Is "Family Capital" the New Private Equity?

Speaker A: Foreign.

Speaker B: Welcome to the Private Equity Experience podcast. Your backstage pass to the strategies, stories, and secrets that drive value in the PE universe. No filters, no fluff. Just straight talk and expert insights to help you navigate the private equity world with confidence. And now your hosts, Ed Barton, Rory lebhardt and Emily Sander.

Speaker A: Uh, all right. Our pecs boys. Our pexi boys. Boys.

Speaker B: I'll take that.

Speaker A: Sure. Here we go. Here we go. Um, back at it. This will drop in 2026, but because we just kind of got past the holiday season. Yeah. Few, um, little. Few little catch up questions, um, for us to get started. Who are you most yourself around people at work or your own family?

Speaker C: M. Somewhere in between my friends.

Speaker D: I was going to say the same thing.

Speaker C: Yeah.

Speaker A: Uh, okay.

Speaker C: Immediate families. Great. We love them. But, you know, there's a little bit of weirdness sometimes, but. And then the work is. I don't know. For me personally, I'm kind of a different guy outside of work than I am at least in the roles that I've traditionally had at work. For sure.

Speaker A: Yeah. Like a CFO and a CEO for a PE firm is like a. Can be like a very specific Persona.

Speaker C: Yeah. I mean, part of that's just me, you know? Yeah. Like, no, you don't.

Speaker A: Ed. You're Ed wherever you go.

Speaker C: Authentically Ed. As long as I know. I feel like I've put a. A mask on at times in my life, but I'm getting old enough to like, say, eff it, you know, I am m. Who I am.

Speaker A: Yeah. You know, so good for you. Would anyone in your family be able to work at one of the companies you've worked at? Mhm. Rory is like, no chance.

Speaker C: No, no. My, my family, I do not come from a background of like, business people, per se. I mean, um, I was first to go to college, first to graduate college.

Speaker A: Um, I didn't know that. Yeah.

Speaker C: Yeah.

Speaker A: Okay.

Speaker C: Very blue collar family. I mean, great, great upbringing and all that stuff, but definitely I was the first one to kind of like do the business thing.

Speaker A: Yeah. And you. You and I went to the same alma mater. University.

Speaker C: Did we not have the same major also? Political science. We did, Yeah, I thought so.

Speaker A: Of international. Yeah.

Speaker C: Yeah, I missed those days.

Speaker A: Oh my gosh. Okay. Um, and then you didn't let me.

Speaker C: Yeah, yeah. I want to hear what I had to say too.

Speaker D: So I've. I've actually had the kids working in the businesses, so I've had.

Speaker C: That's right, I've had. That's right.

Speaker D: Julia has worked for me. It here at uh, at that Center Bridge, she's done courier work and some filing work and a few of that, a few of those kind of things. Um, Alex hasn't really yet, but you know, she's, she's a really good worker. So the, the kids I think are good workers. Now neither one of them is a scholar, so you know, they're not, I'm not expecting them.

Speaker A: A little bit weird given their father, like started going to school in kindergarten and has never stopped going to school.

Speaker D: That's true. But they're, they are definitely their own people.

Speaker C: So.

Speaker D: So.

Speaker C: Which is cool.

Speaker D: Yeah. So, so they, uh, so I'm proud of both of them because they're both good workers. Um, but both of them, you know, I, I, I don't see either of them doing the, the law SL accounting thing. Um, but Julia is very talented artist. So she could have worked at Fusion Zone as a graphic designer. She's got, she's got those, she's got those chops. Um, she's just, you know, kind of figuring out what she wants to do right now.

Speaker A: I remember when they were little, little and they would run around the office everyone's whiteboard and do little doodles and Julia's drawings were actually quite good, so it's not surprising she grew up to be an artist.

Speaker C: But I've known Ed long enough to know when they were like both born. Whoa. Literally. Yeah, I remember that. It was like first time dad when I first knew I had crazy. Yeah.

Speaker A: Wow. Yeah, I remember them playing hide and go seek my office, but not. They were um. Ah, yeah. I was trying to have a client call too and I was like, they're kind of noisy, but they're the boss's kid. And then you came around the corner. I was like, oh good. He's going to be like, hey, hey girls. Like let's m, Let Emily M. Have the call. And you joined in and they started squealing and giggling and I was like, this is, this is great.

Speaker C: Um, I want to hear you answer your own question, Emily, on that one. Uh, you and I, we don't have kids, so it's not about, it's like I guess I wouldn't recruit my parents into working for me kind of thing.

