Ep71: Investing Like the .001%

Welcome to Private Equity Profits. Clifford Locks is a certified board of director, a trusted confidant to CEOs, C-level execs, and high-potential employees to help them clarify goals, unlock their potential, and create actionable strategic plans. Seth Green is the nation's foremost authority on growing your portfolio companies with direct response marketing. He is the founder of the direct response marketing firm, Market Domination, LLC.

And he is an eight-time best-selling author who has been interviewed on NBC, CBS, Forbes, Inc., CBS Money Watch, and many more. Cliff and Seth interview top players in the financial sector, focusing on private equity firms, venture capital companies, and family offices, discussing developments and trends shaping the industry. These experts will share with you how they've grown their businesses and increased profit, and how you can too.

And now, here's your host, Seth Green. Welcome to the podcast. This is your co-host, Seth Green. Today, I've had the good fortune to be joined by Sal Buscemi, the CEO and co-founder of Dan Drew Partners, a private family investment office.

He's managed money successfully for multiple decades and created multiple platforms into various cross-asset platforms, including Dan Drew Partners, Encore Ventures, Dan Drew Partners, Fine Art Enhanced Income Credit Fund, various commercial real estate and special situation direct investment allocations, and a whole bunch of other things we're going to learn about. Sal, thanks so much for joining us. Thank you, Seth. Pleasure and a privilege.

Let's go back in time a little bit. How'd you get started? I was pre-med in college, went to school in New York, New York City, and I was working for a surgeon between my junior and senior year. And what happened was after my senior year, I could not really fathom working with blood.

And I had given this guy all the best work I could give him. Even though it was an internship, I took it very, very seriously. And towards the end of the summer, sorry, the sort of like the middle of the summer, he was calling me and asking me if I still wanted to pursue medicine. And I said, I really didn't, I didn't really have the stomach for it because I'd passed out holding a tibula in his office in the cadaver room.

And I wrote a book about it on investing legacy. It's the third book I wrote about, but it's a good story because a lot of people ask this, you know, the origin story. And frankly, he said, you know what style, don't worry about it. He's like, I want you to call my, I want you to call him, you know, he's from North Shore of Long Island, you know, you're from Buffalo.

So you would understand that. He's like, I want you to call my brother who just made partner at Goldman Sachs. And I said, okay. And then the rest is history and really sort of substantiated, like not just an entrepreneurial but like an investing bug because I'd watched my father collect zero coupon bonds, putting my brother and I through Fordham in New York City.

And it was really a great opportunity to learn. But it was at this point when you're sort of impassioned by something, you learn more about it because you just have a voracious appetite for knowledge. And that's exactly what happened. And during the Great Recession, what would happen was during before I turned 30, I raised $30 million from the Park Avenue Investment Fund.

and then basically became the kitchen sink for Bear Stearns. Did the same thing institutionally in Las Vegas with commercial. And then afterwards, I found out that there was a lot of opportunities outside of real estate because I was distressed real estate by training professionally on Wall Street. And it wasn't really making sense that doctors and dentists were outbidding me on certain asset classes that should never be overbid on.

And I wound up just firing my guns on some of the families who had invested along me who were life science companies. And because of that, I was able to segue into life sciences. And we have one of the most formidable family offices today with a world-class portfolio in preclinical life science companies funded mostly by real estate families through their philanthropy. And it works really, really well.

But it a great opportunity because you learn so much more about the strategicness between working between families and institutions and the idiosyncrasies that both of them have Okay so the longer version of that story should probably be in a book somewhere. We don't have time to unpack it all. No, not at all, no, no. You're scratching the surface.

Hopefully it's in one of the books. Let's talk about- It is. So if I heard that correctly, you ditched medicine, went to work in finance. I was never really in medicine, to be honest with you.

I had an undergraduate degree in pre-med. I never went to med school. Okay. So you had an epiphany holding the tibia and then went into the world of finance.

And obviously there's been a whole lot over the last few decades. Talk a little bit about what led to the formation of Dan Drew partners? There was a lot of, I'll tell you real quick. I went through a personal traumatic episode.

I lost my father when I was working at Goldman Sachs at age 24 and he was 56. And I said to myself that I wanted to start my first fund before the age of 30 and I did it. But you had to find a good opportunity to do that. That complimented your core skill set and that was real estate.

And so we were able to parlay into that. And I named the first institutional fund, Dan Drew Partner, you know, capital management, you know, it's just been a nomenclative homage to my grandfather, who was president of the American Hotels Association during the late 50s and early 60s, and worked with Statler and Helmsley and a lot of those guys. And it's something that we, I do have a smaller balanced little venture fund that invests mostly in life sciences, which is what I was talking about before.

