can pull to drive outperformance over time.

[Interviewer]

Following the single family office, you started your own firm. Tell me about twinoak.

[Zach]

I like to think of our kind of investment philosophy that we're trying to bear as there's three different ways in which you can create value for clients. There's security selection, which is pretty self evident. There's asset allocation, so being in the right sectors, sub asset classes, et cetera, right being international versus US large cap versus small cap, you know, single stock versus kind of diversified index. And then there's structural alpha. And so I think the theme that you probably have heard for me throughout this whole interview is being long term. I think time horizon is a structural edge that we try and capture at Twin Oak. And the second is tax aware. I think tax alpha is the easiest way to add alpha for clients. If you can just be smarter in your implementation of something, you can drive a massive amount of value for clients over time.

[Interviewer]

Give me an example of tax alpha.

[Zach]

If you select an investment manager that puts up 2 points of alpha per year for 20 years, they're a top 1% manager over time. Very hard to do both as an investor and also hard to identify that top 1% manager because 99% are not that. Now if you had made that investment through a mutual fund, the average mutual fund has about 2% per year of tax drag embedded in it based on just like how mutual funds function. So congratulations, you, you pick that top tier manager, but you lost all of that value due to tax drag. And so you took on a lot more risk because you had to identify that top tier manager and most likely is, you did not. And so you're almost virtually guaranteed to underperform. Now if you had made that same investment through an ETF structure instead of a mutual fund structure, you would have kept that tax alpha. So you know another way to think about it is you would have generated two points of tax alpha in the ETF structure relative to a mutual fund. And so you would have really captured that investment alpha in that strategy.

[Interviewer]

So explain that difference between holding a position in a mutual fund etf. Why is there such a dramatic change

[Zach]

in tax in a mutual fund? When people come in and out, the manager has to sell securities to deliver cash to those exiting investors. At the end of the year, that capital gain that was generated from those tweaking of the portfolios or meeting inflows and outflows get distributed out to every investor. So you could get hit with kind of a phantom capital gain tax. Even though you did nothing, you just you bought and held your mutual fund. Now an ETF is set up as kind of what they call a redeemable security. So people come in and out of the security at net asset value. And so in theory no one else entering or exiting the fund impacts you as in your investment return. So you don't feel that experience. So when the portfolio manager goes to sell a security, they do it through this and they can do it through this in kind redemption process and that can be immensely valuable. From an after tax framework.

[Interviewer]

You built something that I think is very interesting which is essentially a hedge to S&P 500 in case there's a tail risk and there's some black swan event. Tell me about that started with a.

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[Zach]

Conversation with a family we kept hearing from a number of families that they were worried about kind of where the market was and so, and the volatility and the potential downside. And so we came back to them with this idea of tail hedging. And the starting point for that is buying. Puts on The S&P 500 cost 2 to 5% per year depending on the period of time, which is really expensive. So no one wants to pay that level of expense. But even if they were willing to pay that level of underperformance in a way the ways in which they can access it today are inferior. You'd commit to a tail risk hedge fund that's going to run that put selling strategy for you. But when that pays out, you need to rebalance away right away. You need to take that source of funds that was generated in March 2020 and go out and buy equities. That doesn't work in a private fund. There's not, there's, there's illiquidity, there's gates. And so by the time you get your money back to be able to redeploy it, you have to pay taxes, you have to pay fees, and you've given back a lot of the returns. And so we started by saying can we put that inside of an ETF so that we can do the reallocation for the end client?

[Interviewer]

It's an ETF way to do what hedge funds are doing but are charging two and twenty and a half gates. How exactly do you go about doing that?

[Zach]

There's probably 40 different hedges that you can do at any different time and that hedge funds are looking at at any given time. That could be puts something as vanilla as buying puts on the S and P, or it could be something as complex as buying forward interest rate volatility in foreign markets as a way to hedge kind of Equity exposure. So at different times, we're going to move between that camp of 40 different potential hedges and put together a balanced book to really solve the pain point of that product. In a severe downturn that is very sharp and unexpected. Do you have a source of funds that you can redeploy? And that's kind of what we tried to create. And we wanted to make it as easy for investors to access as they could. Single ticker in a portfolio, there's no free lunch.

[Interviewer]

What's the cost of having a hedge on the S&P 500 portfolio versus just having that S&P 500 portfolio with no hedge fund?

[Zach]

In the simplest terms, like buying puts is expensive, right? It can cost you 2 to 5% per year, as I mentioned. And are you willing to pay that? Most people, the answer to that question is no. And so they keep it on for a period of time where they under hedge. And so then the hedge doesn't deliver what they expect. We started by saying, given kind of our backgrounds at, you know, hedge funds and institutional firms, like what are the, what's the full toolkit that you can use? Can we use things that are more complicated? Can we trade things on swap? Can we use options? Can we really try and blend together what is a institutional level risk hedging book that will evolve over time to capture the different market opportunities that we see in the hedging market? And so that's what we did. We have a constant allocation to something that gives us convexity in the portfolio. So something when the market tanks, it will outperform.

