E195: 7 Lessons on Family Office Investing w/Stephan Roche

What does it take to manage the wealth of America’s most iconic families? In this episode, I spoke with Stephan Roche, Partner at BanyanGlobal, and former senior executive for the Gates and Walton families. Stephan has had a front-row seat to how some of the world’s most sophisticated family offices think about investing, governance, and multigenerational legacy. At Banyan, he now advises enterprising families on ownership strategy and purpose. We explore the frameworks ultra-wealthy families use to structure portfolios, co-invest alongside GPs, and prepare future generations for stewardship—not just of capital, but of mission and values. Whether you’re managing family wealth or building toward it, this is one of the most insightful conversations I’ve had on long-term investing.

Episode Transcript

(00:00):
So multiple people told me I had to chat withyou.

(00:02):
You're the CEO of Walden Enterprises, theWalden family.
You are the COO of Cascade, which is a BillGates family.
You you've been with some of the most prominentfamilies on the investing side.
Tell me a little bit about how the portfoliosof the very largest family offices in the
country look like versus the smaller quote,unquote, smaller single family offices.

(00:23):
That's a good question.
And what's interesting about them is, honestly,as you scale up, they don't change that
dramatically.
Of course you get the benefits of scale.
You get the benefits of access to managersbecause you can write a bigger check.
You get the opportunity to do things maybe froma direct investing standpoint that you might
not if you're a smaller family office.

(00:44):
Those things are absolutely true.
And I would say of those, the access isprobably the most important.
So you're going to be able to get maybe the toptier private equity funds, get access to some
of the bigger direct investment deals, call ita SpaceX or Uber back in the day.
But the truth is, in many ways, they really area reflection of how you think about asset

(01:06):
allocation and the choices you can make in anyportfolio.
There's really kind of a couple of differentmodels in family offices.
And I've not only worked with the Gates andWaltons, I've also worked across the family
office universe in many different ways.
I have a lot of peers, plus I now am an advisorto those families.

(01:30):
And the models that I have seen most often arefirst the Yale model, which is David Swenson,
heavy private equity investment with someadditional public equities, typically through
external managers.
That's often very attractive for a familybecause they have a very long term horizon.
So the cash flow of a private equity investmentmakes sense.

(01:52):
And think of private equity as not just the bigprivate equity shops, but also venture capital.
So anything where you're putting capital into avehicle with the expectations that it's
invested over the long term, There's of coursesome great tax benefits to that to push out
your returns.
There's some really interesting challenges thatcome along with that as well, which is you,
right now there's a huge cash crunch and cashcrisis because there's no distributions.

(02:16):
But in any case, that model has historically,at least for the last twenty years or so, been
very, very attractive.
Another model is more of the Warren Buffettmodel, as I like to call it, which is to invest
in relatively few, very high quality equities.
But in the public markets, that's a strategythat can again be very effective with a long
term horizon where you buy and hold.

(02:37):
Whether it's Coca Cola or any of other Warren'sextraordinary investments, you know what you're
buying and you buy it for a long period oftime.
Then the third model is more of kind of thecatchall, which is the bespoke model that
reflects the interests of the principal, thewealth creator.
And these are ones that can be all over theplace.
You see this most often in relatively smallerfamily offices where the investments start to

(03:04):
become very real estate focused if theprincipal made money in real estate.
They can be very focused on direct investmentsin an area of market segment that is relevant
to where the principal made their originalfortune.
Or it can just be a hodgepodge of cats and dogsbecause families get access to lots of deals
that come over the transom and they startplacing a lot of different bets.

(03:26):
Really interesting, but not necessarily alwaysthe most efficient or necessarily driving top
performance.
If you woke up tomorrow and somebody gifted you$10,000,000,000 in cash and you needed to
design your portfolio for your family and forfuture generations, how would you design your
portfolio?

(03:47):
The very first thing I do, David, and I dothink this is critically important, is and I
mean this, is the first thing I would do is Iwould try to understand the purpose of my
family and how the wealth could serve thatpurpose.
And when you have multigenerational wealth likethat, you have to be really thoughtful about
what you wanna do with that wealth.

(04:07):
Because honestly, my first instinct, and I knowthis is gonna sound crazy, but my first
instinct is put it all in an S and P 500 ETFand step back and keep doing what I'm doing.
I happen to love my job.
I love what I do.
I could do this until I'm 75.
And I know a family member of an ultra high networth family who said about his family, he
said, Boy, I wish my other family members wouldjust put all this money into a nice, well

(04:33):
allocated public portfolio, fixed income andequity, and go and get a job.
They would be much happier.
And I laughed and I thought, actually, there'ssome truth to that.
So as I think about that, that's my firstinstinct.
But the reality is is my family would have veryspecific things that are related to my values
and my principles and my hopes and dreams andaspirations for my children and grandchildren

(04:56):
and generations beyond that, that I would wantto craft a portfolio that reflects that.
And I would think about the purpose and intentof my family.
Then you craft the kind of investments that youwant to do.
Then start thinking about the estate planning.
Way too many people start with the estateplanning.

(05:16):
The first visit that they have after they comeinto this liquidity is they go to the tax
lawyer.
And it's like tax lawyers aren't strategic orat least they're not trained to be strategic.
And of course tax lawyers are extraordinarilyimportant and I've met many great tax lawyers
and I actually count some of them as my goodfriends.
But at the end of the day, they're not thinkingabout the family in the same way because they

(05:38):
have that mindset of what are the taxadvantages and disadvantages of certain
strategies around estate planning.
So stepping back to answer the first questionis I would think hard about my intent and
purpose.
I would likely, given my own knowledge of whatmy interests are, my wife and my interests, our
children, we have 26 year old triplets who areadults, I'd wanna know their thoughts, is that

(06:01):
I would probably be in a portfolio much moresimilar to the Yale endowment.
Heavy duty private equity, some publicequities, and a little bit of cash to fund our
own personal needs, but also charitable needsand others.
Let's say you wanted to make sure that thismoney stayed for many generations or maybe you

(06:22):
wanted to give it away after you pass away, whywould that change your portfolio allocation at
that sum of money?
You're not gonna be saving up to send somebodyto college or buy a yacht.
All that is a small portion of your money.
Why would that actually change your assetallocation?
One is, so that private equity allocation isbecause just over the last twenty five, thirty

(06:43):
years, private equity has been the source ofexcess alpha.
It really has driven higher returns in a verytax efficient way.
And so that's why the private equity allocationwould be quite large.
And again, I couldn't put a number on it in themoment, but it would probably be somewhere in
the 50% to 60% of the portfolio.