However, a lot of it is mostly geared towards real estate, but real estate that we call world-class or statement-class real estate. You're not going to see us invest in class C to B conversions and multifamily or anything. And we like class A, light industrial, statement class assets, things that are very, very secure, that have very strong tenants that are richer than our investors. And then you've created some unique innovations like the Fine Art Enhanced Income Credit Fund.

Talk a little bit about that. You know, there was a time I told you where we actually gave money back. I had to give money back because I was being overbid on something by a bunch of doctors and dentists, to be honest with you. and they were using none of their own money.

They were basically refinancing it from their homes, or they were getting a signature line. We have always gravitated towards quality, but I had a lot of opportunities because a lot of people were looking for real estate, but I didn't take their money because it just wasn't a good time. And what we did was we pivoted into someone who I've trusted for a while, and that was in private credit, but not just any private credit, the most priceless collateral, which is ultra fine art.

And this is something that's been going on for years between families. And we've allocated towards this one fund called Shinnecock Partners for about six years now. And it's a great real estate income replacement. And it allows you to sit on things because of the reason is that he has a liquidity provision in it where you can pull out after a year, but it also pays like a good six to eight right now, inflation adjusted.

So when you go into real estate, real estate is a long-term game. You're married to debt, You're married to govenants. You're married to a lot of other things. But when you're waiting for things to happen in real estate where it's a little more opportunistic and you're getting in at a better basis, this is the route you want to take.

And that's worked out very well. And it doesn't confuse our families because there's all sorts of different products out there, but nobody really understands it. And we like working with pedigree people. And all of our CEOs have had multiple exits, whether it's in venture, whether it's in real estate.

They've been through at least two cycles. Or in the case of Alan Snyder, he's one of the founding fathers of the Discover card. So he knows credit really, really well. Absolutely.

So did you have, I'm sure you had some type, you know, art experts. And are you then, how are you picking what art goes in and how do you buy enough? Yeah, that's a good question. So that is something that I don't manage myself.

That's just something that we co-manage into the fund itself. And when we talk about it what we look at and I just be honest we look at art coming from dealers The dealers we want to make sure because they have a reputation on the line And that reputation is important There's a lot of trust in this business. And we also want to make sure, too, that whenever we lend on something, that we take possession of it. Possession is nine-tenths of the rules.

And once we do that, we put it in a bonded warehouse in New York City. It has a little doohickey on it to show if it's been moved or if the temperature changed or anything like that. but it's a fast foreclosure should anything happen with redundant insurance. And that's really the most important part.

Now, the part of it that I can't get too deep into it is the provenance. And that's something where you've had a lot of ex-art dealers and people who sit on the board with Alan who go through all of that. And there's databases that go back to it that you subscribe to. I think there are like probably about 60,000 a year.

However, that gives you the data going back to Moses as far as it relates to the authenticity and the provenance and the ownership of the artwork. And those are things that people do who are very professional, who've been doing this their entire lives. That makes a lot of sense. Back in 2008, you launched two separate discrest credit platforms.

Can you talk a little bit about those? Yeah, the first one was called Dan Drew Strategies, and we were buying a lot of whole loans from Bear Stearns. And that was interesting because he really understood at that point that the people who were getting these loans did not have any right to get any sort. I mean, it was just an absolute incredible experience with these people who got these loans for 125 percent, didn't put any money into it, got new TVs for buying the home.

And now we're in foreclosure because they lied on their application. So that was an interesting experience seeing how that whole thing went down. But there was a lot of opportunity there because a lot of people thought that the U.S.

housing market was going to eventually grow to the sky. And it didn't. And when the MBS machine or the RMBS machine stopped, that's when a lot of people had a lot of problems. That's when Bear Stearns hedge fund blew up, and that's when we decided to take action.

It took me about 30 doors getting slammed in my face before I found one that took it, and that's where the real magic happened, and that's how that was launched. Afterwards, we saw the same thing happen in Irvine, California, which was ground zero for a lot of this stuff, right? And there was a lot of these hard money funds, mortgage funds out there that were basically raising money, promising you a high return mailbox money, coupons at 10% each month, But they were leveraging their homes in order to get the money to put into it at like a negative atomization rate.

So we saw a lot of opportunity in commercial private loans. I actually wrote a book about that called Making the Yields. It was the first book I ever wrote. But it talked about how to be able to make these loans properly and how to run a proper mortgage fund and mortgage pool.

It's interesting, you know, that people just throw money into things, Beth, and they think that the highest number is the most smart, right? It's like whineless. It's like over to the right and down, but really they have no understanding of what risk is. And I think that's where a lot of people got pinched, especially when they were like being private lenders to these commercial operators who didn't have any experience, but these were the lenders of last resort.