Speaker A: My, my. So my mom who's passed away was like super smart. Like super smart. Was uh, in finance for her whole life and then made her own business. So she did consultancy for like founders small to medium businesses, high net worth individuals. And she like got their stuff like organized in an order and she Was really good with people. Uh, my dad is like, I don't know, like you. You've met my dad once, Ed. At least once. Intellectual powerhouse, like, just does pension firm stuff. I can't even describe what he does fully, but I know he's extraordinary at it. So. Yeah, they could definitely, definitely work in any place I've been and probably run circles around me. Wow.

Speaker C: Uh, powerful powerhouse family.

Speaker A: Yeah. Yeah. It's funny, like, I mean like true confessions. I, I can say I'm a smart person now. Like I'm smart.

Speaker C: I can say that you are as well.

Speaker A: When I was a teenager, I like legit did not believe that because I grew up with them as examples and I went to a private school, so I was like the well rounded one at the private school and I didn't understand that.

Speaker C: Are you an oldest child by chance?

Speaker A: I had an older brother, so I'm youngest actually, but yeah. Cool. Um, okay, flippity flop question. Anyone you've worked with, would they be like a good family member? Do you think they're good family?

Speaker C: Oh, yeah.

Speaker A: Person.

Speaker C: Yeah. Yeah, I have plenty of people. I mean I can, uh. So many people I've worked with in the past that I've almost like family. They're really good friends. Yeah, for sure. Definitely.

Speaker A: Cool. Cool.

Speaker D: Yeah, I tend to not. I tend to not let any of the good ones disappear.

Speaker C: Yeah.

Speaker A: You collect them?

Speaker D: I do. They're good people.

Speaker C: They appreciate in value mostly. Yeah.

Speaker D: Yeah. Because if you're, if you find, find good people. One, there's just, I mean a lot of people are good people, but when you find good people, you resonate with, you know, it's. That's what life's all about, right?

Speaker A: Yeah.

Speaker C: Yeah.

Speaker D: Hang out with people you like and, and they're good human beings. And then when they're also good employees, I just keep rehiring them over and over and over again.

Speaker C: Yeah, good.

Speaker A: Like being a good human, I think gets you a long way in this world. Like just, just that alone. And then if you have the skill set for the particular company and the team and the role, like that's money. But good human is like a really good foundation.

Speaker C: Yeah, I completely agree with that. It's a good, great place point.

Speaker A: So we're going to talk about family offices. So we've talked about private equity and you know, private companies, but there, there is a whole piece of this where it's, you know, family, office and similarities. There's some overlap, but there's also some distinctions and we just thought it would be cool to share that, that side of the PE world and equation. And Rory, you came across.

Speaker C: Yeah.

Speaker A: A really good article on this. So maybe kind of what caught you recently.

Speaker C: Yeah, and it's not, you know, I'd say the topic of family offices. While by no means are family offices anything new, but you don't see a lot of coverage on it in business publications and a lot of it has to do with how privately held they are. Um, but I think the numbers are getting so big there needs to be more coverage on it. And like, by big, I'm saying, I think by some recent counts or estimates, there's over five and a half trillion, which funnily enough, the, the word trillion actually doesn't even mean that much to me anymore. It seems like it's such a, you know, oh, it's only, only a trillion. But, uh, anyway, there's, you know, a lot of money being held by family offices to the point where, you know, it's relevant to cover on its own. And yeah, know, I guess taking that number further, 5.5, that's looking to like almost double in the next five years. But, you know, think about what family offices are and then we'll kind of get into it is really, it's, it's a, it's a, it's a money management office that basically oversees family wealth. And so if you think about just the logic behind that, so many people have grown their assets over the last decade. In particular, just the run up, think about your own stock portfolio in the last couple years, how much it's gone up. Well, if you have lots and lots and lots and lots of money and that growth is pretty steep, that you're going to have a ton of money on your hands and ton of capital to have to manage. And so you have to learn to do that professionally. And when you're talking about big numbers, it becomes more of an institutional game. And now you find yourself where, you know, in addition to, you know, private equity funds and, and other institutional level investors, there's also family offices that have an allocation in their management strategy to private, basically private investments. So the same things that private equity companies buy, same things that private credit funds lend to, uh, you know, that's enticing to a family office. So it was cool article put out by the Wall Street Journal. Made me think, hey, this is something we ought to talk about because I bet people really don't even know anything about these, these entities.

