Millionaires, Centimillionaires, Billionaires 

EG: In terms of net worth brackets, what primarily differentiates wealth management strategies between millionaires, centimillionaires and billionaires?
 

RW: Typically HNW individuals just want diversification from their wealth advisor, nobody expects to go from being worth $100K to $5M because their private wealth advisor put them into a nice diversified basket of stocks. Some penny stock or commodity arbitrage traders may promise such things to HNW individuals but the average investor knows that is not realistic. The average HNW individual may own their own house and 1-2 rental properties, they may have bought a few bitcoins, or have done 1-2 angel investments, or picked a couple of stocks like Amazon or Costco, but that is the extent of their investments. 
 

This contrasts with those who are ultra-wealthy at $15M-$30M as a starting point up to $100M+ (centimillionaires). These are the clients we work with directly through Centimillionaire Advisors, LLC, and have speaking on stage at our Family Office Club investor summits. They typically are breaking up their portfolio into three components. The first is diversified public market exposure, similar to what a private banker or multifamily office would put someone into to diversify their holdings and track the market or slightly beat it. 
 

EG: Can we expect to see the decamillionaire and centimillionaire class to become increasingly populous in the foreseeable future? If so, what industries may be positively affected and become even more profitable as a consequence? 
   

RW: Right now there are only 3,000 billionaires that we know of but 55,000+ centimillionaires and both are massively under-reported for privacy, bribery, corruption, and pre-liquidity event reasons. The number of ultra-wealthy is growing quickly, and when account for inflation as well, we are going to see a whole industry emerge around serving centimillionaires just as we have with family offices over the last 10 years.
 

EG: In the event of an economic downturn (and leading up to it), what are some techniques that family offices can rely upon in order to preserve their wealth? 
 

RW: Investing in collateral backed lending investments, using gross revenue royalty structures on their operating business investments, and finding collateral within companies so when they do invest with an equity investment they have some claim to a hard asset such as real estate or equipment to recover part of their capital in a worse case scenario. Other strategies include increasing their cash position from 3-7% to 10-20% to wait for a downtown, or only investing in distressed, already dis-counted investments. Some who do real estate lending may do only 55-60% LTV (Loan to Value) deals now when they were doing 65-70% in the past. 
 

EG: Considering family office investment trends, which industries offer the most optimal safety and, in contrast, which ones are more risky but potentially yield higher returns?
 

RW: There are high and low risk structures and investments in every industry, that is most critical to note with this question I think. You could do a low risk block-chain or cannabis investment and a high risk apartment building investment if you have the wrong team, structures, not right collateral, etc. The right team and unique/excellent strategy is the most obvious form of risk after being in the business for a long time now I know that, more so then a market risk. One you can control and one you cannot, and you want to focus energy on things you can both control but also that will protect your downside and expand your upside. If someone doesn’t have a truly compelling very high conviction committed team and strategy you should instantly move on to someone who does. Smart families invest only in anomalies, deals which are 1 out of 500 or out 1 out of 1,000. If you are around long enough you can spot these, we see 6,500 professionals come through our 32 live events a year and we find just 3-4 dozen exciting deals out of the 6,500 connections and $4M+ in overhead on hosting those events. That is how hard it is to find a truly excellent deal in my opinion.
 

EG: Could you give a word of advice for families trying to raise their first million, and those who already have and are aiming for their first $100 million? 

 

RW: If you are raising capital I would focus on
1) Unique compelling offer
2) Aligned Structure
3) Focused Geographically & by Asset Class
4) Focused Co-Investor or Investor Target Sets. Too many people raising capital have generic statements about their firm, regular structures with high management fees, try to raise capital from many types of investors, and just have no focus on any level. 
 

EG: What are three qualities that make a great billion dollar investor? 
 

RW: 1) Focus

2) Playing a unique game from everyone else in their industry

3) Integrity/Alignment/Integration to bring their strength to the table to win the game they are playing.
 

EG: With the growing wealth of former Soviet countries yet an absence of the family office industry in these places, could it be worth the risk of introducing this concept abroad?  
 

RW: I spoke recently in the country of Georgia, in Tbilisi and found very few formalised family offices there. Most hadn’t heard of the term and much of the wealth that left still don’t completely trust the situation. Russia occupies 15% of the country of Georgia, yet they are their own sovereign country? That brings into question the definition of sovereign, and after what happened in Ukraine I think many would rather keep their capital mainly in London, Dubai, U.S., Singapore, etc. and they may have some real estate holdings in Georgia, and under-the-radar allocations of 5-20% of their wealth in such areas, but there is a lack of trust. Some other countries aren’t under occupation, but the whole area is under the sphere of Russian influence. If the Russians could influence a U.S. election imagine what they could do in Uzbekistan?
 

EG: What are some of the best ways for a family office to increase its profitability?
 

RW: The ways we help clients create more profitability in their family office are:

>Tax efficiency

>Acquiring strategic choke points and assets to give them leverage, distribution, deal flow, etc. 

>Upgrade to family office quality solution providers and partners who can provide great leverage

>Think about how you can completely dominate a niche, roll up small $500K-$2M EBITDA competitors, and then aggregate assets to sell to private equity on a multiple of revenue or high EBITDA multiple vs. what you invested at

>Negotiation on fees, performance only fees, Co-GP structures, adjusted waterfalls for help sourcing a deal, etc. Many clients give away fees that they could keep as they have lots of leverage at the table, and many times are paying 25%-50% more than they need to for their investments.   EG