[Interviewer]

You mentioned 2 to 500 basis points for typical put on S and P. What's the cost of doing it in through an etf?

[Zach]

If you just take the same strategy and put it inside of an etf, there's no difference in the cost. I think for us, what we were trying to sell for is what is the, the exact vector that we're, that we're addressing our clients. And this fund is not designed to solve the 0 to 5% down market, which is where a lot of the hedging happens. That's very expensive. That's not what keeps families awake at night. It's waking up and seeing the market down 30%. And so it could be as simple as moving to buying cheaper puts on the S and P. And those are, you know, the drag is much less. It's harder to quantify exactly what that drag is over time because we move to different, different types of hedges, some of which actually can have positive expected value. And Positive carrying cost. And when you blend those together, we're trying to offset the drag as much, as much as we can so that we can maintain an adequate level of hedging. Kind of in all scenarios.

[Interviewer]

Said another way, you're really optimizing on the maximum drawdown. So some people might say I would be comfortable with a 10% drawdown, some would be with a 20. And then I guess there's this efficient frontier of what percentage of your portfolio you're hedging away with what instruments.

[Zach]

That's the complicated part for this fund. We try and take that onto our back so you don't have to worry about it. We're trying to deliver an outcome, a solution where you get equity like returns, but with reduced drawdowns in extreme tail environments.

[Interviewer]

I've always been curious about this because probably 90% of institutional investors have what is called diversifiers, which is hedges against the market. So there must be a very solid rationale to that. Has there been research on long only exposure versus long only with, with hedged products? And, and do does long only with hedge products, not only maybe is it a smoother ride, which is important, but does it actually outperform? And so in what cases?

[Zach]

My favorite statistic is if over a 30 year period you avoid, you know, the 10 worst performing days in the market or 10 worst performing weeks in the market, you, you know, 3x the performance of the market or something like that. Problem with that is the 10 best performing days in the market usually follow the 10 worst performing days. Right. There's two really bad days and then there's a recovery. So if you also miss the 10 best performing days, you are underperforming the market by half. And so those are the problems that I have with like a buffer fund, for instance, right. Like they're really just protecting you against the drawdown. But you're, if the market's down and then back up, you might not capture that recovery period and that will also cost you in the end. And so to the conversation we were having about the ways to access tail hedging that currently exist. Doing that in a private fund where you can't rebalance away is a problem. In our fund on those bad days, we're immediately looking to go out and buy more equity exposure because we need to capture those recovery periods because that's how you sustain your outperformance over time. It's one thing to avoid the downturn, which I think is a feat in and of itself, but then it's can you in those moments deploy into that pain.

[Interviewer]

And your philosophy is you design with family office in mind and then you provide that to other family offices.

[Zach]

Exactly. So we like to think of ourselves as like client driven innovators in the product space. Someone comes to us with a problem, we solve that problem and then we can make those strategies accessible to everyone. And so the tickers that we create are available, anyone can go buy them, but we know that it solves a single family's problem or a multi family office's problem. And while every family might have a different need, eventually they start to rhyme. And so what worked for David's family will also work for John's family. Over here.

[Interviewer]

You're in a unique vantage point where not only were you at these institutional investors in the single family office, but you have single family offices coming to you and helping you solve specific problems. What's your view on the optimal way to build a public portfolio for the long term?

[Zach]

The stat I always like to come back to when I, when I sit down with them is if you bought the s and P500 30 years ago and just let it compounded and removed all tax friction and fee friction from that access you 25x your money. Do you want to 25x your money over time? Because very few people actually achieve that level of outperformance over the last 30 years because fees were introduced, taxes were introduced, suboptimal decision making were introduced. And so for us, they're coming to us. And I think what they're really seeking is an ability to compound tax deferred for a long period of time. And that's a mentality that is not pervasive in the investment ecosystem.

[Interviewer]

It's a very private markets type of approach to the public markets.

[Zach]

Exactly. And we're trying to match our clients and our investment strategies to deliver the outcomes that they're wanting. And are we aligned on the incentives for that.

[Interviewer]

Since starting this business a couple years ago, what's been the most surprising thing?