(07:03):
The idea being that preserves that capital forlonger term.
The charitable piece of that, which I think iscritically important, is you have to think
about when you invest in charities, and I dothink about when you're making grants to
charities, it's an investment.
It's an investment in the charitableorganization and their mission and what they

(07:23):
can accomplish.
It's an investment in the potential of thatorganization to drive real change.
Do you wanna think about it just as in thatway?
You wanna have sufficient cash that you canmeet the needs of your commitments, not just
next year, but multiple years.
One of the exercises we would go through, and Idon't think it's gonna be a surprise to

(07:44):
anybody, but when you work with Bill Gates andyou're investing money on behalf of the Gates
Foundation, you have to be very, verythoughtful about any market situation that puts
the foundation in a position where it has madecommitments that it cannot live up to because
there's not liquidity.
And you're seeing that right now in collegeendowments as an example, where a lot of them

(08:05):
are trying to create liquidity, particularly intheir private equity portfolios because the
federal government is pulling back theinvestment they're making in higher education.
It's a big deal.
So that's why I think that's a really importantpiece.
And the bottom line is when you have$10,000,000,000 you don't need that much to
live on.
Even if you've got a pretty extravagantlifestyle, it turns out, I mean, we're not

(08:27):
talking about the 100 meter yacht crowd, butkind of normal humans who have extraordinary
wealth, you're not going to spend a whole lotof that money.
And so you don't need to worry too much aboutthat piece.
But at a high level, and obviously, we'retalking very theoretical here, that's how I
would think about it.
Said another way, these families that makethese large foundational commitments is

(08:47):
essentially almost like a pension fund havingto deploy out proceeds or an insurance company
doing payouts.
It's that kind of forced liquidity thatrequires you not only to optimize on long term,
but also to have short term liquidity.
It's a great way to think about it.
It's really matching liabilities is reallyimportant and understanding that those cash

(09:08):
needs as you go through that exercise.
And of course, when you invest in privateequity, you have to be very thoughtful about
capital calls.
You have to be thoughtful about distributions.
You have to be thoughtful about when thecapital calls and distributions get out of
alignment, which as you know they are today.
You're not getting the distributions, butyou're still getting the capital calls, that
can be a huge problem in portfolios where youstart to get into a cash crisis, where you've

(09:32):
got plenty of wealth because you got a cashissue.
So that's a lot of the thinking that you wantto be able to do with a portfolio of that size
and scale.
One of the interesting things about alternativeinvestments and alternative asset class is that
there's disagreement on the numbers.
There's not like, this is the S and P 500.

(09:53):
This is the Russell two thousand.
You mentioned private equity, which I amassuming you're you mean private equity and
venture capital.
When pitted against each other, why would youchoose private equity over venture capital or
vice versa?
One of my past lives, I actually ran a venturecapital fund.
And so I actually have some deep insight there.
When I was working at Bain and Company as astrategy consultant, a number of my clients

(10:18):
were private equity funds.
So I've actually seen both sides up close andpersonal.
And though both are private equity in a sense,so one is buyout funds, the other is venture
capital.
You might also put private credit under thatsame umbrella.
Private credit's very popular right now.
The big distinction between venture capital andprivate equity is frankly the size of the

(10:38):
checks you can write and the expectations ofrisk and reward.
When you're doing venture capital, you're notwriting $50,000,000 checks typically.
You're really writing $5,000,000 checks,dollars 10,000,000 checks, maybe 25.
In private equity, can write big checks.
If you've got a $10,000,000,000 portfolio andyou've got to deploy 10,000,000,000 in equity

(10:59):
or in assets, it's really hard to do thatsuccessfully writing checks to venture capital.
Yeah, there are a few big funds, obviously A16Zand Kleiner Perkins and Sequoia, but most
venture capital funds really can't handle acheck size of $50,000,000 You would crush them
in a sense.
Whereas private equity, you can write a check,dollars 100,000,000, dollars 500,000,000 and

(11:22):
they're going to deploy that in a veryeffective and efficient way.
So that's a big difference.
The other thing is timing.
Venture capital, they used to say five to sevenyears.
I'll tell you, venture capital today in termsof expectation of returns should be probably
ten to twelve years.
A lot of these funds are ten year funds andthen they just kind of automatically add a

(11:44):
year, add a year, add a year because they'rejust not getting the returns that quickly.
Whereas private equity, the buyout funds, youreally should expect that five to seven year
return on the cash.
I like that as an investor in the family officespace to have that longer timeframe.
I also like the QSBS treatment of venturecapital returns where there's a very favorable

(12:06):
tax treatment.
So that could be really beneficial withventure.
Private equity, you get the benefit of justbeing able to put your money out there in kind
of a zero coupon bond and get the return backor an evergreen fund where it just gets
reinvested on a regular basis.
So that's those are the two big differences.
And then you've got private credit, which is Ithink a super interesting market but also I get

(12:28):
a little worried about it.
I think it has the potential to get volatilegiven how the spreads on rates have started to
be bid down.
There's too much money going to private creditin a sense.
That being said, it's an enormous TAM.
So I think there's a lot of still upside there.
But all of those have similar characteristicsaround you allocate a certain amount of money,

(12:49):
it gets called, then it gets distributed overtime.
But there's three very different, assetcategories within that private umbrella.
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One of the interesting things about venturecapital is that it has QSPS, which is a tax
exemption essentially on the gain.
You never it's not a deferral.
Some tax strategies are deferrals.
And also when you lose the money, you couldstill take that that deduction.

(14:17):
So it actually has a negative tax basis ornegative tax effect on your portfolio and that
could certainly compound.
If I made you choose today on your ownportfolio, your $10,000,000,000 portfolio, if
you could invest in one of two strategies inventure, venture, one is a top venture fund of
funds, and two is a basket of emergingmanagers, maybe you're doing direct or via fund

(14:41):
of funds, what would you choose if you had tochoose one?
Oh my gosh.
That is such a great hypothetical because Iactually have a strong belief that fund of
funds are a vehicle that, particularly withinventure capital, that frankly are are there's
too few of them.
There need to be more of them.
And I'll tell you why.
Let me talk about that for a moment.

