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- [00:00]
A
How do you build a world class multifamily office?
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B
It's about the people in the platform. What does the family stand for? How did the family make their money? And where do we believe this money should be going? Starting from scratch is not for the faint of heart. We put all of our chips in and bet on ourselves. My journey has been formative, it's been volatile, it's never been about money. I always wanted to be a part of creating something that was more of a legacy asset that I could be a part of and my kids can be a part of.
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A
Optimism and naivety is a powerful drug.
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B
There's this opportunity to go create and build something here. It could be a $10 billion firm tomorrow. And first response was, timeout. We don't have the money to go create this. How are you going to do this? He said, we're done here. Walked out.
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A
I think to set the tone for today, which an amazing episode, would be something around the lines of how do you build an exceptional multifamily office? It's very obvious to me that your story leading into this is paramount to how you think about it. So let's just start there. Tell me a little bit about growing up and kind of those formative years.
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B
I enjoyed athletics. I was a tennis player and spent the majority of my childhood playing tennis. And ultimately that led to a scholarship at the University of Oklahoma to go play there. Started out as an engineering major because I thought I wanted to follow my dad in the oil patch. And what really that led to was I wanted to at least pursue something with math, with finances, with really that spirit of being a part of what the family had been a part of. But ultimately being a tennis player, I didn't have an internship in college. And so what ended up happening is my freshman year, after I came home, I didn't have an intern, and that was normal. 25, 26 years ago, my best friend called me up and said, hey, I have an opportunity to go to Cape Cod and to teach tennis at some of these country clubs for some of these wealthy individuals. And I said, let's just give it a shot. And so drove out to Cape Cod, no job, and ended up developing a network with this individual that had a family that needed help learning how to play tennis. And that family was formative because not only did they take us in to live at their quote unquote guest house, which was actually a boathouse in the back of their garage. It was a beautiful place, beautiful spread right on the beach in Cape Cod. But he was a CIO for an ria, and I started to get to know what that world was about. And so coming out of that experience, going back to OU in the fall, I switched my major to finance. And I knew that there was something there that I really wanted to tap into. And so that really started opening up the door to wealth management, to investments, to piquing my interest. And it didn't pique my interest enough to go get an internship the next summer in finance. I actually went back to Cape Cod, ended up teaching tennis at a couple of yacht clubs and just developing my network. And that network was so instrumental and powerful for what I was about to do in the future.
- [03:20]
A
All right, y' all have heard me talk about Better Pitch for years on the podcast. I'm super proud of their founder, Nico, who is a great friend of mine. He's one of the best young entrepreneurs I've come across. And in just two years he's built an incredible company that is now rebranding as Collateral Partners. And honestly, it makes perfect sense. From single family investment decks to complete brand overhauls, ongoing partnership support to market research, they deliver institutional grade work that actually moves capital. Think of them as the difference between looking like a startup and operating like an institution. They're really your entire institutional marketing department. The team you wish you had in house but can't justify hiring. Ex Goldman directors who understand your business, ex PE associates who craft your narrative, and world class designers who make it all look effortless. Go check out collateral.com and mention the Powers podcast and they'll give you a complimentary one pager. Enjoy the episode.
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B
After college, I didn't want to quite give up on the tennis dream. And so, and I was, I was a good tennis player. I wasn't, I wasn't great and I knew I wasn't ATP level. But there are other tours that you could play on. So it goes ATP Challenger, Satellite and Future.
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A
Okay?
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B
And so ATP ends up being top 200, 250 and then it weaves its way down from there. And so I able to get into a tournament, a challenger tournament on the big island of Hawaii. Okay. And so why not? I ended up going out there playing in that tournament, doing okay. But what ended up happening is I met a bunch of other call it washed up tennis pros that were still trying to make it on the tour, developed a good network with them. We would train, we would earn money by teaching tennis and then we'd go play in more tournaments. And it really helped me elongate the, the passion that I had for tennis a little bit longer, knowing full well that more than likely it wasn't going to be a career path for me. And so after six months, I came back to Tulsa, knew I wanted to be in Dallas, and knew I needed to start developing a network in Dallas. And so I actually went and got a job at the Four Seasons in Dallas. I was younger 20s, teaching tennis while I was starting to pursue a finance career. And it was during that time when I was out on the tennis courts out in Irving here, that I started meeting some of these more influential folks, really started drafting a plan for what I wanted to do. And as I said, I wanted to go work for a bulge bracket investment bank, I wanted to work in finance and I wanted to be in Dallas, and I wanted to pursue something with people. So more on the people side versus the investment banking side. And really a degree from OU and no internship is not going to get you a job in the investment banking world. So I called up an OU alumni and he was the top guy at RBC named Rob Braver, played tennis with his daughter, and he said, matt, I could get you a job interview, but I can't get you a job, obviously. And I said, that's fine. And so I interviewed at RBC and once again, no experience, younger 20s, a guy named Andy Teller, who am I so grateful that he did this, but gave me a shot and hired me, went through the training program, was subpar at my job at best. Nobody wants to give you money of significant means when you're younger 20s, especially without experience. What ended up happening, though, and so blessed and fortuitous here because of that network in tennis. I developed a relationship with a corporate executive here. And it just so happened that he was spinning out part of his pipeline assets into an MLP and wanting to take it public. And rbc, being the firm that they were in the energy patch, was number one on the league charts at the time, doing that. And this individual didn't have a connection to RBC at the time. And so I made the connection, helped make the pitch. We ended up winning the business. We were the lead underwriters for this very large IPO that I had brought in. Really, once again, right place, right time, so grateful for that moment. And I still talk to that individual today on just how instrumental that referral was for my career. Because what I was able to do then is, is really take that and go interview at that bulge bracket investment bank knowing that I at least was starting to develop a track record, didn't have My mba, which was really important to that investment bank, but ended up meeting a team at Credit Suisse. Credit Suisse was in a great position. This was right before the gfc. Great firm, bulge bracket number three ish out there behind a Goldman and a JP Morgan as far as the private banking world goes. And ended up getting that job. And I hated that job. It was everything that I probably would have expected it to be that I didn't want, but yet I found myself wanting to pursue it because really what Credit Suisse was looking for was the upper tier clients. So 25 million and up and dial in for dollars. This was, you know, 20 years ago and so went over there and it was really somewhat lucky in the sense that I was with the one firm that didn't have to cut everybody in their associate programs. Credit Suisse was in a good position prior to the gfc. And do you know how those platforms work when you go work in private banking for the big bulge bracket investment banks?
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A
No, I would love to hear it. And if you could answer, why was bulge bracket so important to you?
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B
Good question. So it gets in the back of your mind that the nine largest investment banks in the world are considered bulge bracket. They get the deals, they have different governance, they have different training. And really it's all the brand names that you would think of. There's eight of those today because Credit Suisse got acquired by UBS a little while ago. But that was what was really important. And I think it just attracts a different type of clientele. It should make your job a little bit easier if you're trying to attract that clientele into some of those firms. So therefore you can really raise the bar with the type of families that you go at after. And so the way that those platforms work is they'll hire somebody directly out of their MBA program, they'll pay them a good salary. But what they require you to do is get your licenses, which is not hard for any one of those individuals. A lot of talented individuals go into those, those programs. They give you a couple months to get those. You fail any of those exams, you're fired, which you should be because they're paying you to train. And then what they do is they put you in, quote, unquote production and they say you've got to go raise capital and invest in these proprietary products essentially. And you're going to get a production number based on that. And what they end up doing is about after a year they start cutting your salary off. And so now you're beholden to the production that you have.
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A
Yeah.