Speaker D: Yeah. What was interesting, I think is not only is this an emerging area, but really kind of rolling the clock back, let's call it 15 years. That's how Rory got his start in capital raising, actually.

Speaker A: Good point.

Speaker D: We were looking to do some private capital raising during the. And immediately following the financial crisis in 2008, um, because there was a lot of opportunity to buy distressed assets. We were private equity owned. And yeah, private equity folks are basically straight. They had, they had blown all their capital. I shouldn't say blown it. They had invested all their capital in distressed assets. And they're like, okay, well, we're gonna try and get something else, which is, you know, we've got a, a bunch of family offices and things that we're gonna go meet with. And Rory and I went. Flew down to Texas and hung out and drove around.

Speaker C: Sure did.

Speaker D: From family office to family office, pitching. Yeah, uh, pitching, uh, for additional money. And so it was, I mean, and that was, you know, 15 years ago. That's almost, almost 20 years ago now. So family offices aren't new, um, but they're the amount of money that they control and really where they're starting to intersect with and compete with and in some cases replace private equity as an investment alternative is, Is I think a more recent, you know, last. Yeah. To ten years. Um, event. And I think it's going to continue to accelerate.

Speaker C: Totally agree. Yeah. Yeah.

Speaker A: Is it a replacement or in addition to. Or it just depends.

Speaker C: I think it's a, it's a, it's in addition to. But again, you're thinking about, okay, there's only so many deals out there to go do. So a private equity fund that might be competing against private equity funds for deal flow is now competing with family offices and multi family offices. And let me just draw a quick distinction there. A family office is simply like family wealth that's being, let's call it professionally managed. Now, how does that, how does that happen at scale? Well, in some cases, there are multifamily offices that get created so that you maybe have an investment management function that oversees the wealth of, let's say, four or five different families that maybe they, or have some affiliation, maybe they don't. But it's like, again, the point is you can almost think of, um, the family office as its own LP versus a private equity fund or private credit fund that has external lps. So, you know, pension funds, endowments, all of those types of groups that we've talked about, sovereign wealth funds, etc. So it gets kind of down to some of the, the, the differentiating factors within the different types of entity is like, what are the, the kind of outcomes that matter to those types of entities. And there's a whole litany of those. But the other things, too, to think about is, if you're a founder, what kind of partner do you want? And there's reasons to think about a family office as a partner versus a private equity fund. A partner. And then lastly, if you're working for, either directly or indirectly for a family office versus private equity fund, also other things to consider. And I've. I've had the opportunity to work m. Indirectly, I would say, for both family offices and, uh, private equity funds. And they're different. They're definitely different. Yeah.

Speaker A: So family office owns the capital. PE firm manages the capital.

Speaker D: Slightly different dynamic, I think, with. With one caveat. So I. I think that's. That's the case. Except that the family office, we've talked a lot about how the private equity, how private equity is structured, how their fee structure works. So they've, uh, got, you know, the two. Well, in a family office, once you're starting to get nine figures worth of investable capital, at that point the family office is going, look, I can hire a couple of these, uh, PE guys, and instead of giving up 20% of my profits and 2% of my capital on management fees, I can capture all that and I can hire some really good folks. And the difference in family offices, and I know we'll get into this a little bit more, is there. As Rory noted, there's a. There's a difference in both, you know, patience and what their investment profile looks like and how liquid they have to be. And so you may have a family office where really they're going, look, we're managing for generational wealth.

Speaker C: That's it.

Speaker D: Uh, so we don't need a lot of liquidity. I don't need to continue to raise funds, so I don't need to continue to cash stuff out. If. If I like this investment, I could hold it for 40 years because I don't want to kind of raise additional capital. I. I've got the family capital.

Speaker C: Yeah.

Speaker A: Okay. And that makes a world of difference to a, uh, potential profile is different

Speaker C: in a lot of ways. I mean, you know, private equity fund is, I would say, largely dependent on use of leverage to make investments because of the return profile as it delivers to LPs. Whereas the family office, you know, may or may not use leverage at all. Most of the time, if they have real estate holdings and stuff, you got to use leverage. All the sense of the world and that sort of thing. But more moderately used for sure.

Speaker A: Hmm. M. So you mentioned, uh, a family office goes, hey, I want to hire someone or multiple people to run this for me. So is it kind of like in.

Speaker C: In football terms?

Speaker A: Is it like the owner and the GM and like the coach, like, I'm

Speaker C: going to hire, run the operations for me?

Speaker A: I don't want to think about it.