[Zach]

I've become really obsessed with ETFs. Created a firm building ETF products. Right. And you'd think, oh my God, this is so. People must know this. And I still think people ask me what inning we are in the ETF evolution. And I say like the third inning. There are so much more to do in the ETF ecosystem, both from an awareness standpoint and also a product development standpoint. And that's where we're really trying to push kind of the envelope. I meet a family officer, you know, almost every week that has at least A few hundred million dollars into any in ETFs and they didn't know that they were more tax efficient. They just bought them because they were easy and cheap. And so taking that knowledge and then saying, oh, but it could be applied to so many more different things. And on the other side, you know, we meet a lot of hedge fund managers that are looking to grow in the family office channel. And can we help them ETF their strategy? Because they want to get access into that strategy. And I think that's really where we can sit at this intersection where we're helping institutions access the ETF market with sophisticated partners.

[Interviewer]

There's a couple confluence of factors going on here. One is the high net worth. The family office world is gaining in prominence. So before all the products were done for the institutional, the non taxable investor, just because they were just dramatically larger. And now with the rise of retail and the intergenerational transfer of capital and all these factors, the taxable investor himself or herself is just becoming more prominent. The problem that still persists within that a lot of the large managers of that capital are not really incentivized for them to perform on tax efficient manner over 10, 15 years, yes, you could say in theory they get another 2% per year compounded over 20 years, they'll manage another 1.5x. Most people are not really thinking that long term. And most people honestly don't care as much. They're focused on selling products. And we have another trend now with the fee only the multifamily office, the RIAs that are now much more aligned with the client as well. So there's this general focus on the taxable investing within the taxable investors. There's a general focus on being more client facing and kind of lowering that principal agent problem that has experienced.

[Zach]

We try and partner with a lot of those firms, right? Like we want to partner with those multifamily offices that think like us. And we want to partner with the, you know, the hedge fund manager that maybe is his own largest client and he's realizing that oh, maybe I should care about taxes now. And so I think there is a change happening. But taxware investing has been around for a long time. You know, I got interested in investing when I was 12 years old. No good reason whatsoever, just kind of a cool idea. And I spent a lot of time with, I was fortunate to spend a lot of time with family offices. And one in particular gave me this piece of advice and this 20 plus years ago. A superior knowledge of the tax code is One of the most competitive edges you can have as an investor, tax aware investing, I think, is having a moment, and I think it will continue to have a moment. Because at the end of the day, what matters to you as an individual, whether you're retail, family, office, multifamily office, is how much do you keep and can we help you keep more in your pocket?

[Interviewer]

If you look at alpha as extremely fleeting in most markets, somebody is buying and somebody is selling. So it's very difficult, if not impossible, to sustain alpha over long periods of time. As information starts to become less asymmetric in tax, you're essentially selling against government treasury that updates its policies sometimes once a decade. So it's much easier to sustain alpha in that perspective versus when you're buying and selling.

[Zach]

It's an interesting framework to think about it. I always like to think about it as this is tax deferral, it's not tax elimination. We're not getting rid of your tax obligation, you still owe the taxes. But can we remove the frictions along the way that get in your way of kind of deferring and compounding for long periods of time?

[Interviewer]

If you could go back 15 years ago when you were just starting your career, what would be one piece of advice that you would give? A younger version of yourself that would have either helped you accelerate your career or helped you avoid costly mistakes.

[Zach]

I got told this when I was younger in my career, so I'm borrowing it from somebody else. But I think it's, it really holds true. Collect the most diverse set of experiences you can as an investor, because when you see the same problem everyone else has seen, you'll see a different answer. And it's, it's that simple. In this conversation, you know, I've, I've talked about derivatives, public markets, private markets, venture, real estate. I've looked at all of these different things as well as from different client perspectives. Right. Whether I was working at a family office or an institutional allocator. And when I see a problem, I bring all of those experiences to bear on solving that problem. And that's how we think we can create something really differentiated and special, which is our structural edge.

[Interviewer]

Every investor wants a differentiated strategy or they want alpha, which oftentimes is a different way of doing things. But when they see it, their first gut instinct is, well, that's different. That's not the pattern that I've seen the previous 10 times. Not realizing that that difference is the source of alpha.

[Zach]

Exactly right. And I get told a lot of if that was true, Goldman would be here at my door pitching me on it. I'm like, well, eventually they'll get to it. We saw it first, and this is what we do every single day, all day long. Whereas even if Goldman gets into this business, it's a fraction of what somebody does in their day. And so eventually this will be really commonplace. I think if you had me on 10 years from now, which I hope you do, we'll be talking about kind of, oh, there's 100 new firms that are doing tax aware investing, because that's the way it's going.

[Interviewer]

Well, Zach, thanks so much for jumping on the podcast. Appreciate everything that you're doing and looking forward to continuing the conversation soon.

[Zach]

Thank you so much for having me. It's been a true pleasure.

[Interviewer]

Thank you.

[Podcast Host/Announcer]

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[Interviewer]

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