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B
And then the really hard part is after about a year, they start cutting off the bottom 10%. And so I still have in my office today my production report that I do share with some of the team every now and then because it was, it was just hard. And what it forces a lot of those individuals to do is just make bad decisions because you're trying to develop these big relationships and you're only beholden to a sliver of what they're trying to accomplish. On the uber high net worth side, stocks and bonds and maybe some of their proprietary products alternatives were just becoming part of the scene. But really then that wasn't as prolific as it is today. So I ended up somehow, some way surviving for four years at Credit Suisse. That was an incredible accolade as far as my career goes because I started there in 07. GFC started hitting and when that happened, they wiped out our, you know, maybe 50% of the associate program that I was a part of. And fortunately I was with a really big team and that big team really buckled down. We had some really strong relationships. We had an institutional trading platform too that we were a part of. But ultimately what ended up happening is three partners were there and I was kind of the younger whipping boy. And one of those partners left to go run a single family office. One of the partners just left. And then it was just me and the main partner. And what happened then was Credit Suisse came to me and said, if you're going to be part of this role, you have to have your MBA. It's got to be from a top 10 school, you've got to go right away, you're paying for it and we're going to move you to New York City. And so that was. It was hard to stomach because my wife and I, recently married three years prior, we're trying to have a kid. And that disrupted quite a bit. But I was trying to hang onto a job, especially during that time. And Credit Suisse knew that they had you, you weren't going to go anywhere else. So I applied at SMU. It qualified for a top 10 school at the time, got in in their executive program. And it was a program that you would go to every other Friday and Saturday. And so I had to take my vacation time to go to that every other Friday class, which I had to miss most of the time. And I was living in and out of New York City and we were trying to get pregnant just layer on layer, layer on layer. But I think in Moments like that, you're trying to get through those as a couple and as a, as a younger finance professional, trying to figure out what you want to do. And it was very formative in the sense that I knew that was not what I wanted to do because I wasn't able to tap into the side of the client that I really thought was the most impactful. And that was everything other than the stocks and bonds component. That is a part of what families are solving for and that needs to be it. But it's not everything. It's not A to Z. Especially once you start getting to the uber high net worth. You start tapping into consolidated reporting, you start tapping into estate planning, tax planning, tax mitigation, all the different alternatives, investing directly into businesses. And then how do you track all that? And really you can't do that at a firm. There you're beholden to what they have as far as the products that they're placing out there for you. And they're good products. But that a lot of times that's just not what family offices are trying to solve for. Or big families good experience, happy. I had it very formative. And a big component of what happened at my Credit Suisse SMU days is I got to meet a Dallas based family because of that. And that family was the Crow family. Really had great rapport with the family, specifically Harlan, he was just starting to take over the holding company at that time. Trammell had just passed and they were trying to figure out what the family office looked like. And at that time it was a rather large family office that had been through a lot. So a lot of lessons learned, a lot of mistakes made a lot of connections that they are able to wield into what they do. And ultimately they decided, and their board decided to open up their single family office construct into what's called a multi family office. So allowing multiple families to invest alongside that single family office on equal terms. And really the thesis there is you get to share in the deal flow, you get to share in the costs associated with that. We're going to be running your, your family office from A to Z now and you get to do it alongside this mega family.
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A
And what's the benefit to the mega family to do that?
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B
Good question. And I have this conversation a lot with, with families that are thinking about doing that. What the original intent was was really to cover some of the gap from some of the assets that sometimes leave when you transition from first gen to next gen. So there's that component that you could then help fulfill some of those assets because he already had a very expensive family office team. So that would help supplement some of the allocations. Number two is fees and costs associated with that family office.
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A
Right.
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B
We had 10 investment professionals, 20 back office professionals, and within the family office there was 54 family members. So that was quite a bill every quarter or month for that underlying team to be able to have. And you had to have it. And so it was also deal flow, if you think about the families that you're going to attract and hopefully you're going to do investments alongside them. And a lot of times those individual families are pioneers at certain sectors. And so now you have access to some of those pioneers that can get you into some of those opportunities. I mean, you know this better than most. It's just because you open up a family office and think you're going to get deal flow, that's, that's not necessarily the case. It takes relationships and it also takes the notion that what are you going to do for me? What are you going to do for my business if you're on my capital stack? And so now you start opening that up to other different segments and different entrepreneurs and juggernauts of the industries that they represent. It's really helpful. That was the thought. But back to me being able to work alongside that family. I got the call from Harlan and Ann right before the launching of that business to come help with leading that venture along with Kirk Reimer and Silverman and the CIO and crew were already there and I was just, I was so happy to be able to do something like that for such a well known respected family and really doing something that, yes, has been done before, but really not at that scale. Right. And the day I graduated with my MBA from SMU on a Friday, celebrated on a Saturday, started work on a Monday at Crow and was ready to go. We had just the Crow family and we started building out the, the additional multifamily office team and really had a lot of success with what we brought as far as the pedigreed family office. And we were one of the few in Dallas, let alone Texas, that were doing it. There's, there's other firms. Absolutely. And they do a terrific job. But we were open for. Yeah, it was not a multifamily office with, you know, just five or six different families, which is great too. We were open to bring on a handful of families and we didn't really know what it would look like either. Like this was a, this was a new business that we Were developing in a 70 year old holding company which also created some issues, as you can imagine.
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A
Yeah.
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So had a great experience, did that for five years. Really learned the ins and outs of building what is a multifamily office. This was 15 plus years ago that we launched that. And so technology really wasn't around then, which today it is. So it's a little bit different on how you could scale it. Right. And we made a lot of mistakes from day one on how we designed it, but you know, we were able to overcome some of those. And I would say, Chris, I was good at my job, I wasn't great at the innovation part.
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A
Okay.
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B
And Harlan, I don't know how well you know Harlan, but I've never met him. He loves curiosity, he loves innovation. He told me he hated the MBA programs, but really what he was always looking for was to solve for problems. And it was really neat to see that with him. And he'd really try to pull that out of his employees and his staff. And it really did feel like a partnership. And I felt always like I was just okay at that. I was really good at managing the families though, and that was my role. So big families, we would bring them in, we'd put the big puzzle piece together, we would work on A to Z with that family, build out the team, build out the rapport, all the bells and whistles that go with it. I love that aspect. And by the end of my five year tenure there, we had 32 families, significant families. And I was responsible for 16 of those families and running that side of the business. So like I said, I just so blessed to be able to have that, that experience. Absolutely. There were things that I would do different and things that I do different today, but that was really formative in how I think about the multifamily office world and the family office world in general.
- [20:08]
A
When you meet a family, what are you trying to figure out quickly? I know, like everybody's unique. They say if you've met one family office, you've met one family office. But if you've met one family, it doesn't matter whether they're wealthy or not, they come with a lot. So you've seen enough in that first meeting or that first set of meetings, what are you trying to figure out as quickly as possible?
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B
What are you trying to solve for?
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A
Do they often know that?
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B
You know, that's an interesting point. They know it to a degree. And oftentimes when you start peeling back the layer, they don't know it.
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A
Correct.