Speaker C: I think I'd hit it on the head. I mean, if I. If I was, let's just say. And I don't have one, sadly, I don't have my own family yet.

Speaker A: Yeah.

Speaker C: But if I had a family office, probably the first kind of hire I'd make would be some sort of a chief investment officer, probably coming from like a PE type background, because. Well, I take that back. I would say, you know, if. Let's just say I had a desire to be in private investments a lot. That's what I would do. Now, make no mistake that, you know, a family office has similar strategies. Say even a hedge fund where it's more private, uh, public equities and, you know, and. And debt securities and things like that. But let's just put that aside for a moment and say you would want the expertise and the experience coming from making professional, um, investment management, um, you know, strategies come to life. You wouldn't want. I have seen it where it's like, family offices are kind of homegrown. And so you have somebody that was pretty successful, obviously, in certain things, but then tries to manage money in other asset classes, and they don't do as well because they don't. They don't know it. But if you're. If you're serious about getting into private investments, why not go to where the talent pools churned out some real winners, you know, poach from the private equity side.

Speaker A: And I mean, the. The family can decide what type of investments they want. So if they're like, hey, we're really into this part of philanthropy or these types of companies.

Speaker C: That's a good point.

Speaker A: We're going to go in this space or like. No, we want like, the highest return for whatever they. They can decide that.

Speaker D: Choose. Yeah, they choose the challenge. The challenge there, if you're the investment professional, is it's the family.

Speaker A: Yeah, exactly.

Speaker D: So you're. So you're dealing with a family.

Speaker C: And.

Speaker D: And I. I go back to when we, uh, when I initially joined BEINE Back in 2001, we had essentially a family office that was our lead investor, which was.

Speaker C: Yeah.

Speaker D: Which was a partnership. That was really where the lead partner was. Herman Szarkowski, since passed away Tremendous man here in Seattle. He was, he was a. I don't know how much he was worth, but it was a lot more than me. And he had. He basically had a family office set up that made these private company investments, minority interest in most cases, to be able to, you know, kind of. And it was mostly local, so mostly Washington, um, based, although some on the West Coast. And he had race forces and he had real estate and he had. But all the stuff that interest him, kind of like to your point. Um, and he grew that. And we actually took his. What. What I would say was his kind of number three guy, became our chief legal officer at Beeline. Um, because, you know, Herman, one of

Speaker C: the best lawyers I've ever worked with.

Speaker D: Oh, yeah, because phenomenal. Like graduated number one in his class at Harvard. Type. Yeah.

Speaker A: Okay.

Speaker D: And Herman was winding that piece down, so he was like, look, I want to get. I'm basically going to go passive on this stuff. I want to. I want to start cash now. He was in his 80s at the time, and his other. His other guy who was basically the one running it, George went and ran a different company for him out in eastern Washington. He ran it from. From Seattle, but the company was based in Eastern Washington. And so it was just, you know, kind of. It was. I got exposure to that. But it is the family. So the investments are. Yep. If they like racehorses, if they like hotels, if they like, you know, if they think it's a monopoly and they want to buy Park Place, that's what they're going to do. Um, and as the investment professional, you've got to balance what that fam. What the family wants with what, you know, kind of your models and your instincts are telling you. And, and it's a different level of involvement, different level of engagement.

Speaker C: Absolutely.

Speaker D: Different level of communication than you find with a typical private equity LP type relationship where, you know, the, the LPs have very limited partners and they're, you know, kind of doing their thing. In this case, the general partner family office is. Yes, generally the family. And so. And then you may have limited partnerships underneath that for various people in the family who are going to get something down the road, or trusts, um, that have those. Have those partnerships. But it's a very different dynamic for the investment professional and something that they've really got to balance.

Speaker C: Yeah.

Speaker A: Would a, Would a PE firm approach a family office and say, hey, do you want to stake in this investment?

Speaker C: We're going for sure.

Speaker A: Yeah. Yeah.

Speaker C: That's a really, really good question. So Family offices are LPs and other funds. So yes, that is absolutely the case. Um, you know, but if more, let's just say like, you know, the. Maybe, I don't even know if size is really the reason. But like the sort of the broad mandate and desire to invest buy a family office is. I mean these are sophisticated investors on their own, maybe because they stock their, their, their, their office with really good professionals. But like at one, at a certain point you have to ask yourself, do I want to keep paying other external managers to make good investments or can I just bring that function in house? Because if you really get down to it, the fee structure related to private equity, to a private equity fund, that's revenue. To a family office, that's a cost.

