Hawaii Family Office Retreat – Private Investor Insights:

Transcript

Speaker 1:

For this next discussion panel on private investor insights, my friend Bill Atha here is going to be leading it, he’s from the Global Wealth Solutions Group, which manages over $5 billion for private clients, foundations, endowments, as well as individual investors and founders. So, I think it’s going to be a great discussion panel, let’s give them a round of applause and welcome him to the stage.

Bill Atha:

Thank you, [inaudible 00:00:27]. Thank you very much.

Now 6 billion. So, I love what I do, I get up every day to work with really intelligent people, like you, the thing that makes me the smartest guy in the room is knowing that anytime I stand in a room, I’m not the smartest guy in the room. So, I probably will die with my boots on, just not today, God please, and I’m really lucky to be speaking with some really intelligent people, who like to invest, and have really good specialties. So, panel, this is like speed dating on methamphetamine, let’s keep it quick. My background, as an introduction, I work at Raymond James on the number one team in the world for Raymond James, I do high net worth and family offices. I’ve been working with this group, the family office club, since 2015, with an exception of the lockdown.

I work sourcing deals to our investment bank, I help to coach startups, I work in the secondaries area of the investment bank to raise private equity and venture capital liquidity, I’m one of the few people left on the street that takes your call, and can actually get a deal done, and you can talk to me about that, and I work with foundations and endowments. I’m a specialist in alternative investments, and we have a fantastic alternative investment platform. And for anybody that doesn’t know, Russell Ballou, please wave your hand here, he is from our private institutional client desk, the pick desk, for clients net worth 50 million and up. You can participate in some of our offerings, we have about 10 to 13 of them a year, and they’re not generally known or open to the public.

Many people know that my partner, Lisa, and I did the first liquidity raise for Starlink SpaceX, 18 months ago, we did the second one six months ago, and we hope to be handing, Monday, some more, to do the last capital raise. So, if you’re interested, please talk to Russell or myself. All right, panel, let’s get after it. Okay. So, we hear on stage at our events that where you meet someone or introduce to you can matter as much as anything else. A lot of people tell me that when I look at a deal, I actually want to go meet the family or their partners first before I even look at the statistics. Natalie, is that how you think about things when you look at investing?

Natalie:

Yes. Hi, I’m Natalie, I own a boutique M&A company, called iKadre, a play on words from a Latin term of small team of professionals. I started out in corporate, so I handled the HPEDS deal, $14 billion deal, several years in the making, and then several years in execution. Brought it all down to make it available, make the playbooks available to everybody. So, I primarily work with women, I’m a strong believer in people and communications. That was discussed at the meeting kicked off that way, I couldn’t applaud it more. It takes nothing to get on a plane and to talk with somebody, get to know them. Doing a deal is about trust, investing is also about trust, because I don’t necessarily know if that person just has ChatGPT going on the other side. I don’t think anybody really does anymore.

It is about people. So, take the time, get to know who you’re working with. I get calls all the time from different investment teams, brokers, friends in the industry, Nat, what do you have? What’s coming up? Who are you selling? Who’s exiting? We specialize in a lot of that work, starting at about 10 million and up, and just recently moved here to Hawaii to enjoy the space.

Bill Atha:

Patrick, you’re an ALTS guy and an expert in this space, often high returns are awful attractive but can be a pitfall, we know about value traps, right? How do you look at analyzing things that are offered?

Patrick:

Well, thank you everybody for going much further than I did, I was about six minute Uber down the road to get here, my wife and two and a half year old live, so excited about that. But it’s been a long journey to get here, I started out before the subprime mortgage collapse, when those high returns that he’s talking about meant that I lost everything in a highly speculative real estate development deal, back when I was a machine design automation robotics engineer. And back then, I was really eager to look for those 2, 3, 4X, make it rich quick and exit quickly from my career, but unfortunately, I didn’t zoom out far enough to look for recession resilience and non-correlation throughout my portfolio. I got heavily indexed very quickly into what turns out to be speculative, and I didn’t invest into enough markets to build stability across different market swings. And so, that’s how I’d respond to that.

Bill Atha:

David, you’re an oil patch guy, there’s a lot of fraud in the oil patch, and you’re very clever, so how do you think about analyzing the stuff that you do, or offer, and what comes to your table?

David:

Well, I’ve been blessed in the oil business, and both partly because I inherited mineral interests that have turned out to be very successful, so luck is a good thing, but-

Bill Atha:

That’s called good genes.