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B
Right. For Example, we have three families right now that were close to onboarding. One of those families just sold their business $100 million net young sub 40 years old. And the first response that they have, what does this wealth mean to you? What does it mean to your family? Where do you see this going? All the soft tissue questions. And their response is, I would like to be a billionaire. We get that a lot. Okay, why? And really start unpacking that. And you really learn a lot from these families with how they've thought through that process. Now they haven't thought as much as you would probably think about what the next steps are because they're really just trying to either get their business sold, they're operating something they haven't spent a lot of time now they've thought about it, but they haven't really put the pen to paper yet. And so with this family it was I want to get to a billion dollars because I want to give away a billion dollars. I thought, well that's interesting. Okay, most families at that level, they get real wealthy and it's I want to buy the plane, I want to have the big house, I want the boat, kids to go to private school, I want the country club, I want freedom and I want to start another business in the same. And so you really walk through those examples and then you walk through your experience walking through other families examples and what they did during that time. So for this family, it's all right, you want a plane because that's your time machine. You want to spend more time with your family. Your family's young though, how often are you going to use that? Can you really fly your kids to your boat this weekend? They've got four activities. Is that what you want to and is that what you want to embark upon? Is that what you want to show them during that time? That you could just at a whim, disappear? And sometimes that's helpful, but for the most part you start going through what their lives could look like. And from a soft tissue, you and I have talked about the soft tissue dynamic. Oftentimes you talk to that family and you bring it back to, you've got kids, you're 14 year old. And that's really what this family has. That 14 year old is sitting in that chair over there 20 years from now. How do they describe their childhood up till now? And they'll start opening up a little bit more. And then how does that 34 year old kid describe their lives after the transaction? And it really starts to take them back a little bit. How did that money impact you when you found out that your family was going through that transaction? How did that change things? Did you know about it? Kids are intuitive. They know a lot more than you ever think that they do. But how did it impact them? And you start really pulling back some of the guards on the families once you start talking through some of these nuances, and then you start talking about the other siblings 20 years from now, can they be in the same room together? How did money bring them together? And that's also an interesting impact. A lot of families, as they go through these liquidity events, it's, I think I could bring my family together because of this. And can you design something where my family meets quarterly? And here's the things that they go through. And so we're not talking about investments. We're just talking about getting things organized right now. And what you're passionate about and what you think about, what you consider. And then, you know, leading into with your kids, what keeps them from meeting together? Can they. Can they. And do they want to meet together? And what would you do to protect that? Are any of them working in the family office when they find out they have money, at what age do they actually get some of that money? And that's when you start getting into the trust aspect that we're trying to figure out. 25, 30, 35. And there's books written that 30 is probably a better age, but it's all dependent upon. To your point, the kids, do they change their major when they're 20? Because they just figured that out. Sometimes that can be a positive thing because they might switch from communications to finance because they know that the family mission is, we want you to be in the family office, and we want you to be a part of that. We want you to help build out our legacy. And that'll bleed into our later conversation about why we named it Legacy, why we named it Legacy Night. But with that said it your original question, they don't know. And you want to dive a little bit deeper to figure out one. If they're qualified, you have a general idea by that time, but you don't necessarily know where the transaction went, what the dynamics of it were. We have big minimums to some degree, but we also want to make sure that they're the right match for us as much as we're the right match for them. Can we help you? Does it make sense to have a full service family office, or do we just want to be an outsource chief investment officer for you? While we're just doing investments or do you just want to do one off investments? And so trying to figure out where their head is and then trying to advise them eventually. But that's where it starts with just a very high level conversation of where do you want this to go? What's your legacy? How do you think about your family? How do you think about philanthropy? And that normally bleeds into a lot of other conversations. And this is really how you guide families. And this goes into how we work with families more on a quantitative matter versus a qualitative. But here's what you did, here's how you did, and here's what you should do going forward. Pretty simple to some degree. But with each of those it takes a lot of discovery. So here's what you did. The average 100 millionaire has about 100 line items on their balance sheet. And that includes the different entities. Most of those have flows. But here's how you did is really just tracking what you have done in the past. And that could also include your estate plan, your tax plan, all your different entities, your structures, your different governance mechanisms. But being able to track all that is one of the first components of starting your family office like it's. And there is security in that. And not only that, it helps you prepare for that next layer of how you did. But when you commit to an underlying private equity fund or manager like that, capital doesn't all get drawn from day one. And so oftentimes back to your question on when you're first sitting with a family. How much do you have in unfunded commitments?
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A
Like no idea.
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B
No idea. How are you managing the cash outlay for those unfunded commitments? That could happen tomorrow. And generally that component needs to be a little bit more robust. Now we've had a three and a half percent, four percent money market, period. There are some things that you can do, but you don't want to get cute with that. You know that that capital call is eventually coming and that's important to be able to organize that. But absolutely imperative that when you're going through this exercise that you have more than just an Excel spreadsheet. Right. And that's generally where families start. That's okay.
- [27:57]
A
It's unbelievable. There's a lot of wealth managed on Google Docs or Excel.
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B
Yeah. And to each their own is what I always say.
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A
For sure.
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B
You know, how's that working out and what are you trying to accomplish now? If you're just trying to accomplish building another enterprise and you're just going to do one off private equity deals or deals in general, maybe you don't need it, as robust as everybody's trying to tell you. Yeah, so try and meeting them where they're at is really what I've discovered in the last 20 years of doing this is what you need to do. I'm not trying to force you any, anything, but is that important to you? And as I take you through this journey of describing the pathway into that final leg of here's what we're going to do going forward, you need that, you need to have it all organized. And not only that from a tax perspective. So if you've got those 100 line items on your balance sheet, how are you managing for tax efficiency? What of that is active versus ordinary income? Do you have things that we can depreciate? Are you buying a plane? We should probably buy that plane at the end of the year. If you're planning on selling your business, we should probably sell the business if we can at the beginning of the year because there's strategies that we could employ that could help you mitigate and offset some of those more active capital gains taxes by the end of that year. So if you're selling it in, you know, December, it's not easy to mitigate because long term cap gains when you're active is really hard to mitigate. But there are things that you can do to do that. So back to the point on that first bucket getting organized. And this also comes in to a technology play. So for firms like ours, how are you utilizing technology in order to aggregate a consolidated report for families? And so if you're the average billion dollar family office, your family office cost about $7.5 million to operate, which is
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A
what, 75 bips if you're a billionaire, correct?
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B
Yeah, yeah. And that's, that's, that's a robust family office. And on the technology side, that's anywhere from 10 to 20 basis points.
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A
And, and real quick on that, is it 75 bips and seven and a half million to run? Because a lot of single family office billionaire families kind of run it like a business. Meaning one of my favorite family offices, I won't say their name, but they only invest in funds. They only invest in the S and P. They have a few operating companies and they can run with a five or six person staff because they're not underwriting deals. They told the world, don't bring us an individual deal. Now you could make an argument are they getting alpha or not? But you walk into their family office and it is the most simplistic structure. Then you walk into another family office. There's analysts everywhere, there's pitch meetings going on everywhere. It's two different philosophies of how to attack wealth. And you could make an argument some of it sometimes just has to do with the patriarch. They just want to be in the. It's as much an entertainment vehicle as it is a wealth generating vehicle.
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B
That's exactly right. And teach their own.
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A
Teach their own.
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B
Right. And what you find is somewhere in between for the average. And what we're also finding today is that I'll. A lot of them are starting to outsource more and more. Right. And so managing that team of 5 or 10 or 12 is really hard. These individuals that you employ within your family office, they want to do deals for the most part for sure. And they want the carrier, the upside based on. Because they could go work anywhere for the most part.
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A
Correct. It's basically a pseudo private equity firm.
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B
Correct. Yeah. And especially the way in which you could structure it today for the benefit of those underlying employees. And that really is the bogey too. If you're a cio, you want to go work for a billionaire because that helps you get in the doors of some of these funds. It helps you write a bigger check. But that really is not getting you in some of the doors either. But back to the point on the expense load of the technology component and I heard your friend Ryan mention Addepar and you mentioned it too. That is the gold standard in the industry. You really need to have probably a billion dollars or more in capital to. To have a system like that. And it really does a great job. The way I used to describe it at CROW 15 years ago when we were super users of was probably 75% of the way there. And then we could help supplement some of their shortfalls with analysts and associates being able to do some of the additional modeling, et cetera. Fast forward to today. I'd say it's 92% there. And they have the wallet share by a long shot. Yeah.
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A
And it's sticky once you're on it. It's hard to get off.
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B
It's hard to. Yeah. And you can't really find another group. You could. You could go cheaper and back to your point. Like there might be groups out there that they just don't need that robust of reporting. However, it is portable and so you could take that reporting anywhere you go to. And so if you're already using add a part and you want to work with a group like us, or you're utilizing another group, you could import that data, and it's pretty much pretty good. Now, there's also technology because of the proliferation of alternatives. And so alternatives are not data fed for the most part, for sure. And so there's now technology that will do data scraping into your Addepar component, which is really important. But let me take you back to Addepar, because I think this is important. When Zuckerberg got wealthy and took Facebook public, this is where Addepar spun out of. He said, why is there not a tool in a system where I could have all my data aggregated into one central location without me trying to go hunt it down or have my staff go hunt it down? So he started building out what is today addepar. He hired 100 software engineers, Joe Lonsdale from the PayPal mafia, to run it and created Addepar. And that Addepar tool has been so powerful for groups like us to be able to utilize with our families, because you could. You could really adjust the data so that families can see whatever they need to. It's real time. And the majority of it feeds directly. We also have additional systems from Canoe to Arch that will work with those underlying.
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A
Use Arch.
- [34:08]
B
We're poking into it. Okay. Yeah. And it's interesting because they change so frequently with. With how they view the world and what technologies are working, what aren't. Yeah. But for us, we have quite a bit in alternatives. And so we need to have a robust technology system that could scrape all that data consistently and put it in that Addepar system and be able to spit something out that allows us to advise families accordingly. But also, when you're getting distributions from some of those alternatives, how are those being coded? How are you being taxed? We have families that'll say, I want to tithe 10% this year. They no longer have a core operating business, and their business is their family office. Well, how do you run that exercise? If you now are a professional investment firm and you've made X amount, how much of that is return of capital versus an actual earning? So you've really got to have everything mapped out. And that is something that, in my mind, you have to have on the front end. And so when we launched our business Legacy night, it was imperative that we had the right technology stack, because you can't go down the path five years into it and then decide you want to switch everything. That is a nightmare. So you got to spend ahead of the curve.