Speaker A: Yeah.

Speaker C: You know, and so you really have to weigh the economics of that and also the sort of the desire you want to have with respect to, as Ed said, liquidity as tax treatment. All these things that when you're an LP in a private equity fund, you're not really probably dictating those terms unless you're the pension fund or the cornerstone investor. But you know, if you're not, if you're just along for the ride, you're not going to necessarily have your, um, you know, your objectives optimized where if you run it all yourself, you do whatever the hell you want, however you want to structure that, tax wise, wealth transfer wise, liquidity wise, you name it.

Speaker A: How does the investment manager get paid?

Speaker C: Um, typically it would be something, I would say the, in the manager investor meant the professional would get paid some way, you know, probably a really strong salary, but some sort of incentive based on performance. Performance, I mean, that can be skinned a lot of different ways.

Speaker D: Yeah, it's going to be competitive. The Wall street, the one person that I know that operated in that environment.

Speaker C: Yeah.

Speaker D: It was a base.

Speaker C: Yes.

Speaker D: A very sizable bonus based upon performance.

Speaker C: Yeah.

Speaker D: So if they hit away on a. It was like a 1.8 billion dollar family office. If they hid away, they could make 7 or 8 million dollars that year.

Speaker A: Wow. Okay.

Speaker C: Not bad.

Speaker A: Okay, not bad. Um, is this typically someone the family knows because you're trusting them with your. Or is it just like, no, I'm going to go on this train.

Speaker D: The experience I've had in the last. It was funny when, when we were prepping for this, the, the last company, one of my, what I would say is my largest client right now was family office owned.

Speaker C: Yeah.

Speaker D: Um, so, you know, I've talked about them as private equity because they're, they masquerade is private equity, but it's basically three families. Yeah, um, that has this, you know, it's a multi billion dollar set of funds, but three families, um, out of Silicon Valley in eastern Washington that, that kind of made that investment. And the folks that they hired were generally the kind of like what I was talking about on our chief legal officer at, at Beine. They were cream of the crop type of investment professionals. Really, really smart because they can, they can make potentially as much or more in a family office as they can in a private equity firm. They've got to be able to have a little bit, there's a different dynamic. But if they could manage that dynamic they do extremely well. And so they would go out and try and poach the best folks and bring them in and go. You've got a lot more latitude here. You don't have the pressure of having to churn deals. You can manage longer term. The one thing that the family offices that I've been exposed to don't bring to the table, that private equity tends to bring to the table two things. One, a uh, deep Rolodex and two, operational experience. So they are really more investors as opposed to private equity which really extracts a lot of value or infuses a lot of value into their portfolio companies through operational excellence, financial engineering, you know, the things we've talked about where private equity brings a uh, lot of value. I've not tended to see that in the, in the family office. Been far more of a minority interest investor, passive, more of a passive investor. And they don't bring a uh, big Rolodex of operators if things start going wrong.

Speaker C: It.

Speaker A: Can a family office be, I mean I, I know the answer to my question, but can they be as involved as they want? I mean if they back a company and they own a company like I want to like be in the day

Speaker C: to day operations, I mean especially they took a control position of you know, a uh, majority share, you know, they buy. So I have worked for a company or a family office, if you will, that you know, basically many, many years ago effectively bought a factory. And they're very active. Like they've got one of the, I guess children, but older person now is effectively their CEO of that operating company. So it can be done. Absolutely. Um, yeah, no question about it. Anything kind of goes, it really just comes down to, you know, again if you're looking for specific asset classes or deals, you know, how is it going to meet your goals as a family office? You want to, you want to maximize Capital preservation, uh, you want to defer income for tax reasons, all this kind of stuff to make sure that next generation is taken care of. Which is just going to be potentially different than a uh, private equity fund's objectives that I need to basically buy companies in a five year window, hold for another seven and close out this fund within 10 years. Like you know those are pretty strict guidelines versus a family office that has much more of a, you know, um, you know, maybe not even guidelines really stated at all. It's like just make sure it's a good investment, you know, and fits these, these profile.

Speaker A: This might sound weird, but how would a family go about determining their goals? It's like yeah, I don't want to lose money, but I also like don't want to not make money. And so I can slice and dice my portfolio in a number of ways

Speaker D: that second, that second and third. So normally your first gen, um, I mean my, my experience has largely been with first generation.

Speaker C: Yeah, there you go.