David:

Yeah, it’s called being in a legacy family, and having the blessings of good fortune, which gave me the freedom to pursue a lot of other deals, and a lot of other investment. But I think over-concentrating is probably one of the big risks that people have. If it’s a good deal, my dad said, and he was a wise investor that made a couple hundred for one on his money, he said, “Don’t ever put everything in one deal, put it in at least 10 deals, and if two or three of them hit and go 10 for one, your net worth goes up dramatically, but you’re not crippled.” Whereas, if you put all your money in one deal and it doesn’t work out. So, in my investing strategy, I advise people not to over-concentrate, and have a lot of variety and diversity, and be diversified out of your normal concentration.

I love oil and gas, and I’d recommend everybody think about investing something in upstream oil and gas because I think it’s currently being out of favor with investors. If something’s out of favor and returning a great return, that’s the time to invest, not when it’s a huge fad and selling for a 100X. And-

Bill Atha:

So, contrary to investor behavior, buy when it’s not liked and sell when it’s liked.

David:

Right.

Bill Atha:

I know a little bit about what you’ve experienced in the oil patch, my grandfather was an oil field supply contractor, and my uncle was a geologist. Unlike my uncle, my grandfather raced horses, he had the fastest horse in the world, Great Papa, and he bet the farm on that horse, and it broke his leg two lengths ahead of everybody else and he lost everything. So, don’t bet the farm on one thing, right?

David:

Right.

Bill Atha:

Okay. So, Joe, you’re a clever boy, tell us how you think about the things that come to you and/or how you like to invest. How do you discern things?

Joe:

Well, I think David and I are going to get along, I’m a big fan of real property interest, mineral rights and royalties, and that’s what Overland does, is predominantly invest in oil and gas mineral rights. We do it for a capital gain, we aren’t necessarily seeking yield like a lot of family offices, we tend to aggregate the smaller stuff that the institutional capital overlooks, and then amass it to a portfolio that then they’re willing to entertain. So, I think there’s immense opportunity for family offices in that space, if you can either find a group like us, or there’s many out there that are executing that thesis. With regard to how do we originate those deals, how do we go out and find those deals and analyze those deals?

We found the best deals that we’ve done typically are organically originated, smiling and dialing, getting to know people, getting to know people in a region. We work in a gray market, it’s not as transparent as maybe real estate or stock market, so you really do have to have boots on the ground, people that you know and trust, that can help you source deals. We also find it very beneficial to find good business partners to reduce the saturation risk when we see something that’s a little bigger than maybe we can swallow. And we’ve had immense success in partnering with other companies that think like us.

Bill Atha:

So, this is the worst market in its third year, in the venture capital space, in terms of raising funds, what advice would you give to people in the room who are trying to go out and raise capital? Obviously it’s good to be in the family office room like this, what else might they do?

Natalie:

Well, first piece of advice I would say is stand out. Make sure it’s different, even if it’s something that’s similar. Let’s say we’re talking about PR. There are a lot of PR firms right now that are rolling up into… There’s a lot of roll-ups going on out there. What’s unique? What is it that you do that is different? And what is it that you’re going to do to double, triple, even… Let’s go a lot higher than that, as far as money’s concerned? Make it interesting, but be real. I also wouldn’t be grasping at straws. I’d keep it very real, and I have my little ducks in a row, rather than just all over the place. Be prepared for the questions, but be different.

Bill Atha:

[inaudible 00:10:18].

Patrick:

I’d say there’s a couple ways I’d answer that. So, our company, we specialize in opportunistic or non-correlated investments, and what does that mean? That means right now we’re in one of the biggest downturns in commercial real estate that’s been since my lifetime. I lost everything in the residential collapse, 2009/10, but opportunistic funds right now, not value add, multifamily, or things that aren’t quite penciling yet, but opportunistic acquisitions and debt and equity make it very relevant, finding the upside of the downturn make it very relevant. So, repurposing strategies that take harness of the downturn. Also leaning into, right now, we’re at a very unique time, right? This isn’t typical. We’re in the middle of… We just got done with a black swan event, interest rates skyrocket, insurance costs are high, materials, labor went up, we have two proxy wars going on through Ukraine and Israel. We just bombed Iran, so direct war. We’re in the middle of a trade war.

Probabilistically, this engineer inside of me says, hey, maybe we should think about alternatives, things that aren’t dependent on macroeconomics, things that don’t ride the waves of the rest of the fundamentals of our portfolio. And so oil and gas is a component of that, opportunistic certain investments in real estate, or legal industry, or healthcare. And how our organization continues to stay relevant is by offering alternatives outside of those, such as legal investments, or investments in healthcare, ones that help to build true resilience even in downturns.