(15:01):
There are about 6,000 venture capital fundstoday.
6,000.
I I have no idea how many there were twentyfive years ago, but it was a fraction of that,
at at least an order of magnitude less.
It turns out that when you go to the beginningsof the mutual fund industry, there were about
6,000 public equities.
And the mutual fund industry came about becausethere were just too many equities for the

(15:24):
average investor to know what to invest in.
And so these mutual funds came in and said,hey, we'll do the hard work for you.
And of course, this was before you got to indexfunds and then, of course, ETFs.
They'll do the work for you.
They'll identify the best stocks out of those6,000.
They'll put them in a pool so you'll diversifyyour risk a little bit.
You'll get kind of better returns than averageover that 6,000 stock portfolio.

(15:50):
Great.
We're in kind of the same position today.
How do you as an ordinary investor, even as afamily office, have the resources to evaluate
6,000 funds?
The truth is you don't.
PitchBook is an incredible resource.
No question about it, but it's a flawedresource.
It's it's not a forward looking resource, andit's really not even a real time resource.

(16:11):
It's very much a backward looking.
It is it's a reflection of returns that havehappened based upon investments that might have
happened three, five, seven or more years ago.
So when you're looking at at venture capital,the fund to fund model can be very powerful
where somebody is doing the deep dive duediligence on all of these funds.
So I think fund to funds are great.

(16:33):
Now your question was portfolio a fund of fundof top funds or a fund of fund of emerging
funds?
And this is where I've done some research inthe past.
What I have seen in in the research in the pastis that the third fund is typically the best
performing fund of any private equity, buyoutfund, venture fund out there.

(16:53):
And there's a kind of an interesting reason forthat.
The third fund tends to be really strongbecause the first fund, you're essentially
you're burning your network in terms of raisingthe money and finding companies to invest in.
And you you only need a couple to to go bigbecause you're making smaller investments to
really return the fund multiple times over.
Great.
The second fund, you're getting into yourgroove.

(17:14):
You're you're building your network.
You have more access to start up CEOs.
You have more ability to kinda discern betweenthose, companies that are gonna be great versus
those that are gonna fail.
It's hard, but you're getting a little betterat it.
By the third front, you are in the zone.
You get it.
You know exactly what you wanna accomplish.
You have a really good idea about the kinds ofcompanies you wanna invest in.

(17:37):
You're very disciplined.
You're still hungry as heck.
You want to make as much money as you can oneach of these deals.
Your network of investors, of LPs has grown andthey're backing you.
They're excited about what you've built and theideas behind it and you're kicking butt.
Then you get to the fourth fund and you startedto make some money, and you start backing off

(17:59):
all the the super hard work that you've done,and the you you've got more money to invest.
And so you start widening the aperture of whatyou're willing to invest in.
And that's when the returns start to soften alittle bit and maybe go off.
So I say all that because I really likeemerging funds.
I think emerging funds with investors,particularly if you can get ZPs who come out of

(18:20):
great funds, who say, I wanna try this on myown, can be a really, really powerful way of
generating above average returns, excessreturns.
And as I think about in venture capital, you'vereally got to be top quartile and your goal
really is top decile returns.
So I would probably lean a little bit moretowards the emerging funds because I think the

(18:43):
top funds, well, yeah, they get more access forsure.
They have an ability to to get liquidity bydriving strategic acquisitions or, getting
companies out into the public markets, which weused to do quite a bit.
Apparently, we've forgotten how to do that.
But the big funds are definitely positionedbetter to just generate more consistent

(19:03):
returns.
But the emerging funds are the ones whereyou're going to get, I believe, you're gonna
really get the outperformance.
So it's not necessarily a venture fund of ofmature fund managers and not even necessarily
true emerging managers, first time fundmanagers, but kind of the spinouts.
Somebody that's been at a Sequoia Andreessenfor a decade, has a track record, and still

(19:27):
isn't a fund one, has a small fund, has thehunger that you found to be the best.
And I think that that's where it gets reallyexciting.
At the end of the day, what's reallyinteresting about funds, funds are just groups
of partners.
And if you're really doing your diligence, youshould know not just the performance of the
fund, but the performance of every partnerwithin that fund.

(19:47):
And once you get there, you start seeingthere's a Pareto curve everywhere you look.
There's a Pareto curve of funds.
There's a Pareto curve of the partners within afund.
Now the worst performing partner in any giventop performing fund is off often gonna get lift
because the other partners will only invest inthe best deals.
They'll get access to better deals than theymight otherwise.
But you're still looking at a Pareto curve ofperformance by the individual partners within a

(20:12):
fund.
And so I even like that better, which is youreally finding the really top partners who you
can invest in, in their first fund, theirsecond fund, even their third fund, that can be
really exciting.
This Pareto principle, this eightytwentyprinciple, do you find that reflected among the
GPs?
Is there a general awareness of who is strongerand better partner, or is it more an equal

(20:33):
partnership so as not to signal that to LPs?
It's funny.
I think it's a little bit easier on the privateequity side, quite honest, the buyout side,
than it is necessarily on the venture side.
But yeah, if you dig, and again, this is wherediligence becomes important.
You should be able to find which is the partnerthat's really identifying the deals you know in
their portfolio that are the top performers andto start to see that pattern.

(20:57):
And listen, the whole point of being investorsis discerning patterns that other people don't
see.
And if you discern those patterns, you getoutperformance on your portfolio.
And it's the same thing when you're looking ata great venture capital fund is to discern
underneath the hood which of the partners arereally driving those returns.
Have you seen fund of funds that focus onspinouts and seems like a interesting strategy.