Speaker D: Whether it was Herman or whether it was some of these other folks dealt with, they made the money, they made the rules and they said this is how things are going to be. And they were fairly active in the decision making process as well. So like when Rory and I were down in Texas, I remember the one we wanted, we're pitching to the guy. I mean it's, it's not like, you know, it's, it's some flunky in the.

Speaker C: Yeah. Not committee of faceless people.

Speaker D: You know I've got one. One of our clients. Clients is. It's a multi billion dollar company that's family owned and so it operates, it's now 3rd gen and basically it's run by a series of trustworth trustees.

Speaker C: Yes.

Speaker D: That were where the documentation basically says. The trust documentation basically says here's what's allowable, here's what's not allowable. It really, I don't want to say a dead hand control from the, from the original, you know, grandfather but there's a lot of guidelines there that were put in the original trust documents that basically go you can do this, you can't do that, you can't. You know the investments need to be made in certain types of things and they can't be done in early stage companies. They can't be, you know, so there's a lot of it. I think once you get past that first gen you tend to see it uh, become more structured with trusts and other. And other you know, both tax advantage structures to uh, that will also provide some semblance of control.

Speaker A: Those trustee requirements have a statute of limitations.

Speaker D: Well, there, there is this concept called a rule against perpetuities that basically says you can't have a trust, can't last forever. So there's got to be, there's, there's basically generation.

Speaker A: Someone can change those rules.

Speaker D: Yeah. So there's, there's a rule against perpetuities and it's not, it's not something I tend to run into, but it's basically 50 years, you know, like in, in Washington, I think it's 50 years after um, the death of the original founder or the original uh, trust grant or something along those lines. The trust has to be distributed to the beneficiaries. But there's also rules around that. So at each state is different trust, Trust law is state law. So it's, each state's different.

Speaker C: Yeah, yeah.

Speaker A: How much. So you, at the top of the episode where you said like here's the market, like you know, trillions of dollars, etc. But for a single family office, how much do you have to have? Just like I'm a family office now, does it have to be billions?

Speaker C: No, no. I've seen this is my assessment. I mean I think it kind of starts at like 10 million or somewhere around there and investable assets where you would probably set up some sort of a kind of professional internal operation, let's say. And maybe even less if you're joining up with a multi family office strategy where you're working with um, you know, registered investment advisor, takes care of multiple families. I think the stat that I saw recently was there's like 800 register RIAs, so registered investment advisors that are basically listed with the SEC as professional money managers on behalf of family offices. So it's, it's pretty prolific. And you think about all these folks we, we all think about, oh God, tech tech billionaires and all these folks that have like made new money. They got to do something with that. I mean, you know, you're not going to put it just in a money market fund for forever, you know. So, um, so that's when people decide to say, hey, I need, you know, and I'm not going to go to Charles Schwab and just be one of, you know, a few people like they, they need professional management and at a certain point the scale of the cost and like it becomes more of a cost effective endeavor to do that. You know, you pay somebody a few million dollars if you're a billionaire, like that's not that much, you know.

Speaker D: Yeah, I'VE tended to see the break point significantly higher. So I've got a number of clients that are, you know, worth between 5 and 40 million and none of them are family offices, although they, they run themselves like a business which is kind of that you need, you know, families that do well run like a business financially and so there's not a lot of yes going on in there. Um, the number that I've seen is right around 100 million now. So at 100 million is when you've got the size of investment that both requires having professional like day to day full time financial management and you aren't going to kill your return by paying that financial manager. So if you figure a uh, top notch financial manager is going to cost you about half a million to a million dollars a year. Yeah, that's half a point on $100 million and on 10 million. That's a lot.

Speaker C: Yeah, mhm. Yeah. Yeah, exactly. Yeah.

Speaker A: So if, okay, I have so many questions. Let me ask this one. If you're, if you like, if you became Bill Gates, I mean he's got like his philanthropy and he's doing malaria and he's doing like where does this fit like in your portfolio? Because you could do so many things. Where does this private equity or uh, private investment?

Speaker C: I, uh, it's, it's really a piece of the overall, let's call it financial and wealth management strategy for the family. So you think about the investment in private assets. That's just one of many, many things that are a concern to a family from an overall management perspective. So you called out a really big one and there's real advantages to philanthropy for a lot of reasons that, so philanthropy is one thing, you know, investment management is another thing. Um, you know, um, you know like asset, you know, basically like um, you know, all the planes and the jets and that you buy. I mean that's another component of it that's not, it may not fit into your investment class but it's also sort of a, um, you know, a component of how you manage your life. So it's think about it as a component of like managing a complex life that comes from having a lot of money, you know. So it's just one piece of the puzzle.