Bill Atha:

David?

David:

Well, I agree, it’s a hard time, there’s been a lot of deals promoted with companies that were going to make money someday, I think the key thing to look at in a company is what is its real prospect to produce return, and the things I’m working on are geared towards making hundreds or thousands of percent on capital income. My best investments that have worked out have had crazy income for the amount… And income is what you love, getting into paying investments. Now, in the stock market, there are assets that are yielding real high, that are out of favor, like the midstream pipeline companies, but my effort with my invention company is to promote things that have the potential to have game-changing wealth, to transform a few dollars into a ton of dollars, lottery ticket type winnings.

Bill Atha:

I agree with everything you just said, David. I think the most mispriced asset class on the market right now is the midstream MLP pipeline infrastructure, it’s 70% gas, but it’s priced almost 100% correlated to oil,, has nothing to do with oil. So I think you’re really onto something there. Joe, how about you, your thoughts?

Joe:

The question being raising capital?

Bill Atha:

Yeah. And do you raise capital?

Joe:

Yes, we raise capital. We don’t tend to have to ask very hard these days because we’re in fund six, we have our LPs, and it tends to be about a two-week close, if you can imagine. We have been looking for some new investors, just to diversify the investor pool. But we also, we’re kind of deal junkies, we see a lot of stuff that’s beyond maybe what is committed capital investment opportunities, peripheral energy tech opportunities, other extraction-related, industry-oriented stuff, that’s not minerals and royalties. And one of the things that attracts us is when someone’s, say, staying in their lane.

But really the ask is not an ask for the next two years, the ask is for the next six months. They’re short asks, they’re small asks, they’re about accomplishing a discrete set of goals that they’re going to focus in on with that capital that they’re going to put to work, on the premise that the risk is reduced considerably, is that there is a line of sight to actually see that capital go to work and maybe provide some insider solutions, or quick failures, that could then be used and turned into later successes for the entity or the venture.

Bill Atha:

Raise hands here on the panel, how many of you like to co-invest? Raise your hands. Okay, everybody on the panel. Good to know. Joe, I’m going to start with you, How do you find an exclusive off-market or excellent top 1% opportunity? How are those brought to you?

Joe:

Seldom are they brought to us, we have to go out and find them. In the mineral space, we actually end up in courthouses pulling lease records so that we can try and identify who the big mineral owners are, that we can try and chase. And some of the larger deals, one in particular that I’m thinking of, was three years in the works. It was getting to know the landowner, the ranch owner, and working with them over really their goals, what they wanted to do, over the course of the next couple of years, and eventually they wanted to sell, and it was a 20+ million dollars deal that we hand delivered the check to. And we’d gotten to know her real well, and we got immediately reinvested in Phoenix, as she retired. But we find between that and then also the business to business opportunities, frequently it may not be someone in our network that we’ve… Someone that we’ve originated the deal with, but it may be one of our partners that uncover something that we’re ready to jump on and co-invest in.

Bill Atha:

Same for you, David, but also a question for you both, in the oil patch, are you still able to go look up properties that are in arrears on taxes, or are you able to still [inaudible 00:16:03]?

David:

I don’t think anybody let’s their minerals get behind on taxes, unless they just don’t even know they own it. Or it’s gone into an estate and been divided up a bunch of ways. But yeah, there are opportunities, and getting involved with a good ethical company is really important. And I think the other thing I’d like to emphasize is you need to be thinking about estate planning in all your actions, and the best way to do something for your next generation, and even the generation after that, is set up a generation skipping trust, and put assets in there that are at a low current value so they can appreciate in there. Once you’ve made the money, it’s awful hard to give it away without paying that 40% gift tax, which, real theft. But anyway, I love to talk to people, I’m exhibiting in the next hall, and estate planning is a very important thing, and I’ve got some real interesting ideas on how to do that in a big way.

Bill Atha:

Well, thanks for sharing that because I believe 100% you’re right. I work with, I’m a specialist in family offices, the two things they’re most considering in talking to me is how do I keep my family functional, and my kids not spoiled, and the other is in what ways can I do my wealth transfer without spoiling them? So, that’s very important.

David:

Right. But it’s also important, if children are going to come into a lot of money at some point, to give them a little money so they can learn the hard way with the little money, kind of like that movie Brewster’s Millions.

Bill Atha:

Yes, sir.