- [35:30]
A
Your whole business becomes switching the software.
- [35:32]
B
Absolutely Right.
- [35:33]
A
I mean, I've talked to friends in ypo that do SAP conversions or getting on NetSuite or some of these. And for two years all you hear about are nightmares.
- [35:41]
B
I know. And that, that then families would lose faith in you. I used to work with a family, been on your show before.
- [35:48]
A
Dang it. Now you're going to make me think about it.
- [35:50]
B
There's a couple of those. And as we go through the seed round in our Series A too, I want to talk about that as well. But when I was working at crow, there was a family that very well thought of, very methodical, and as I said, there were still some bugs in the reporting component and we were growing fast. So when you're growing fast, you're taking on a lot of that technology and a lot of the underlying balance sheets that come with it. And so there was a number that was off as I was presenting it to the family in one of the underlying holdings. And he said, we're done here. Walked out. And it was a valuable lesson for all of us to learn. Then you just don't trust the data and then what number's right? But there's 150 line items on the balance sheet. A lot of flows. How are you consolidating all that to give me an IRR and a net moic? And then what are you telling me to do going forward? That whole conversation gets put to the side then. So really imparting upon our team, our cfo, our finance group, there's no mistakes on that side, period. We can't help the capital markets and the geopolitical events going on right now. But the numbers are the numbers and there's no mistakes there.
- [37:04]
A
Okay, let's go back. So you leave Crow and real quick, when you meet a single family office, a single family office can be anything. But a multifamily office has to be something because you can't build something that's unique for 15 different families. So we can talk about the beginning origins of how you build a world class multifamily office. So to this point, you had a lot of experience. You probably started having some ideas. But again, those ideas, like you just said, they're a little bit malleable, but they have to kind of be the ideas. A single family office, if the patriarch chooses to change their mind tomorrow, they can change their mind, you can't. We can talk about learning lessons even in building legacy, but what was the vision originally? What was important to be the foundation going forward?
- [37:57]
B
Yeah, I'm going to go Back to people and the platform. So building it with people that had experience in the family office world, which for some reason is unique in the multifamily office world, which if you look at all of our competitors and the groups out there that are building them, there's nobody from the family office world that's running a multifamily office.
- [38:17]
A
And can I ask a stupid question?
- [38:18]
B
Yes.
- [38:19]
A
What's the difference between a multifamily office and a what, what they present themselves as? Wealth manager that only sees clients with 25 million or above. Is it a branding thing or is there a key differentiation?
- [38:33]
B
I think a lot of it's tapping into the branding dynamic of a wealth management firm that is wanting to tap into the family office world. Okay. And that's okay. To each their own. As I, as I say frequently. And you got to discover that as your, as a client and a user of that. Right. Does that make sense? And really the point that I'm making here is does that underlying team have experience in managing the wealth of families similar to you? Because while you say, and we all say that every family is different and unique and that is completely true, a lot of it is repetitive and there is a common pattern amongst families once you start getting into it. And so it's lessons learned. And so if I've seen 100 families at 100 million plus go through transactions, those are 100 different examples of ways that we've helped either mitigate taxes or set up a structure that they could pursue with their family governance that's going to be impactful for their legacy, or how we've bought planes or staffed houses, whatever it may be, it's helpful to have that. And so if you've started out on the wealth management side, you haven't really done a lot of alternatives. You haven't invested directly in businesses. You don't know how to negotiate the LPA or the ppm. You don't have the systems in place like an addappar, a canoe, an arch, a vanilla. You're not really getting into the state plan at 25 million or below as much. Then it's just a different, It's a different ask. And for the most part, you see how much the uber wealthy has grown over the last 10 years and it's grown by fivefold above $10 million.
- [40:11]
A
Well, not only the uber wealthy that's grown the amount of wealth that's been generated by families in their 30s and early 40s that are still as entrepreneurial as ever that feel this burden, that maybe it's time to start a family. Like just now, I went from making money to now, I just got to manage it. That decision never even came into most people's life for two more decades based on historical patterns. So you're dealing with like a wealthy individual with a ton of testosterone and entrepreneurial spirit, trying to figure out like, where do my loyalties lie? Continuing in the entrepreneur world or starting a family office.
- [40:53]
B
You just went into a whole new rabbit hole. And what I mean by that is, and I'd love to talk about our firm a little bit more on the families that we represent, but the majority of our families are sub 50 years old. And so they've created that widget. They've either sold that widget in its entirety or they've sold part of it. And what they've experienced is this hockey stick effect. And so to that point, how do you bring them back to life and back to the light of what to expect? Well, you're not going to make a 15% net IRR on your portfolio as a whole. You're going to make it in parts of it. Yes, but how do we absorb some of that while still allowing you the freedom to go create. And this is another thing that oftentimes when you're sitting with that family you talk about, which is you still want to be connected to your capital. And so when you start working with a multifamily office, it doesn't mean that we have to manage a hundred percent of it. In fact, we manage it alongside you and alongside your team. And that can enable you to go do investments that you want to. And most of the time, as you start talking through some of the statistics on a family starting over and starting that same business again, that's not a good outcome normally because the nitty grittiness of the entrepreneur is not necessarily there again. And so they end up wanting to serve on boards, they want to go invest in similar sectors and businesses. But to that point, that sub 50 year old can take a little bit longer to educate on what to expect going forward. And to that point, a lot of our job is education and going through certain scenarios of, back to what I was alluding to earlier, of here's what you did, here's how you did and here's what you should do going forward. So you take that middle component now and now that you have all that data, you could look at that middle cohort of here's how I did on a relative basis. So how are you compared to a 60:40 equity bond mix or the MSCI and some other mix. But whatever you want to take there to have some sort of relative accountability to, you have to have the technology to do that. And so that way you could see your portfolio on how it's performing on a net IRR and a net MOIC perspective. And then with that you could then look forward to that third component of here's what you should do going forward. So taking in capital markets assumptions, this is where we think the world is going and we use JP Morgan, we use all the resources that we can in order to come up with what that looks like. But having a clear plan in place with this is how it's going to be allocated going forward. And so this is what we've reserved for this vintage year to be able to still allocate in times like this. So right now there's a lot of opportunities and most of the families out there that have gone rogue to some degree don't have the capital to invest right now. So being disciplined about that component and not getting beyond your skis in certain deals, because every deal looks really, really enticing, especially to that younger entrepreneurial family. And so making sure that there is a plan in place and that we're working alongside you and as you find opportunities, it's remember we talked about this and you can go do that, it's your money. But our job is to keep you wealthy and keep you in the guidelines of what your mission statement is and what your IPS statement is. And this is what that looks like. So it might be a lower allocation to some of these one off direct deals.
- [44:25]
A
Okay, so let's go back to building. So I took us off. You had a clean slate for how you wanted to build this, from who you let invest in the firm, how you were going to build it, how you were thinking about it. So what was going through your mind at that time?