It was an interesting experience. We made a good chunk of money doing it. It was a lot of work. It was a lot of hands-on work and it required me living in Las Vegas for several years.

What? I mean, you've been through so many different cycles in different investment classes. What are some of the most important lessons you've learned? Leverage.

I mean, we're starting to learn right now that leverage is key. And, you know, the reason why we wanted to like finances and some of the most prominent families in America who were fortunate to have invest with us into these deals like it is because it's not indexed towards leverage. Anything today that's indexed towards leverage, especially real estate, is a function of real estate today. And I think if you're looking to invest into things privately held, you want to make sure that they don't have a lot of leverage, especially if they're in like a low barit entry industry like tech.

Right now, you're starting to see a lot of things in tech sell off. A lot of VCs are going to blow up because they invested in a lot of companies that were founded by not business owners, but coders. And there was some success there. But when you start increasing interest rates you find out as Warren Buffett said who been swimming naked see that in the way of defaults and everything The reason why we like life sciences everybody thinks it risky but it really not Private equity is not riskier venture If you can control the terms and you can control the price that you get in at, and that's really basically controlling the investment.

We don't invest in ideas. We invest in jockeys, not horses. And a lot of our CEOs have been through multiple cycles, and that's why we invest in them. But in life sciences, nobody lends money to life science companies.

It's very rich companies or families that do this because they want to make an impact and they have a different initiative. They have an impact agenda that goes out 50 years in some cases. So if they're looking to do some sort of a cure or a therapy, they're going to be spending a lot more time on it and money rather than the tech company that's trying to strap it together, first-time CEO, a lot of debt, and that's where a lot of problems happen. Who is an ideal client for you now?

The ideal client for us today, it fell into our lap, is someone who sold something between $70 and $150 million. They have no idea what they do. They've lost their identity. They want to play merchant bank, become a private investor, but they don't know where to start.

And they're looking for some sort of an intimacy. They're not going to get taken on by some of the bigger families, but they'll be taken on for us. but there's a lot of opportunity for them to be able to join along with us because of the fact that they enjoy the interactivity between us and them. And that's really where we've had a lot of success is the interactivity between our families, because I sent a lot of emails out, Seth.

I don't know if you've been getting mine. I have. But but they like that interactivity. There's a voice.

There's a tone there. And so, you know, we're not for everybody. We have very prominent families and we have families that are. But yeah, I mean, they just came into their own.

You know, they're still in the day-to-day. They, you know, they're over 100 million. But, you know, we have a couple that are like in the 50s too. But, you know, they like to see what's going on because they want to see how the bigger guys are playing and invest alongside of them.

And that's really the ideal client for us today. How do they find you? they can go to um salvatore bashemi.com or they can go to um they can send me an email at sal at hrn.

llc you know they can send me an email they can reach out um i would recommend that they buy my book if you do want to see if you do want to see how this really works in real time investing legacy um there's a site that you can go to called investinglegacy.com and if you want to buy the book. It's available on Audible too. All right.

With all the success you've achieved for yourself and your clients, what's your biggest challenge now? My biggest challenge is keeping everybody's attention on what's next. I think today you have to look at what it is when you're communicating with people. You always want to stay relevant and you have to make sure that you're always commanding people's attention.

And I think a lot of people in our business today don't realize it, but the second rule of real estate is always be raising capital. And that's something that we're always doing, right? Different capital sources come and go, and you want to be able to scale the thing. What I am looking to do mostly, and I think is really to make the biggest impact possible, is just being able to scale this a little bit more.

And at that point, I think we'll be at, you know, we'll be at 30,000 feet and we'll be able to be, have the dexterity to do what we want to do without being too big, without, you know, having to deal with any sort of hindrance that size can bring sometimes in some organizations. Your passion is obvious. What do you like best about what you're doing? I like writing.

I like writing to people. I like communicating with people. You know, I call this the Zoom shows all the time. You know, I have a Zoom show today.

I have five Zoom shows today. I like interacting with people. It's the highest and best use of my time, but it's a lot of fun. I like writing emails out to people.

And, you know, personally, I like, you know, I'm into fitness and just a very social person, which you have to be in this business. Absolutely. Well, we know your time's incredibly valuable. We greatly appreciate you spending some of it with us.

This has been Seth Green with Salvatore Buscemi. Check out salvatorebuscemi.com, investinglegacy.com.

Sal, thanks again for joining us. Thank you, sir. I appreciate it, Seth. Thanks, everybody, for watching or listening.

We'll talk to you or see you next time.