David:

Where the guy had to blow a bunch of money, so it was a tiny fraction of what he stood to inherit, to learn that he needed to conserve and live within his means.

Bill Atha:

That was one of the funniest Eddie Murphy movies I know.

David:

Oh.

Bill Atha:

Patrick, your thoughts?

Patrick:

Well, yeah, I want to say, I definitely, this year was the doubling down on the irrevocable trust estate planning, I had two and a half year old, right? So, for the first time I saw an actual life that’s going to live past me and my wife, and I definitely feel so great over the last year of getting all that stuff put together. So, working on that. Your other question, sorry, what was the other question?

Bill Atha:

Well, the question was-

Patrick:

Oh great deals. Yeah.

Bill Atha:

… how do you source exceptional deals?

Patrick:

How do you source exceptional deals? I got so excited about listening to you guys, I forgot. So, exceptional deals. So, we have three primary businesses that we’re currently operating in through our parent. And first of all, we educate every two weeks on alternative investing strategies, because me as an engineer, I didn’t know any of this stuff existed for years when I was doing engineering. So, every two weeks we do an alternative investing mastery series. Now, of the ones that we find, there’s actually three businesses that we have. So, we have private credit, commercial real estate. Now, that’s incredible opportunity because those unique opportunities are high interest rates in small balance commercial real estate, like 600 to 6 million, that is a completely ignored category right now, where people, if the lenders are investing, they’re only investing into the huge larger numbers.

Right now, we’re finding incredible opportunities to lend at very high interest rates, first position, in small balance commercial real estate, still not multifamily, still not quite penciling, more industrial. We’re in certain markets where we’re seeing a big reshoring, seeing a resurgence of manufacturing, we’re seeing… And even in those markets we’re seeing retail. So, we’re seeing incredible opportunities there, opportunistic lending. And we’re also seeing opportunistic acquisitions. I went through 2009 and 10, lost everything. Now, commercial real estate version of that’s right now, we’re buying a lot of assets in cash, and that is different. That’s not through our network of known sources, we’re actually going through mass marketing, and we’re going direct to owner. And why? Because the brokers are still overpricing all the opportunities. And if you can’t find those owners directly and set the basis for the price, figure out how eager they are to sell up front, and then potentially end up with the broker, we found we’re just spinning our wheels as it gets overpriced and out of our budget.

So, we’ve spent huge amounts of money, and done all of our acquisitions through our acquisitions fund, through direct to owner. And the other side for the litigation, we do diversified litigation portfolios, single events, small mass tort, and those opportunities are purely relational. It’s a novel industry, although it’s been around since 1910, and the amount of money that goes through third-party litigation funding is the size of the global airline industry, all that said, it’s a small niche industry, not many people know about. And so, our partners had 15 years experience in both the private credit, commercial real estate, and litigation finance of different groups, virtually every single one of those opportunities comes from direct relationships or referrals from direct relationships. So, there’s not much secret sauce to that.

Bill Atha:

Last question, Natalie, I’m going to switch gears, what powerful insight could you leave investors or capital raisers? What’s important at iKadre?

Natalie:

For us, really it’s purpose, and we do focus on women, women founders, women leaders, women that do want to drive change in the world. I even had Stanford professors that have developed AI platforms we’ve taken to large tech. It’s about making a difference, and bringing a lot of things together, and for myself, putting a trust together for my nieces, as an example. In building the wealth, I want to leave the world a good place. I want to leave some things behind. But I also want to teach about how to manage it, how to do good things with it. Don’t just go and spend $2,000 at Louis Vuitton, that’s not the goal. Maybe take some of that, and if you want to, great, then take some of it and go and invest in something that needs help, give back some.

Learn to invest wisely. And that’s something I’d like to teach people. Every year I take on a mentee, this year it happens to be a great Korean young lady, I met actually here in Hawaii, at the tax meeting last year. Her family’s very well known in the clothing industry, so I want to disclose, we’re under NDA. And she will go, she be announcing at the end of this year into the spring, and there’ll be a nice little IPO that’ll happen over there for them.

Bill Atha:

By any chance, would that be at the Hawaii Tax Institute?

Natalie:

I can’t say. No, I don’t think it’ll be at the institute. No.

Bill Atha:

I founded the Hawaii Tax Institute 23 years ago, with 80 accountants in an old hotel here, near Diamond Head. This year we’ll have 250 from Asia, and 1,200 professionals from the mainland. Every year, it’s the first week of November, this year it’s November 3-7. We have a couple minutes only, if anyone in the audience would like to ask a question to the panel?

Everyone have a good…