- [44:46]
B
So as I was leaving Crow, one of the families that I was working with had a liquidity event. And so they asked me to branch off from that multifamily office, help them form their own independent single family office. And really as a carrot for me to do that, they offered me a position as a managing partner in their private equity business. And at the time, I think they're on fund seven, eight. I'd been an investor with them for a while. Great group. And I said that I would do that cause I love my job at Crow. It was a fantastic position to be in there. It's probably another session for what changes happen. But I said that I would do that and go help them launch their independent single family office with the notion that we'd eventually roll it into a multi family office someday. But to your point, I needed to have the experience even further than just being in a multifamily office setting. I needed my own track record, I needed to be doing investments on my own. I needed to develop that network on my own. And I really believe that one of the best ways to develop your network in the family office world is obviously being the CIO of a family office. And so I took on that position and really the family gave me a bit of exposure to different asset classes, a lot of connectivity to different networks. I was helping them institutionalize their private equity firm. And so to that point that you made earlier, that's where the bones were also starting to get created on as a single family office. What do I need from a multifamily office offering? And that was really helpful seeing it firsthand that I couldn't operate this the way that I wanted to as efficiently and effectively as I probably could have and should have without a more robust team around me. And so what did I need to outsource? So having the experience at crow of building that and then having the family office experience and then having the principal side of private equity position was really impactful. So after three years, the wheels really started turning and I recognized, hey, I need this for this own family office for the benefit of them. Let's start thinking about what this might look like. But let's include my wife in this conversation because I had already made some leaps and it's not like we had created just a significant amount of wealth because I've left these firms in order to create wealth, you've got to stay at these firms for longer. So I had great experience and I was so blessed to have all that experience. And it really weaves into what I was starting to create, which was a whole and a gap. I believed in the market at that time. And what I went and explained to Megan, my wife, we've been married almost 18 years now, is I see an opportunity here. And what that opportunity is, I see the ability to create really a two pronged approach with a full service family office and an investment arm together. And what that looks like is we're not going to do it with the traditional side, meaning I'm not going to go hire a bunch of call it advisors from the bulge bracket investment banks, because I know what that experience is like. They're going to bring over a book of business, but they don't know all the nuances of managing a family office. They think they do, but they've never really experienced it. They're great at what they do, and there's a lot of friends that I have in that world, and they probably make a lot of money in that world. But explaining to Megan that there's this opportunity to go create and build something here. And her first response was, time out. You have the position. We're happy. We just had kid number three. We don't have the trust. We don't have the trust fund. We don't have the money to go create this like you want to. How are you going to do this? And if you do decide to do this, which I want you to put a lot more time into this venture, I have two qualifications that I want you to have and keep at the forefront as you're building it. One, you got to find the right partners, and you've got to empower them. So this is not the Matt Show. It's like, I agreed. I've been through this. I know it's not about me. And you need to pay your people because anything less is not acceptable to the families that you're going to represent. And it's not acceptable to your family at home, because we want you home. All right.
- [49:02]
A
She's smart.
- [49:03]
B
She is wise. She should be on the show, but wise words. And God gave me Megan, and I am so blessed to have her in my life. And she speaks truth. But she was also supportive because those are tough conversations. She doesn't see the world like I do. As far as this opportunity set at this given time, and my belief that we can make this happen. But we. We've never had an entrepreneur in our families. We both come from great families, great childhoods growing up. And she loves security. She doesn't necessarily want that, but she wants that for me, which I. I love that. So what ended up happening next is.
- [49:48]
A
And real quick, what was the timeframe between that first conversation with her and launch? How. How long?
- [49:54]
B
Nine months before I got my seed funding. Okay. Yeah. Yeah. And so I still had to talk to the family, too. And that was. That was, I would say, an easier conversation than Megan, but still a hard conversation because they were not ready to roll that into a multifamily office. They loved the independence, and we just had different views of that, and that's okay. They ended up being supportive in the end. Yes. But when I told them that, they said, all right, go raise the capital. You're now cut off your comp. And you lose your carry. And I knew that was happening. So we were prepared for that to some degree. But that's hard. That's hard because here you are at a very good position in our world, and yet your views over here are stronger than your views over there. And to me, it's never been about money. I always wanted to be a part of creating something that was more of a legacy asset that I could be a part of and my kids can be a part of. And so started putting together the nuts and bolts for what is now legacy night. And I went all the way back to, yes, the crow years and the family office years, but I even went back to my SMU entrepreneurial class, where I actually built for that class an ria, a multifamily office venture, as part of my grade. And so I was able to take that, utilize that PowerPoint, that Excel model to some degree and manipulate it in a big way because it was not good, and start building out the nuts and bolts for what a multi family office offering would look like, hiring for the most part, a bunch of single family office individuals and putting first and foremost the family office nomenclature into the multifamily office endeavor. Building out the investment arm, building it out with the right technology, and so coming up with a business plan and an offering. And so in that business plan, as you model it out, came out with a $10 million valuation out of the gate. And what I needed was 2 1/2 million dollars of operating capital. And that was based on a three year forecast of what I thought we could bring in based on current margins, multiples, and then discounting that back to today's dollar. That's how I came up with the $10 million valuation, which was probably a little aggressive considering we didn't have a team, we didn't have a business, but we had to start from somewhere and it had to be out there that you're going to be able to buy into at a 25% level into the GP of this startup multifamily office in Texas. So just a vision.
- [52:36]
A
Has anybody else done it this way?
- [52:37]
B
No.
- [52:38]
A
Okay, so you kind of invented this, right or wrong?
- [52:40]
B
Yeah, that's exactly right. Yeah. And generally the playbook, and I knew the playbook, the playbook was to hire books of business and others did that. And great. I felt like it would be better off and our families would be better served if we had the technical expertise of both the investment side as well as the family office side. And that was unique, but it was also unique offering then to families when you went out with this seed round. So as I created the pitch deck and the model went out to 26 families, and those 26 families I had met over the last 15 years. And so I had conversations with them with the ultimate goal that everybody had to stay below $500,000 because you didn't want them to be more than 5% ownership, because then you'd have to include them on the ADB form. Adb and so kept everybody below that went out and pitched those 26 families. And ultimately, after about six months of no salary, no compensation, my wife and I set aside enough money to invest in that opportunity as well, which wasn't much. And we set enough money on the sidelines, too, for 12 months of spending, because once again, we didn't have anything coming in and we didn't have a ton of savings. We had some. But this was that conversation with her, we're going all in, and I believe in this. And she eventually believed in it. But it was a very scary and in a moment that I look back in life and I'm a little reluctant at times to say I would do it again. Because you look at your family and you're like, how much risk did I just put out there for them? What if it didn't work?
- [54:27]
A
Optimism and naivety is a powerful drug,
- [54:30]
B
and I think that is 110% true here. And you don't know what to expect. And a lot of times, as you know, as you raise capital, and I feel like I'm somewhat in tune with that world, it never works out the way that you think it will. And somebody told me during that round, too, one of our board members, Matt, it always takes longer than you expect, and it always takes more money than you expect. Okay. And so pitching those 26 families, I learned a lot. One of the first pitches I made, which was probably not the best order to go into, because you also want to think about order as you're raising capital, was Cuban's family office had a relationship with them, specifically Abe, who was running Mark's shark tank businesses. And so approached Abe with the opportunity for them to invest directly in our cap stack, knowing full well that, you know, they're a group that wants control, they want naming rights. So that probably wasn't going to work. But out of that, Abe really said, I like this opportunity. It's something very unique in the marketplace that I haven't really seen before. Would love to consider working with you on it. So Abe joined after we raised the seed round as one of the original partners. Abe's great on the consumer side. As you know, his network is probably better than anyone else's on the family office side. And so that was exciting. I think that we got that accolade. But back to the seed round raising. We ended up raising it from 14 families. All the capital came in the door on October 15, 2019. I showed you that picture in my office of the bank account when it came in. But what that did is that really allowed us to put our board together, put our partnership together, put our tech stack together, put our business plan. And we were off and running from day one. Really knowing what this looked like and being able to model it out specifically was really helpful on what to expect. And so we end up getting our Registration January of 2020. The last family that we had come in on the seed round also had family office assets, which during that time period, just down on your hands and knees praying to God that you catch a break. That was a break. Fantastic family. They're still with us to today. We've never lost a family on the family office side, but they came in with capital. And so January 2020 registered with the state. And so the way that that works in the RIA world is you have less than $100 million that you're managing, you register with the state. When you have more than $100 million, you register with the SEC. And there's not that big of a difference there, but it is important and I'll get into that a little bit later. January 2020 and then Covid happens March 2020. And for us, that wasn't that detrimental. In fact, we were able to pivot. As I mentioned earlier, we had our legacy side and we had our night side. Legacy was full service. Family office night was more one off investment flow. So we were able to really tap into the lack of deal flow that came out of COVID So a lot of things shut down. You didn't have conferences anymore. Family offices were really scrambling to take advantage of some of the distress in the marketplace.
- [57:34]
A
And.