(21:22):
So I don't know of anyone honestly who doesthis.
It's funny that I've had this thought in theback my head that I'm such a big believer in
this fund to fund ideas that I should go outthere and just do it.
But I don't know that anyone has thatparticular strategy, but the top fund of funds,
if you look within their portfolio, they willhave funds that are generally those funds of

(21:43):
spin out partners.
Most coming into the industry new and saying,particularly if you're an executive of a very
successful company or you're even better, hey,did a bunch of startups.
I was the executive of the startup.
Therefore, know how to do venture capital.
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So if it's tough venture fund to fund, thepoint is moot that it's a spinout because all
of the emerging managers in their portfolio arespinouts or the large majority.
So segmenting that way is kind of nonsensical.
No, I don't think it's nonsensical.
I think there are a lot of funds out there forpeople who just think they can raise money and

(23:11):
invest.
But my guess is if you look at the fund offunds out there, probably they are going to
lean more towards that model.
But honestly, I don't know.
And do I think there's a space for that?
Absolutely.
And I think if you can invest in the spin outpartners, and then you can invest in the co

(23:31):
investment opportunities to put more capital towork in their best deals.
You can't guarantee anything.
You know as well as I do, there's so much riskin venture, but does it mitigate some of that
risk?
Does it put greater odds of your success?
Absolutely.
You mentioned co invest.
I just had professor Steve Kaplan, who's one ofthe imminent researchers on private equity and

(23:53):
venture capital.
Something that he said that was reallyinteresting is if you think about a 25% gross
return in private equity, it's roughly a 19%net return on a yearly basis, obviously.
So having a co invest, your your returns areactually increased by 6% per year, which is

(24:13):
enormous alpha.
So a lot of the top investors are actually it'shighly rational to come in, invest in these
funds, and get co invest, exposure.
And if 50% of your investments are in coinvest, your your entire portfolio is
increasing by 3%.
Exactly.
And Steve Kaplan's a good friend of mine.

(24:34):
Steve Kaplan and I are actually working on amajor project around family offices together.
I don't know if you had a chance to go intothat with him.
He is absolutely one of the smartest investorsand thinkers about investments and particularly
within private equity out there and he'sbrilliant.
He and I absolutely agree.

(24:54):
I like to think of co invest as buying downyour fees, but what you're saying is kind of
the inverse of that is it's essentially buyingup your returns.
Same thing.
I think about not just putting 50% but I woulddo one to one ratio.
So if I'm putting writing a $10,000,000 checkto a venture capital fund, I would think about
setting aside $10,000,000 for co invest rights.

(25:16):
You've just bought down your two and, two andtwenty to one and ten.
That's a pretty darn good place to be,particularly as you think about that that as
friction on your returns.
And with that co invest, it actually there aresignals that you can get out of the portfolio
to give you confidence that the co invest isnot just invested at an equal basis, but but

(25:39):
perhaps is invested with a slightly higherprobability of that return, which so it's in a
sense, it's actually transforming it from justnot just the, hey, can get the 26% return in
your example on average, but I may actually begetting a higher return on that part of my
capital, not just because I'm not paying fees,but also I'm getting into the better deals.

(26:00):
Piqued my curiosity, what are the signal thatthis co invest is something that you should
really lean in on versus another co invest?
It's all about where they are in their stage ofdevelopment.
You typically don't have a co invest right at aseed stage investment because seed stage
investments are typically relatively small andthere's not enough capacity for that company to
take on additional capital.

(26:21):
And then you get to the A series investment.
You might have a small co invest right there.
So maybe they're raising $25,000,000 and you'llbe able to put in an additional 1 or 2,000,000
as a co invest.
It's usually at series B and beyond that you'regoing to have the large You'd be able to write
a large enough check for this to make sense.

(26:43):
And so it's simply that when a company gets toseries B, they've already proven that they've
gotten over the hurdles of seed stage andseries A.
And it's typically the go to market strategy,the product market fit, it's actual customers
in the market, it's potentially evenunderstanding the P and L, the underlying cost
drivers of the business and whether they can becontrolled.

(27:05):
Do they have the triple, triple, double,double, opportunity on the top line, potential?
All of those factors combined put you at ahigher probability of success.
One of the signals, of course, is having a goodrelationship with the GP and having a good line
of communication.
Brass tacks is the degree of the relationship,the proportional amount of your check size into

(27:27):
the actual fund versus a fund size.
I know a lot of people say it's this and that,but is that like 80% of the value of the
relationship to the GP?
Or is it truly many different things that theycare about?
It depends on the fund, of course.
But I will tell you, when I think aboutSempraverins and when I think about the
relationship that we had as an LP into GPs inmy prior experiences, there is so much more

(27:51):
potential in that relationship with a GP thansimply writing a big check.
And in fact, often the biggest checks don'twant any relationship at all.
Typically it's institutional capital andthey're moving on to the next fund and the next
fund.
They've invested in you.
They've done the diligence.
They believe in you.
Now go do your work.
As a family office, it's different.
It really is.

(28:12):
And I think as a family office investor, youhave an opportunity to build a different type
of relationship with a GP.
And if you're a GP, you should be thinking verydifferently about those family office
investors.
And at some point, we'll probably talk a littlebit more about well even how do you find that
family office investor but on this specificquestion, what does a relationship look like?

(28:34):
A great relationship with a family office fromthe GP standpoint, you can get exposure and
network to additional family offices.
You can get the opportunity to reallyunderstand the family offices portfolio beyond
just the investment they made in you and wherethere might be some synergies.
Because a really well run great family officeinvestment portfolio has some consistency to it

(29:00):
that links back to the success of the originalprincipal and the wealth creator to the core
business that they created.
And if you're a great venture capital firm, yousee that and you say, how do I get more deeply
connected into that expertise to make that partof my ecosystem for deal sourcing, for deal
diligence, and potentially even for dealperformance or for the performance of that

(29:24):
portfolio company we invest in.
So from a GP, that's what I'd be thinking aboutis the value of that relationship is much more
than just the dollars they give you.
And a family office that writes a check for$25,000,000 but then moves on to the next deal
because they're more institutional class isn'tas valuable sometimes as that $5,000,000 check
with a much tighter relationship with yourfirm.

(29:45):
As I reflect back on my own career as a GP,there's different buckets.
There's even a signaling bucket.
You could have an institutional investor for asmall check.
That's extremely valuable.
You could argue that that translates into itsown check size.
You know?
$5,000,000 from Yale and maybe implicitly,like, a $500,000,000 check from everybody else.

(30:06):
But there's signal, there's obviously checksize, and there's also just who you like to be
around, thought partners, all those things.
So there there are different buckets.
And and, ideally, you have all three insomebody, but it's it's it's rarely the case.
I know a an investor who would put a milliondollars into different direct investments.