Speaker A: If, if you two had, let's, let's do two. If you had $10 million of investable assets or capital and then a hundred million, what would you do? If you had 10 minutes, would you like self manage that? Just keeping what, you know.

Speaker C: Yeah. For 10. For 10. For, for us. Yeah. I mean because this is what we do. You know, if you, if you were somebody that really had no business background but hit it, hit it off with, um, because you're an awesome content creator or something, you might need some professional help to do it. But 100 million, I think I'd probably need some help, you know, because my, it would be more complex, a lot more things to deal with and I'm just one person and if I had that kind of wealth I probably would. It just be, I don't know, doing something that's like not working basically. Like so somebody else, somebody else could manage it for me.

Speaker B: Yeah.

Speaker D: At the 10 million, that's an easy one for me. That's self managed with ah, you know, probably with Vanguard, which is where I do everything now. It's just um, it's just a little bit more than what I'm currently managing. The uh, the 100 million probably, probably bringing someone else in. But that may also be the, the know I kind of view myself as reasonably well qualified to actually do that job. And so it then becomes one of those. Does that become the job?

Speaker C: Kind of like I could, I just wouldn't want.

Speaker D: Does that become. And I go, okay, now I'm running my family office.

Speaker C: Yeah.

Speaker D: And I'm making those investments and I'm managing it full time or largely full time because one, I enjoy it, two, I fairly good at it and three, I think it's, it's, you know, I, I don't, I would probably get frustrated with someone else. Now you start getting much above that and then you're going to need help. But, but you know, 100 million, I think I can, I can manage that one too.

Speaker C: Yeah. You know, one thing that we didn't talk about is the support structure we've talked about in our book. And, and you know, I've talked about our podcast for the people that serve private equity funds, whether that's lawyers, investment bankers, you name it, different advisors, those all still apply to family offices. Family offices is getting a deal done. They're also going to speak with an uh, investment bank if they're going to have the need for lawyers to help get deals done. I mean there's all of those things still apply because the sort of the objectives from an investment standpoint or similar can be. So yeah, all of those trappings need to be managed and all that stuff too. So yeah, you do you need kind of like the sort of overlap of

Speaker A: how that's overseen basically got to build your ecosystem.

Speaker C: Yes, good way to put it exactly right.

Speaker A: What else do people need to know about family offices?

Speaker C: Well, it's good to have one. I mean, you know, you've done some few things right, if you do. So there's that. But I think the one thing that we didn't really talk about is, you know, that we, you know, a theme throughout our book and some of the things we talk about is founder's perspective. Right. Like, so why would a founder want to work with a, uh, you know, family office as like a primary part? Hey, I'm selling my business for the first time. You know, I know I'm going to make a lot of money, uh, but I still want to be involved. Why would a, why would a founder want to work with a, you know, a uh, family office as your lead investor or a PE group? Um, as our lead investor or you know, etc? I mean there's a lot of reasons why we've talked about the PE perspective ad nauseam, but maybe to put a, um, contrast to that, working with a family office as a lead investor, one, you know, even if they were a control investor, the likelihood of as much um, operational interaction would probably be less, at least from what I've seen. And so you may have more flexibility as, as like a, you know, owner slash operator in, in that go forward company than you would working directly with pe. That's, that's the first one. And Time horizons, um, to deliver is another one. Um, and I'm sure Ed, you've probably got more as well, but those are some big ones is like uh, maybe a little bit more patience on the product part of the family office.

Speaker D: Uh, I think the other piece is family offices are also likely to be more flexible on terms.

Speaker C: Yeah.

Speaker D: And they're willing and able to make smaller investments on balance.

Speaker C: Yeah.