- [57:34]
B
And we were really a big conduit for that. And so we ended up really being out there in front of a lot of these family offices, putting together SPVs and going in, investing into one off thematic investment opportunities. While we built out our family office arm and really had the mindset there of every dollar on the business side that came in. We were going to hire out for that family office side so slowly leak into a full service in house family office. But that was going to take time. So had a Good first year, ended up getting a little bit above 100 million in that first year. Second year, really bleeding into that family office dynamic. We were still a little bit new on the street, but starting to really poke into some of these other families. And our team was becoming much more robust. We were bringing in more partners on the family office side, and we really had a good offering at that time. And that second year we ended up getting to 500 million and then slowly into 750 million. And by the way, that original business plan taking you back there on the seed round, there were really three different thoughts on where I thought the business would go from a management case to a base case to a worst case. And on that management case was a billion dollars in aum. And that's always the bogey for firms like ours. In seven years, the base case was 750 million over that time period and the worst case was 500 million. And so in that second year, we had just met our worst case and then flowed through to our base case. And then in that third year, we got to that billion dollar mark. And that's when you start to one, your business becomes a lot more valuable, which is really just noise in the market to me. But families then start to look at that a little bit differently too, on attaching themselves. They still want the boutique nature. We're not owned by some big PE shop, we're owned by all the partners and people working there, which is important to them. And we've limited the amount of families that we're working with on the family office side. So we try to take on three to five families per year, and we stuck to that. Average net worth today is 250 million. On the family office side, we take less than that and we take more than that. So we try to work with families in that regard. But getting to that billion dollar mark was very important for us. Next year we slowed down a little bit, got to 1.2 billion. And that's where we pivoted our business a little bit in the sense that we had a couple of these really big families come to us, prospective families. That said, we really like what you're doing here. We recognize that it's pretty unique in the marketplace to be a part of this single family office consortium where you're just focused on the uber wealthy services, et cetera. We'd love to have the opportunity to own part of you. And so we hadn't really thought of that in the past for any new subsequent round, past the seed round. So we talked about it and do we need more capital right now? Are there other areas that we need to poke into? And I really challenged our partners at that time. We have six partners at Legacy Night now that help run the business. They're very impressive, to say the least. And at that moment, I was able to challenge them. What do we need to make our business better for our families that we represent? What do we need to make it better for you in the future? And so we laid out a plan at that point, and in that we, we launched an ocio, a middle component to what our family office was over here and our investment arm was. And so what that looked like was full service family office. We would meet you where you're at. So most families start to put together their family office with an accountant, and that accountant is then starting to do deals and they're starting to do everything and anything for. For the family office. Well, how do we help supplement you while you're going on those endeavors? Doesn't mean that that accountant doesn't need to be there, because they actually do need to be there. But how can we help supplement around it to where we're doing A to M and you're doing the rest? And that was really helpful for families to start to see that. That, oh, I could build out my own single family office, have the independence that I need. And I know that I've got this robust team of 30 individuals that are working in the background for me, and I could still do deals. I could still put this family office person in a position where they could do what's in the highest and best use of their time because they've been having to do all this stuff. And that really came from my experience in the family office world, which is you're doing everything, and that's probably not the highest and best use of your time. So how do we elevate that and make it more efficient from a cost perspective? Now you're sharing in that. Add a park, canoe, all the technology expenses, you're getting better deal flow because we now have this robust team there. But you're also able to negotiate with that underlying GP in the sense that you could probably write a check for five to $10 million yourself to that opportunity. But we're able to put together a vehicle and an opportunity where we could write that $100 million plus check. We can negotiate the terms on your behalf. You're going to be better off going through our vertical than going through your vertical on your own. And not only that, we have a group of sophisticated Investors over here, if it's a direct deal, that could really help that underlying business in some way, shape or form. Doesn't always work out that way, but it can. So the full service family office running at A to Z. We really pulled forward during that time period when we were considering this round, what sort of talent we needed. So how do we think about the deca billionaire of the world and how they would design their single family office in house? And then how do we offer that out to families to be able to take advantage of that? And so we were really at that inflection point where, all right, we have a couple spots here. Tax strategist in house, bookkeeper, portfolio manager, robust investment management team, real estate team with Wes running the head there. Wes is a stud. I know you know Wes well. And so we pulled forward that talent. We went out and hired a guy named David Meaney to run the OCIO division. So David was helping run T. Boone Pickens family office for 20 years. I've known David for a long time in the family office world. And just an incredible person, well connected, understands that world really well. And then we'd keep our syndication arm. And so really the thought there was any family with 25 million or more in investable assets, we could help provide some sort of incremental value between the full service family office, the OCIO or the investment arm.
- [64:27]
A
And the difference between the OCIO and the investment arm is on the investment arm, those are deals that y' all are bringing forth on the OCIO is, hey, I've got a deal.
- [64:37]
B
Will you look at this for me to some degree. So the ocio, think about it as like an endowment. Yep. And so if you're a family office and you're saying, I've got that accountant in here, I don't need all these other services. I'm a little bit more mature. I just need help with the investment side and making sure that I could get an allocation to these 40 to 50 different opportunities and know that it is institutionalized to some degree. Somebody's looking over it. And I don't have this one individual looking over all those opportunities because I know that I'm not going to get the looks. And then the one off deal flow is just when we have opportunities that we need to size up or scale up or can build a more robust LP stack. That's where we then go out to other families and they have the opportunity to opt in or opt out. And so back to the point that we're at, at that $1.2 billion inflection point. We decided to take the business out to a third party investment bank to get a valuation done in order for our families to then invest in the business. We weren't going to do the valuation ourselves, so took it out, got a third party valuation done, went to those original seed round investors and offered them an opportunity to tender out of their shares at a pretty good multiple, take it or leave it. And so some of them took it and a lot of them didn't take it. But what that allowed us to do is really swap in some of the newer families with some of those existing families that wanted to lock in some of their gains on the legacy night side. So good outcome for both families. For both sides. And we ended up closing that round a couple, I GUESS it was 18 months ago. It was a $20 million Series A round. Put a valuation on the business, enabled us to build out the team more robustly in house to get to a certain point where we had everything in house on the family office side. So one stop shop and that which
- [66:25]
A
is what is a, what's a vertically integrated family office have?
- [66:28]
B
So everything on the technology side that I mentioned earlier. So, and that includes the different components of financial planning for how you're navigating the world of your estate plan.
- [66:40]
A
Okay.
- [66:41]
B
And so that's a group that is called vanilla. And so as part of your family office, how are you communicating to that next generation how the estate plan flows? And it's important to have that technology in there for families to see for how they're making decisions too. But let's say something happens to you and nobody else really knows where things are going, how it's going, where the documents are, it all lives there. Not only that, as a family, a lot of times you have legacy assets that you've invested in that you don't want anybody to ever sell. And so oftentimes that lives in there. This is why we own the hotel across the street. You're never going to sell it because that was mom's wishes. This was her place. And so a lot of times you're memorializing what that is in there. So to the point on the full service family office. So having everything as far as operations go and making sure that the right technology, the CPAs, director of finance, everything lives from that first component that I mentioned earlier on. Here's what we've done. And then that next component of the family office world from an investment management. So how are you looking at investments? What is your in house thesis? What are you Proactively pursuing. Because as you know, a lot of these firms, they open their opportunity, the good ones, and then they close it down right away. And so making sure that you have the team that has the connectivity where they are, a call from that underlying firm. Right. Which is really important to have. Back to my original thesis on having the family office heads of state. We had David Rubenstein and John Gray in our office in the same week a couple years back. And it was a pretty neat thing for our staff to see given the magnitude of success that they've had. But they want to be working with groups like us where we are representing these family offices and can really combine an opportunity between them that makes us look like an institution. So that robust accounting, robust back office, robust director of investments. We just hired one during this time period too, Garrett Bailey, out of another multifamily office. Then we hired another individual out of another multifamily office right underneath him. And so really building out that platform of opportunities where we are more proactive than reactive. So to your question on building out that component, most family offices are just reactive to what comes in their door. How do you get to the point where you are looking at the world and seeing some patterns but being more proactive on going out and finding best in breed managers and opportunities then. So we know that this group is going to raise money a year from now. We need to go talk to them today. We know that we already have allocations to this group and they're only given the co investment opportunities to this other. Let's develop a better relationship with them. That's where it comes from. So having that, that director of investments that's really queuing in on some of those thematic plays in the marketplace, especially as quickly as AI is going right now and making sure we have allocations to those top groups is paramount for how we do it. And then the family office component. So how are you advising these families? Who's leading that charge? And so when we launched this business and that was the side of business that I ran at Crow, so I have a firm understanding of what I would like there and what would make sense. And so from really that seed round met an individual, McCall Tomney out of J.P. morgan. He was my coverage out of J.P. morgan out of the private bank. And I knew that I needed more of a technical expertise, somebody that was very hungry, could understand how to work with big families, the right questions to ask, the right demeanor. He's a former athlete, which was really helpful to have hired him as a VP right in that seed round. And he's elevated himself all the way to partner and runs our family office site and has done a fantastic job. And that really shows our younger staff, even older staff, that, hey, you could rise and we will promote you and we will put you in a position to succeed, but you've got to show me that you can do that.