(30:29):
And the reason he did that is he wanted arelationship with really smart CEOs, And he
would ask a team of people to do the diligenceon these deals.
And the team would come back and say, you know,we don't see it.
We don't see the product market fit.
We don't see the TAM.
We don't see the the true upside opportunity.
And this individual would still invest in thedeal because they said at the end of the day, I

(30:51):
want to be able to have dinner with this CEOonce a quarter.
And you know what, if it takes a milliondollars to buy that right, I'm willing to do
it.
That's totally legitimate.
That's how family offices can be so differentthan an institutional investor.
CalPERS, CalSTRS, I mean, people would be in anuproar if they knew that that was why they were
making an investment.

(31:12):
But for an individual investor as familyoffice, that's totally legitimate and actually
can be a really interesting way for that personto build relationships.
And you as a GP, David, you probably love thatkind of connection into people who can be part
of that huge ecosystem that you build thatcreates the value that ultimately that you're

(31:33):
monetizing through the investments you make.
And the word for that is a relationship check.
Guess it has a negative Yes.
But could could also have a positiveconnotation as well.
So today, you're at Banyan Global.
So tell me about Banyan Global.
So Banyan Global is a leading family enterpriseadviser firm.

(31:57):
What we do is we're not wealth advisers.
We're not strategy consultants.
We're not advisers on, you know, m and aactivity.
We really focus exclusively on governance andownership of families that have shared assets.
And a shared asset could be a family business,could be a family office, could be a family

(32:18):
philanthropy.
And families understand when they have theseshared assets that they have very different
they're in a very different situation than theaverage American family.
The average American family doesn't need to gettogether and decide on big decisions related to
a family business, a billion dollar familybusiness.
They don't get together at dinner and say,should we do this acquisition or not?

(32:41):
But families who own these shared assetstogether do.
And what Banyan does is we help support better,more strategic ownership and governance of
these assets.
And think about situations like you'retransitioning ownership from the second
generation to the third generation of owners.
How do you do that successfully?
How do you make sure that next generation isready to stand up when the second generation is

(33:03):
ready to stand back and step away from thebusiness.
It's a moment in time that has a highprobability of failure.
And so Banyan comes in and helps facilitate thebest decision making possible across the family
system to make that transition successful.
Another thing we do quite a bit is we helpfamilies with understanding what is their

(33:25):
purpose of owning this shared asset together,the family business, the family office.
Because a lot of families honestly maybeshouldn't own a business together, maybe
shouldn't have a family office together.
What we try to do is help the family make thebetter decision about what is right for them on
a multigenerational basis.
And I would say our superpower and somethingthat I love to do is don't think one year,

(33:48):
three years, five years, seven years out.
Think twenty five years out.
Think about the generation that is unborn.
And that's really hard to do.
Humans are not well adapted to thinking aboutnot their children, not their grandchildren,
but their great grandchildren.
Their great grandchildren who will be secondcousins with each other.
I don't know about you, David, I couldn't namea single second cousin in my family.

(34:11):
I've got twenty six first cousins, hard enoughto keep track of all them.
Way too many second cousins.
And so in a family of multigenerational wealth,one of the things that I admire most and one of
things I love about this role working withBanyan is working with great families who have
figured out how to make that work successfully,and it ain't easy.

(34:34):
You've met one family that's in the ninetyninth generation.
I think that's probably some kind of record,but also ones in ten, twenty, 30.
What's the secret to success?
What allows them to keep the family wealthtogether for so many generations?
The truth is it's actually quite simple to keepwealth.

(34:55):
Simple may be an overstatement, but there's onesimple thing you can do to keep wealth for 10
generations, 26 generations, and beyond.
And the answer is primogeniture.
The answer is ruthlessly pruning the branchesof the tree.
Because if you don't ruthlessly prune thebranches of your tree, it's very hard to make
wealth last that long.
I have not done the math.

(35:15):
And I think there's somebody should create avery simple formula for what we call the rabbit
problem.
And the rabbit problem is families grow in sizeover time.
We have more babies, those babies grow up andhave babies and those babies grow up and have
babies.
So the wealth then gets divided.
The returns you need to generate in order tomake sure that the wealth per person within a

(35:38):
family stays constant or increases is wellabove the rate of growth that most families can
achieve particularly because a lot of themallocate too much of their portfolio to non
performing assets, airplanes, yachts, houses,stuff that that doesn't generate money.
It just it it absorbs capital.
So rule number one, don't buy a lot ofnonperforming assets if you want

(36:02):
multigenerational wealth.
Rule number two, really think about how youallocate your wealth through future
generations.
Quite honestly, if you want to have wealth at99 generations, it has to go to one member of
the family in each generation, and it has to go100%.
And what they do in some cultures, which Ithink is really interesting, not something you

(36:23):
see very often in America.
One of the things I love about America is wewant all our kids to have things equally.
It's kinda cool.
Most families are like that.
But the reality is if you want that wealth tolast, if you keep it in one family member and
that family member who inherits all of thewealth has a fiduciary obligation to support
the family but controls the wealth, it can be areally interesting way of knowing that that

(36:49):
wealth can persist.
The family business, keeping a family businesslike in I think Japan is a culture you hear
about family businesses that are owned forfive, ten, 15 generations or more.
Those families are really, really thoughtfulabout how to keep that business in the hands of
one family member, the one who is best suitedto own and run the business.

(37:14):
So that's the truth about how to keep it wealthtogether for 10 plus generations.
The truth is, as an individual, that tenthgeneration, I mean, you have been dead for so
long.
You really have to question, is that actuallythat important to me?
Or do I want to think differently about mywealth and the opportunity to spread it, to

(37:35):
have more family members who have that wealth?
And it serves as this foundational element forthem to do, as Warren Buffett says, have enough
money to do whatever they want, but not so muchmoney that they do nothing.
As you were talking about the the math behindinheritance, if you have three kids per

(37:55):
generation, you would have to triple the realvalue of the wealth every generation without
regards to taxes.
And if you assume a 50% estate tax, that's asix x compounding over from generation to
generation.
But you also take out spending, charitablegifting, anything that is a draw on those

(38:22):
assets.
And that's where you get into trouble becausetaxes are a big deal.
You can do a lot though to manage and mitigateyour taxes.
You're always going to pay taxes and you shouldpay taxes, but you're also spending money.
And that's when you've got to think about,gosh, if I buy that yacht and then I'm paying,
I think the rule of thumb is 10% of the valueof the yacht you spend on operating expenses.