Speaker D: And so it, in a lot of cases where companies, you know, let's say under 10 million of revenue aren't going to be attractive for private equity, um, because they're too small and you got to go through it. They've got, you know, limited partners that they've got to keep happy and they've got to put a big chunk of money to work the family offices, especially those family offices. And again, I go back to the Szarkowskis where they were really focused regionally. And so you're going to have family offices that are focused regionally or are focused on your particular industry. And as kind of like we were talking, they've got an interest in. And so talking to those folks, you may find that you've got more flexibility in terms you're willing to do smaller investments, um, that private, larger, especially larger private equity firms just aren't going to talk, talk to you about. And you've got the, uh, as Rory noted, you've got the, the ability to kind of have some patience and so go. Okay, as a founder, here's my vision. And that vision might not be I'm going to grow 3x4x, you know, over the next five years. It might be. Look, uh, my, my vision here is I need a little bit of growth capital and I want to grow, you know, 20% a year, 15% a year. I'm going to have. Be spinning off a fairly high cash flow because I've got, you know, I've got a nice, I've got a nice cash, uh, flow business and I'm never going to sell for 8x revenue. I'm going to probably sell for 7x EBITDA at some point in the future when I retire. But in the meantime, you know, it's spinning off nice cash. There's family offices where they go. Yeah, that's exactly the type of investment I'm looking for. Where private equity is generally going. No, probably not. I'm looking for a much more, more aggressive growth pattern and a much larger investment. So I think it's a, uh, they fill a need that I think private equity actually did fill about 20 years ago, 25 years ago, and they've now gotten so large in most cases that they don't fill it anymore. And the family offices have come in on, um, private investments. And for founders, they should not be discounted as.

Speaker C: Yeah.

Speaker D: Uh, you know, and sometimes you got to go find them because the investment bankers may not. One, small transaction, investment bankers aren't going to be as interested because they get paid on a percentage. And two, they might not have the connections. And so, ah, you know, this is one where founders have to do a little bit of legwork, but they could save themselves some transaction fees and get themselves a pretty good deal.

Speaker C: Yeah. One other thing I would add, and this is a little more sort of, uh, qualitative, but it's giving you a tangible way to think about it is like, say, deals and, and sort of partnerships are based most successfully on like, real trust and like, real commitment to, you know, one another, um, harder to actually achieve than you might think. But let's paint an actual picture that's very real. I've seen it, I've seen it happen. So let's say, you know, you had a CEO that basically you worked for, you helped them grow this business, sell it go public, they became a, you know, very, very wealthy from that. Um, you were instrumental in that, but maybe you're a few rungs below and you didn't really quite see that kind of wealth. But you know, down the road they have a family office. They know how you are as an operator. Maybe you go do your own thing, you cultivate a startup, et cetera. You come to realize you need external capital. First person I'm going to go to is the person I made a shitload of money for. And they know I made a shitload of money for them. And if they're still interested in you and you have that relationship, it may be a more seamless transition to having them as an investment partner, um, than, you know, then, um, you know, going fresh to a private equity group you've never worked for. I, I, I've, on a much, much smaller scale. I, I have a side business that is effectively a private equity fund that I'm part of that was originally seated by guys that I worked for, you know, and so came with that trust. It was easy transition. You know, 15 years later, we're still doing it. And those things can work over a long period of time. So, um, you know, there's a lot of reasons why knowing who you're quote unquote, getting into bed with out the gate is important. You know, it's not the end all, be all. You can sometimes get a better deal or whatever with private equity, but that, that is a real thing is who you know and who you've worked with before in that regard.

Speaker A: So it sounds like there is a pocket of the market and certain profiles and just characteristics where family office would, would be 100, uh, better than P.E. in situations, definitely.

Speaker C: But also the flip side, you know, I think, I mean if, yeah, I think like the biggest deals are still owned by the private equity groups for sure.

Speaker A: Right?

Speaker C: Yeah.

Speaker A: Right. Interesting.

Speaker C: Yeah.

Speaker A: All right, well, 2026 is upon us. We'll see if we can make family office foundations happen for ourselves.

Speaker C: Yes, I agree.

Speaker A: Yes, we should. We're a family. We're family guys.

Speaker C: Great goal. It's each of us have, uh, you know, created the need for, for family office for ourselves.

Speaker D: That'll be great.

Speaker C: Hey, let's, let's actually get economies of scale and the three of us forming multifamily office.

Speaker A: I was just going to say we're like family. We could pull our phones together and

Speaker C: create a thing y pay less fees

Speaker A: and you can manage it and I can operate.

Speaker B: It'll be great.

Speaker A: Like we have all the talent right here. Huh? I'm not even. I'm, like, only half joking anyway.

Speaker C: That would be a big 26. Let's go. Start strong in Q1. All right.

Speaker A: All right. Pex boy. Sweet. Eddie B. Thank you.

Speaker D: Thanks.

Speaker A: Um, Big Red. Thank you.

Speaker B: Thank you.

Speaker C: M. Thank you, M. M. Appreciate you guys. What. What a year it's been. Yeah. We'll see you soon.

Speaker B: If you enjoyed today's episode, please, like, share and subscribe wherever you get your podcasts.