- [70:58]
A
Right.
- [70:58]
B
And he absolutely did, and he's crushing it. And it feels good to have that because I know that position thoroughly. But you need that advisory work. And so around that, we've also added in tax strategists because of a lot of our families selling their business. And how do we bring that in house? So rather than go to the tax planners, etc. Outside of our firm, which we do, they're the ones doing the documents and executing on them, we have to have a firm understanding of what everything looks like internally for that family. Because a lot of times that estate planner or that, that tax planner, they don't have the full picture. And it's important that our group has the full understanding of what you have everywhere. In order to talk on your behalf with that underlying group.
- [71:42]
A
You said McCall knows the questions to ask. What are two or three questions to ask?
- [71:48]
B
What is your legacy? What do you care about?
- [71:51]
A
And the truth is, like, just because you have a lot of money doesn't mean you've thought about that.
- [71:57]
B
Exactly. Right.
- [71:57]
A
You could almost make an argument because you've spent so much time making money, you haven't had time to actually think about the other thing.
- [72:04]
B
Yeah. And you're thinking about it differently afterwards. And we always say in our positions, it takes you a while to realize you're rich.
- [72:12]
A
Does anybody ever just say, like, at this point, we don't really want to even think about it, Just go make us money.
- [72:18]
B
It's interesting out there in the marketplace, a lot of wealthy families get the advice to do nothing. Yes. You've heard that. Yeah. That's good advice. And that's really poor advice. It's poor advice in the sense that there's so much that you could be doing to set up.
- [72:33]
A
So maybe on the investment side, do nothing, do nothing. On the family office side, do a lot, do everything. And also go talk to that family office before you've ever sold.
- [72:42]
B
Absolutely.
- [72:42]
A
A year before.
- [72:43]
B
That's a great point. And in fact, I told the family that the other day, you have a kid that you want to work in the family office. You're selling your business maybe in a year, set them loose. Set up your family office today to where they could go create a network where they're learning and engaging in these other family offices, because that's also where some of your deal flow comes from, lessons learned. But you're exactly right.
- [73:02]
A
Obviously, when the kids are young, the parents probably aren't saying, we want you to be part of that. That's just kind of for you to know as legacy. This is some of our wishes. Is there an age or is it a maturity level? Or maybe when they were 12, they thought, we do want them to be part of the family office by the time they're 21, they realize, like, we probably don't. Is it more just a wish that you're aware of and know, or do these families kind of begin communicating that to that individual over time? Because I see it in two ways. I see it on one end as like, hey, it's nice for, as a parent to let your child know, like, I want you to be a part of it. You meet tons of kids that are burdened by the idea that they feel like they have to be a part of it. And then there's some that probably know and have the courage to say, thanks, but no thanks.
- [73:53]
B
Yeah, but it's.
- [73:54]
A
It's kind of that middle crowd of like, you can almost screw your child up by putting any weight on them because they might love you as a parent. They don't want to disappoint you as soon as they know, like, your desires. That is like, I've seen a. I've heard and seen a lot of dreams get crushed in that moment of, I wish I could be doing this, but I've. This is just what I gotta do.
- [74:17]
B
It's hard.
- [74:18]
A
So does it kind of stay in a vacuum at a high level? And it's. As kids grow older, they're observing before that first conversation of we want you in, or is it again, every family does it differently.
- [74:30]
B
In my experience, you hit it on the head. Every family does it differently, yes, but there is that drip throughout time. So my daughter Olivia, she's 14, she came to me the other day, and she's got to decide for high school does she want to be in education or does she want to be in business? And for us, like, my dream, my vision for Legacy Night is it's a legacy business. I want one of my kids to eventually work there. They don't have to work there, but I want them to have the opportunity to work there, whatever capacity it is. And so just with that component, I could say you should probably think about business. And here's why. But if you want to do education, that's great, but let's talk about it. But here's where I see the family legacy going and you could either be a part of it or not. So to your point, which is great, it starts today and it bleeds throughout time. And there are certain times in there where you really want to pull the rip cord, but it's hard. And so what we try to do, and we did this event last year where we brought all of our families, which we have about 15 families, core families on the family office side, we brought them all into one room. You could bring your next gen if you want. And all we're going to talk about is next generation wealth planning. What does this look like? And every one of them came, they absolutely loved it. We had a moderator. So it wasn't just us, we had a moderator come in and talk about that component. Like when do you tell them? Why do you tell them? What do you tell them and what are some lessons learned? And so we had some of our board members come in there. We have a 80 year old board member that's had his own family office for 50 years. And so there's a lot of lessons learned that he's had. It's iterative. Like you're going to have a lot of times where you're having to have the same conversation over and over, but your family dynamics shift and change. And so to that point, I think frequent communication, as we know kids are intuitive. They're going to know a lot more than you think they know about how mom and dad travel, about how we travel as kids, about the stresses that they have in life. And I think that's another important component here that you really need to dip into, which is do they know how the family wealth was created? Oftentimes kids wake up on second, third base and it's like that was easy. They don't necessarily see the stresses. And oftentimes that starts with the family mission statement that bleeds into what you just mentioned. So what does the family stand for? How did the family make their money and where do we believe this money should be going? How do we want it managed and how do we think we should distribute it? And so from that really wields itself to a lot of different components that next generation could lean into. But now it's memorialized. And so I would always encourage families from day one. What is your family mission statement and what are you about how was it made and what do you want to transition on? There's families that don't want any of that money going to that next generation. We're in conversations with one right now that just inherited a couple hundred million dollars and it messed up the generation prior. They want nothing to do with it, and that's this scar tissue that they've lived with. But they've grown up differently. They've always had wealth and they saw the destruction of that. So how do we create something based on historical standards and historical representation from some of these other families that helps you make better decisions for what that could look like as you move forward? Having wealth is a magnifier. When a lot of times these transactions occur, it amplifies who you are. If you're a philanthropic person, it's going to amplify your philanthropic, philanthropic desires. If you're somewhat of an a hole, then you're probably going to be even more of one. If you want to create business, if you want to create opportunities, you're going to have that creative family office that you mentioned earlier. It's hiring a lot of heads of state to go run different verticals directly. So back to the journey. After that seed round commenced, we brought forward a lot of the staff, the expenses, the model reputation, starting to get there. And most importantly, we're starting to execute for the families that we brought on. And there is no better way to build your business than word of mouth from families that have had a good experience with you. And so from day one, I said, we're going to do this much differently. We're going to grow this organically, meaning word of mouth, reputational awareness. And that's different than 90% of the firms out there. If you look at the RIA space, there's 20,000 in the U.S. there's 1700 in Texas. And about 18 months ago, we had a media conglomerate approach us and said, congratulations, legacy Knight, you're the fastest growing RIA in Texas. I thought I had no idea. And how did you know that? And so what they did there is those 1700 firms file what's called an ADV every year. That has your assets under management, the amount of staff that you have, who owns the business, what you charge, it has everything. And for your viewers, I think that's important. Important especially if you're trying to get a job at one of those firms too. Like, look at the adv. You could Google it. It's out there and we have to file it every year. And so what this group did is it took those 1700 different firms and put a three year kegger on each one of Them. And we were the fastest growing firm organically.
- [80:16]
A
Word of mouth, which means you're not out.
- [80:18]
B
Well, what that means is we didn't buy another team, we didn't buy assets, which I think is important on the upper end of a multifamily office, because that dilutes your culture. So I could go, it could be a $10 billion firm tomorrow. I just need the capital to go buy that team, bring them on board. But the way that I've experienced that is that creates a cultural burden. And not only that, you could break the system if you're bringing all these families. Not only that, I don't want to go buy somebody at 20 times and only utilize half the investments, half the book. But since that round commenced, we've really been able to lean into that organic growth. And we've tripled the size of our business since then. So a little over $3 billion of capital right now.