(38:44):
You have to think about that.
You're never, you're not going to get the valueof the yacht bad.
I mean back.
It's gonna depreciate, and you're spending 10%a year.
That is a terrible way of helping you get tothat 6x compounded return generation to
generation.
So those are the kinds of things I'd bethinking about.
Tell me about the difference about a familythat's in service of the wealth versus the

(39:06):
wealth that's in service of the family.
I love this concept.
This also goes back to you want your family tohave a purpose, not that the wealth has a
purpose.
One of the things you hear a lot about is,gosh, are those families a good steward of
their wealth?
Who wants to be a steward of their wealth?
Who wants to die and on their tombstone betold, Hey, these were the best stewards of

(39:29):
their wealth?
That's not very interesting.
Am I a great investor?
Yeah, that's interesting.
But a steward of the wealth?
Not really.
What you want to be is known as, I was a greatsteward of our purpose and we accomplished our
aspirations as a family.
And so as I think about wealth, you want thatwealth to be in service of those aspirations.
How does the wealth provide the resources toallow this family to do great things?

(39:52):
And there are different archetypes of family.
There's families that are great entrepreneurs.
There are families that are great civicleaders.
There are families that do other things in waysthat maybe it's a particular industry, maybe
it's the sports industry, whatever, where thefamily is known as the Rockefellers and look at
the extraordinary things they've done inphilanthropy as an example.

(40:14):
If you think about how does the wealth, how canwealth be in service of that?
That's a really fun and interestingconversation.
But if you're in service of your wealth, whatthat means, which is the inverse, it means the
wealth has essentially become the thing thatoverwhelms you day to day.
And I've seen this.
And I've seen it in in many families where allof our time is spent worrying about the wealth

(40:37):
and the things that the wealth has bought forus.
When you own a home, a home is hard.
Every once in while you have to replace theroof that leaks.
You've got make sure the yard is mowed.
You've got to make sure you keep it clean.
Great.
When you have the second house, okay.
I've just doubled the problem.
Then you get to five houses or big pieces ofproperty.

(40:58):
Then you say, okay.
Well, that's okay.
I'm going to hire property managers.
Well then who's going to manage the propertymanagers?
Oh, I'll hire an estate manager.
Well, who's going to oversee the estatemanager?
We'll have a family office.
Well, who's going to oversee the family office?
And one of the things I've said about my roleis honestly, you really don't want a Steven.

(41:19):
I think I was a pretty good family office,leader quite honestly.
And I really enjoyed the job.
But it's a pain in the ass to have a Steven.
There needs to be great communication.
There needs to be regular meetings.
They need to hire and fire me.
If in case I don't do the job that they expectme to do, you need to have a successor in
place.

(41:39):
You need to think about the board and the boardresponsibilities of that individual.
That's a lot of work.
That's when your wealth is starting to manageyou.
When your money manages you, it kind of failed.
When you're managing your money and managingyour purpose and supporting your family and

(42:00):
doing great things with your life, whateverthose are, then you're thriving.
That's how I think about having your wealth inservice to the family, not your family in
service to the wealth.
This principle applies to any level of wealthpast kind of basic means.
What what are some best practices to avoidhaving your wealth essentially own you?

(42:24):
I love the fact that you said that, David,because I do think that's really important is
understanding this isn't just for ultra highnet worth families.
It is really for all of us to think about whatis the role that that money and assets and
resources play in our lives.
And and it's something that I think maybe wehave forgotten a little bit, and I'm not sure
why.
But it's you know, what I like to say is whenI'm in a group, you know, where my family is or

(42:49):
my friends are, like on July 4 weekend, we hada big family reunion.
There were 23 family members, from my wife'sfamily.
And it and I looked around and I said, thisthis is what it's all about.
This.
These relationships is fun.
Was it always you know, was it, you know, allgiggles for four days?
No.
Because it's a family, and families haveconflicts, there's, you know, the the rough

(43:10):
edges and friction.
But the reality is it's still that's what thisis for.
And to the degree that in my particular family,I don't have multigenerational wealth.
My wife does not have multigenerational wealth,but we're very, you know, affluent and live a
really, really nice life.
It was 23 people at a family property livinglife to its fullest.

(43:32):
That's what it's about.
So what does that mean?
It means don't let yourself get managed by yourmoney.
Don't get to that third or fourth house whereyou're starting Let me tell you a story about
somebody who I was flying on their private jet.
And I said, Well, this is pretty nice.

(43:53):
Lifestyle.
This was pretty early in my career.
It was the first time I'd ever flown on aprivate jet.
And I thought, this is pretty great.
And I said, what's it like owning a privatejet?
And he said, Stephen, it's a lot harder thanyou think.
And of course, my flag went up and I thought,oh, is it that hard to own a private jet?
And he said, here's why.
He said, I now think about all the time how doI use this asset because I now have this thing

(44:14):
called a private jet.
How do I make the most use of it?
How do I make sure that I get value from thisthing?
And he said, it's actually hard.
And so he said, I started planning trips justso I could make use of this jet so they got
utilized.
And I thought, well, is interesting because Idon't have to worry about that.
I know that there's a regularly scheduled jetservice from Alaska Airlines out of SeaTac that
I can go pretty much most places I wanna go inThe US and many places globally.

(44:38):
That's pretty great.
Having a private jet is both freedom andburden.
So thinking through if I have a level ofaspirations for myself and my family, what
level of wealth do I need?
How do I ensure that I can achieve that?
And then make sure I don't get to a place whereI get on the hedonic treadmill and I start

(45:00):
seeking more and more and more and allow myselfto be really happy with a family reunion with
23 people at a family property that is justextraordinary.
And that's pretty good living.
Wondering how much of this is just perspective.
I have a second home.
Sometimes I rent it out.

(45:21):
Sometimes gives me issues just like anythingcould give you issues.
I have cultivated this thankfulness for thatopportunity, I guess, humility for lack of a
better word.
And versus before, I would almost have like abit like, why is this guy calling me?
Like, why why do I have to deal with this guy?
And I wonder how much of that is mindset interms of who owns what?

(45:46):
Do your assets own you versus do you own yourassets?
Oh, yeah.
Gratitude, you know, everyone's talking aboutgratitude today for good reason.
Gratitude matters.
And gratitude is just being grateful, thankfulfor your friends, the things you own and
understanding.
And that call that you get, that is becausesomebody is reaching out to me for help.

(46:10):
They might be yelling at me over the phone.
And the first thing I say is, hey, you seemangry.
What can I do?
How can I help you?
To me, it's about reframing, which is whatyou're saying is perspective, but reframing
whatever situation you're in and having thepatience to step back, take the beat, and say,
what is this really about so that I can besuccessful in this moment, but more

(46:33):
importantly, be successful as a human.
And I think I shared I have 26 year oldtriplets.
And I get asked all the time about how are thetriplets doing?
And the thing that I talk about is they'rethriving.
Now, are they always thriving?
No, they're not.
They haven't always, they won't always.
But in this moment, they actually are.
And then they say, well, what does that mean?

(46:54):
And I say, Well, they're 26.
Nobody peaks in their 20s, but my three kidshave good, healthy relationships.
They have great friendships.
They've got really strong relationship withtheir cousins and their aunts and uncles and
us.
They've got jobs that pay for the lifestylethat they are used to living.
They know that they have mom and dad as abackstop support, but we're not spending money

(47:19):
on them today.
We've given them opportunities to step up intotheir own lives, which they're thriving in,
which doesn't mean we're not there for themwhen they need it.
It's one of the great privileges that theyhave, but they get it.
That's thriving.
It's always defining what it is to mean tothrive because are they driving the ultimate

(47:40):
cars they want to drive?
None of them own a house yet.
None of them are making the kind of income theythink they might be able to make one day.
But are they in this moment thriving?
Yeah.
That's a pretty good place to be.
Have you ever read Bill Perkins, Die With Zero?
Not only do I have I read it, but I'verecommended it to dozens of people.
I'm a huge fan.
What are your takeaways from that?
It's a great question because there are twotakeaways that I particularly took.

(48:02):
I'm 55 years old and I got to the section wherehe talks about when you should start spending
down your wealth.
And in my worldview starting from a very youngage when I first got into business, my
assumption was you build, build, build wealthuntil you retire, and then you hope like heck

(48:24):
that you've got additional income so you don'thave to start eating into that wealth.
And then you keep building that wealth, andthen at some point, well, I've gotta start
spending down my principal because I've gottalive.
Okay, that's a pretty common model that peoplehave.
And I didn't have in my head, by the way, backthen, building multi generational wealth.
I got into the whole ultra high net worthfamily office space about halfway through my

(48:47):
career.
So it wasn't part of that initial mindset.
But what Bill says, which is so cool in DieWith Zero is you should start spending down
your wealth when you're still alive.
Start spending it when you've got the energyand you've got the friendships and you've got
the opportunities to do extraordinary things.
Then it turns out that's typically kind of inyour 50s.

(49:09):
And we have been empty nest for about, gosh,ten years when you say when my kids went to
college and a little bit fewer since theygraduated from college.
But that has given my wife and I some realopportunities to go do extraordinary things.
As an example, this year, we were invited in avery last minute, it was about a month before

(49:30):
the trip, to go on a two week trip to the GobiDesert in China to look at ancient Buddhist
paintings in these caves called the DunhuangBuddhist Caves in Dunhuang, China.
And it was honestly a once in a lifetimeopportunity.
And we said yes.
We said yes immediately.

(49:51):
And then I turned to my wife after she hung upthe phone after saying yes, and I said, how
much is this going to cost us, by the way?
And the number was astronomical.
We had never spent anything like this on atrip, nothing even close.
And in Bill's book, he talks about hiring this,a band.
Well, I'm assuming it was Rolling Stones.
I don't think he ever actually says it in thebook, but hiring a band for his, I believe it

(50:11):
was fiftieth birthday.
And this was kind of our hiring, maybe not theRolling Stones, but hiring a great band for a
fiftieth birthday kind of price for a trip.
But my wife is a Asian art scholar.
She's the president of the board of trusteesfor the Seattle Art Museum.
This is something super important to herculturally.
I love these kind of strips because they reallyopened my mind around history and civilization

(50:33):
because we were looking at caves that werecreated in the fourth century AD during the
Silk Trade Route days and it was theintegration of Christianity, Buddhism, Islam,
and there's one other.
Which other great religion am I forgetting?
Anyway, all these religions in one place.

(50:54):
And these paintings were the firstrepresentative sample of Chinese painting that
you would see even today.
So it was one of these incredible trips.
So we said yes.
That's what I learned from Bill Perkins' book.
And I can tell you honestly, I would have beensubstantially less likely to have said yes

(51:15):
without that mindset that Bill has of the bookwas start spending down your wealth now when
you can because I couldn't do that trip, it'sage 75.
So do it now, have fun, live your life.
That was one of my huge takeaways out of thatbook.
One of the concepts I learned from it, twoimportant concepts, one is memory dividends.

(51:35):
So you have this 50 birthday, and now you couldremember it with your wife for twenty, thirty
years.
So it's almost like this compounding intereston dividends.
Then it's kind of obvious thing in retrospect,which is when you're 75, you may not be able to
do the same trip.
You might not have the same physical function.
So some things you can't actually do later.

(51:57):
You can't just defer it even if you wanted toand even if you plan to do it.
There's this new meme on the third marshmallow,the second way to actually fail the marshmallow
test.
So there's a very famous very famouspsychological study where they gave one
marshmallow and they would tell the kids that,I think it's kindergarteners, if they waited,

(52:17):
they would get a second marshmallow.
The reason it's so famous is it's so predictiveof future life success.
It shows impulse control and all these things.
But there's this new meme of the thirdmarshmallow, which is some people basically
delay infinity and they fail the marshmallow.
There's two ways to fail the marshmallow test.
One is to take the marshmallow in thebeginning, another one is never to take the
marshmallow to let it to die with a billionmarshmallows is also a failure of the test.