- [81:07]
A
20 million came in. And so you said you fully staffed the family office side, you invested deeper in your technology. What else did you do with it?
- [81:16]
B
Majority of that went what's considered secondary. So to take out the original seed round, we didn't necessarily need a lot of capital.
- [81:23]
A
I figured that because I'm thinking, man,
- [81:25]
B
that's a lot of money. I know. And that headline can scare you a little bit, but these are big businesses too, and they do require a decent amount of capex. And back to my wife's point, you need to pay your people. And so we also enhanced our compensation plan.
- [81:47]
A
You've said multiple times we hire people out of family offices. I think I understand the answer, which is, what about somebody that's been in a family office is unique, obviously industry experience. At the same time, family offices are unique in that they're unique. And also, is your recruiting approach to try and recruit somebody that you've worked with, or are there headhunters out there that specify in family office people.
- [82:17]
B
We've only used a headhunter once, and that was for our cfo Brad, who's a stud. And lo and behold, yeah, cheers to Brad. Lo and behold, Brad lives right around the corner from me. And I didn't realize it and still. But it's all been back to the cultural aspect. It's come from internal. So to your question, we come from the family office world, so therefore we have a good footprint into family office talent. And a lot of times there's just lessons learned. And so, for example, we hired a woman, Carly, out of another family office, mainly on the bookkeeping side. And she could Come in and she knows exactly how to run bookkeeping, what systems to use. That was easy for our tax planner. They came out of PwC, and so that's a little bit different component. But that's all that they were working for was our families at that time. So we'd already already seen him. Same thing with McCall. I was already working with him while he was at J.P. morgan. So it always helps to have that. It doesn't. It's not mandatory. I would say the heads of state, it really has helped because they are the ones talking to the families and can relate to situational awareness of what they're going through.
- [83:32]
A
Well, based on your cagr, it would take us about three more years to sit here, maybe less. Let's say we're at 10 billion. What has to change about the business from two and a half to 10? Your business evolves over time. Or is family office. The way the business is built is it scales really nicely. Like, you don't actually have to create a lot of change at this point. Now it's just bringing in great families.
- [83:56]
B
Yes is the answer.
- [83:59]
A
Yes to everything.
- [84:00]
B
Yes to everything. In fact, I used to not necessarily talk about Aum as much. I do think it's relevant and it's important, especially as you do these funding rounds. It's also relevant and important as we go out to other GPs and try to negotiate opportunities on the investment side for our families. But for the most part, we could double the size of our business this year and not have to hire anyone.
- [84:24]
A
That's awesome. You're out of the J curve.
- [84:27]
B
We're out of the J curve. And that feels really, really good. And not only that, like, not only are you out of the J curve, it's back to that domino effect of doing a good job for your families. And there really is a bigger emphasis from these mega PE shops. And I want to talk about that buying all of our competitors, because multiples have gotten really absurd in that world. And so there's a lot of noise in that world too, which I think is a huge advantage to us on staying independent. Right. And keeping it boutique and not taking on every family and being selective about who they are. And really for my mindset, like, there's not a catalyst for selling the business. There never really has been. I'm careful to say that too much. And my board has corrected me multiple times because life can change.
- [85:15]
A
Life happens.
- [85:16]
B
Life happens. But my intent and my goal is for my kids to come work here. My intent and the goal with naming it Legacy Night to legacy business. It's legacy for the families that we represent because most of what we invest in too is 10 to 15 years. We want to be around for that. And so we've sat through some real serious conversations of groups coming in and offering some pretty big numbers. And the way that it works is firms like ours are valued about 5 to 6% of AUM. And so for that billion dollar RIA that gets that $55 million buyout, they're hitting the button most of the time and saying, all right, that was nice. And we haven't even looked at that. We've said, how do we build it better? And we're at that point where let's build out some other conduits for investments in the future. How do we continue to be a family office that is more proactive? How do we go after some of these other avenues for investing, whether it's wearables or GP stakes or AI, both mature and on the venture side and then infrastructure. There's a lot of ways that you could build this out. To your question earlier as a family office to where families are feeling like they're, they're getting the benefit of investing directly in a business too. And that really has been different for us as we've grown is we've made a lot of direct investments, but if you're going to make one, you need to make a lot of them, right? And we tell our families, especially on that investment side, don't do them unless you're going to do all of them. And we'll help you size it appropriately. But they're later stage investments for the most part, right. So when we go direct into a business later stage in nature, 500 million really is our minimum enterprise value where we could write a 30 to $50 million check and have some sort of material influence on that underlying business. So a lot of times it's not biotech. We don't know a lot about biotech, but we know a lot about certain categories where we could influence that business in a positive way or we could connect the dots to improve it.
- [87:32]
A
You made a comment at the beginning and I'm always kind of curious what the landscape for this looks like. How many family, like you said, dialing for dollars. How many families are out there that have a ton of wealth and are just kind of like hanging out, don't really have a whole lot going, like no structure, really the word isn't vulnerable. They're like ripe for this situation versus how many clients are deciding whether or not they're Leaving their existing situation to come. I hear stories all the time of. You'll just hear it through the capital markets world. Like, this guy's a billionaire. Nobody knows about him. He's got like an accountant and that's it. Yeah, it would appear somebody like that, maybe they're really complicated to move because that's. To move onto a platform because that's worked for them versus people that are in the situation where they want to move. But it's so sticky once. Once the plan's going forward, it's not an easy press of a button.
- [88:31]
B
Yeah.
- [88:31]
A
And so as you see the world of capital out there, I'm trying to figure out what the right question is. Is what does that look like? Are most people actually taken care of or is the. Is the reality most people aren't.
- [88:45]
B
In my experience, the reality is most people are not.
- [88:48]
A
Yeah.
- [88:49]
B
So when. When I look at the. The landscape, there's not enough of us out there. Yeah, by far. And when I look at that list of billionaires, which you generally have to sign up for, by the way.
- [89:01]
A
Yeah.
- [89:01]
B
You have to send it in.
- [89:02]
A
There's a lot.
- [89:03]
B
Yeah. As a family office. And so most family offices don't send that in to Forbes. And so in my experience, there's about five times as many billionaires in Dallas Fort Worth as what's listed on there, for sure. And to that point, how many of those have robust family offices? 90% don't. And so it tends to be kind of cobbled together, which once again, if that's what you want to do and you're happy with that, that's fine. And what we have implemented is a model to where you can attach yourself to one of our verticals and not have to change a thing over here. But now you're supplementing everything to really get a more robust feel. Where you feel like you're being a steward of that capital, then a little bit further, you're getting better looks at deals. You're having a team that could underwrite those opportunities for you. You're memorializing your estate plan. You've got somebody in the middle that's working with all the different components there where you don't have to do that. So then back to that question that you have. What do you want to be doing with your time? Do you want to be managing all that? Some do, but maybe just a sliver of it. So was that your question?
- [90:06]
A
Yeah. And what you find is most people don't even think about it as time being allocated to it. You kind of have to ask them. And they're like, oh, wow, I actually do spend 20 hours a week staying on top of this. No, that was my question. I mean, I'm just always fascinated by how much wealth goes unstructured. And just kind of, I have a guy or maybe to bring it home. What does the typical onboarding look like? Is it a year long process? Is it quick? Again, it depends what the family's got or what does that look like, Whether it takes a year or not. How do you approach the onboarding?
- [90:46]
B
And that really is a key component there for us being boutique in nature, big enough to where we have the systems in order to do it. And I'm gonna give credit once again to McCall and he really has the leeway to say this for his team, which is, we want every family to feel like this is their family office only as we onboard them. And so that does mean that we've gotta be very careful and selective about the families that we bring on board. But to that point, it can take a week or it could take a year. And when you really look through all the different components there, technology has helped immensely on being able to just gather that first component of all the data and then being able to figure out what they have. And oftentimes from a fee perspective, we charge differently because of that dynamic. They could have those hundred line item balance sheet items over here, a little bit of capital cash here, and then a huge operating business. But they need help on all of it. Yeah. And so we have the ability to be creative on how we, we could charge for something like that. But it's, it's a, it's a, it's a very important process to the onboarding process. Because a lot of times what you find is that I forgot I had that account, I forgot I made that investment. I didn't realize that was still out there. Can you talk to that person for me? And it organizes them and it makes them feel more like they are being good stewards of their.