(52:43):
I think a lot of people gain anxiety when theyhear Die With Zero and it's a really smart meme
able title and it's not meant to be takenliterally, but also I think that a little bit
goes a long way.
It's the Pareto principle.
For a lot of people spending any money, Imyself first generation immigrant, you know,
self made guy, it's difficult to even do alittle bit and doing a little bit goes a long

(53:07):
way, versus literally dying with zero, whichBill Perkins doesn't even advocate, but it's a
clever title.
So I think for those struggling, like manyprobably listeners of this podcast, doing a
little could go a very long way.
I'll tell you the other thing about Die WithZero that can be a little confusing is I think
some people misinterpret that as spend all ofyour money on yourself.

(53:31):
And that's not what he's suggesting.
He's not suggesting, Hey, you made it.
You spend it.
And by the way, it's your money.
If you've made it, you can spend it.
That is your decision and that is a decisionthat you should have control over.
But that's not necessarily what he's saying.
What he's saying is there are three paths,three things you can do with money.
Oh, four things.
You could spend it.

(53:51):
You can invest it.
You could give it away or you could pass itdown to your heirs.
And no matter which path you're going with yourmoney, do it so that the day you die, you're
essentially at zero.
Now it's nearly impossible to get that right,of course.
And so if you literally tried to do that, youwould almost certainly miss that zero by plus

(54:11):
or minus maybe five years.
But the reality is it's the thought process of,if I'm going to give it away, give it away now.
There's nothing more valuable in the world ofcharitable organizations than getting a dollar
today.
A dollar today is worth more than a dollar ayear from now and worth much more than a dollar
ten years from now on your death.

(54:32):
Even if it's worth $5 then, it is still worthmore today.
So give it away now.
Not all of it, but start that process of givingit away.
If you're going to give it to your children,think really hard about how do I get it to my
children sooner than later.
Don't give it all to them on your deathbed.
Don't give you, oh my gosh.
David, we know somebody in the ultra high networth space who is giving a 100% of their

(54:55):
wealth, and let's just say it's in thebillions, a 100% of the wealth gets dispersed
the day after this person dies.
Not literally the day, but at some point afterprobate and everything, all the money will be
dispersed.
And we sit with him and say, gosh, don't youwant to see the benefits of that today?

(55:15):
Don't you want to see the impact that your giftcan have even if it's anonymous?
It's not about having your name on a buildingtoday.
It's not necessarily about having a lot ofmedia exposure.
It's just seeing the impact.
And this person said no.
No.
I'm comfortable giving it the day after I die.
So that's a choice.
That's not the choice I make.

(55:37):
My wife and I try to be as generous as we cantoday because it's really kind of fun to see
our money start to have impact today with ourchildren.
If I can help my kids today a down payment fora house, A, help them with buying their first
car, help them get an apartment because theyneed the first month, last month, and month of

(55:57):
deposit, I'd much rather do that than havingthem know that, hey, the day I die, you're
going to become a millionaire.
It's like, well, that's no fun.
Like, that's I'm dead.
That's not great.
So that's a piece with die with zero is notabout spend all your money so that no one gets
anything.
It's do the things with your money you wanna dotoday because, frankly, it's a lot more fun to

(56:19):
spend it today.
It's more fun to give it away today.
It's more fun to see what your children can dowith your resources today, and you can help
guide them more successfully with it.
And so that's the kind of thinking.
And by the way, investments are great and it'sa lot of fun, but you don't need nearly as much
money after you turn 80 as you did when you're55.
And a lot of people imagine that they'respending the same rate at age 80 as they are at

(56:42):
55, and they're just not.
And so they end up stuffing too many acornsaway for that moment.
So anyway, very powerful book.
I really did enjoy it.
And I recommended it to every listener.
Well, we'll put it the show notes.
As a lasting thought, what financial orplanning advice would you give a G1, a first

(57:04):
generation patriarch or matriarch that's builtthe wealth and that's looking to have the most
impact with their wealth as as we've definedtoday vaguely, which is what what they want to
do with it.
But what what one piece of advice, actionableadvice would you give them?
Sorry.
That's too hard.
I'm gonna give two.
But the first piece of advice is develop aletter of intent that you can share with the

(57:30):
next generation, with your children.
And the letter of intent is a way ofarticulating the story of where the wealth came
from.
That can be so important.
Your children may have been sitting at thedining room table with you during much of that
journey of creating the wealth, but theyhaven't always heard all of the story.
They haven't heard about that time that younearly ran out of money or that time that you

(57:52):
had a lawsuit that could have put you out ofbusiness, but that you were able to
successfully work your way through it.
That time that things were so difficult thatyou had to be really creative and maybe it was
a stressful time in your life and maybe thatwas the time of your life when were you a
little bit angry around your kids and the kidscan then say, I understand it.
I understand what my dad was doing or my momwas doing when they were on this wealth

(58:13):
creation journey.
That story matters.
So the narrative.
The second part of that letter of intent talksabout how you think about the wealth, what your
hopes and aspirations are for that wealth.
And the third piece is not necessarily beingdirective, but providing guidance on how you
think about the children can best utilize thatwealth to help achieve the family's purpose and

(58:34):
their own personal purpose.
So I think that letter of intent is a thingthat too few wealth creators have really sat
down and done.
A lot of wealth creators think that's too woowoo, it's too soft, it's visiony.
That may all be true, but it's worth doing.
The second thing I'd say about this, about yourwealth is don't do a thing with estate

(58:59):
planning, with hiring a investment manager,with building out a family office.
Don't do any of that without being first reallythoughtful about this letter of intent and your
purpose so that you can actually do that in ain a way that that is consistent with what
you're hoping to do with this wealth becausetoo many people go down a path that they I

(59:19):
can't tell you how many family offices havebeen started to build.
And then they fire everybody, they say, that'snot the direction we wanted to go.
And I've got be honest.
It can be really harsh and cruel to the people.
I know too many examples of people who hadthese wonderful jobs working with a g one, and
suddenly they're fired because the g onedecided to go a different direction because
they hadn't quite worked it out.

(59:39):
Don't do that.
Don't be that person.
Be someone who's really thoughtful,intentional, can do the kinds of things that
allow you to build your family office inexactly the same strategic way you built your
business because a family office is a source ofstrategic value for your family and on a
multigenerational basis, it is not just a costcenter.
That's my second piece of advice.

(59:59):
Those are both great.
Thank you.
Well, on that note, thanks for taking the timeand look forward to as many topics we didn't
cover, look forward to doing this again soon.
I'd love to do that, David.
Thank you.
Thank you, sir.
Thanks for listening to my conversation.
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