100: Family Office Tactics for Small Portfolios with Ron Diamond

00:00 - 01:51 | Christopher Nelson: Many investors believe that you have to have hundreds of millions or billions of dollars to execute the strategies of family offices. That's not true. You in your solo family office with $1 million to $30 million net worth can execute the same strategies. In today's episode, I'm going to be breaking down with Ron Diamond, who manages hundreds of millions and billions of dollars with many family offices, how we can use those same strategies to manage our wealth. This is an episode that I have been looking forward to for a long time. I got the opportunity to interview Ron Diamond. Ron Diamond is a chairperson of Tiger 21 in Chicago. He's also the founder of Diamond Wealth, where he brings together family offices worth 500 million to billions of dollars to work together on investment strategies, succession strategies, and how do they continue to work together and optimize their processes. I got the opportunity today to dig into his mind and share with him what we're creating here at WealthOpps around solo family offices to understand what are some of the strategies that we can leverage. You don't want to miss this episode and stick around to the very end because Ron is going to drop some gold nuggets on you. All right, let's get into it. Ron Diamond, I can't thank you enough for joining us here on Managing Tech Millions today. And I would love to just sort of get right into it and start asking you the question that says, you know, whether you have a small portfolio of a few million and you're trying to scale or whether you are running a, you know, multifamily office worth, you know, hundreds of millions or billions, what do you think are the top three priorities that every chief investment officer should be focused on right now?
01:52 - 02:51 | Ron Diamond: Well, first, it's terrific to be here and thank you for having me. Um, I think the number one thing is it, it sounds kind of trite, but it's really trustworthy. It's really a relationship. Um, you know, there's intelligence as a commodity. Integrity is not. And I do think that there are, you really need to find and surround yourself with people that are. that you know have your best interest. I'll give you just a quick example. My accountant, his name is Saul. He's a very good accountant. There might be better accountants, but here's why I'm staying with him. And he is very good. When my taxes are almost due, he calls me and he's more stressed out than I am. I have to calm him down. That's somebody that I want to work with. Right. So that's the main thing is really the relationships that transcends everything else, who you work with, because there's a lot of very smart people. There's a lot of people who could find a good deal flow, et cetera. That's the main thing.

02:53 - 03:03 | Christopher Nelson: Excellent. And then what do you think other than that sort of building off of that, how would you round out that sort of top three? So if it's really finding the people with integrity, what are a couple others to follow on that?

03:04 - 04:05 | Ron Diamond: Um, I, I think that it's, again, it's commonsensical, but really listening. Uh, we were pretty good about, well, we've got one mouth and two ears and we're pretty good about talking, but a lot of us don't really listen and find people who have, um, you know, who are in your position or maybe a little next level, see what they do. Just listen. And you'll get tips from them. You'll learn from them. And they don't have an agenda. Just find out what they did wrong, what they did right. So I think the second thing is really just listening. I think that's really important. And then the last thing I just think is just you've got to do the diligence yourself. You've got to do the research yourself and find out. Again, there's a lot of really smart people out there who can create alpha and all these things, but do the diligence to find out who the people are that fit your personality that you trust implicitly. Because again, this is a relationship that's going to last hopefully a lifetime, and it's not a transaction.

04:06 - 05:53 | Christopher Nelson: Yeah, I think that's really important, especially for, you know, people who are listening to this podcast, who are transitioning from this, the moneymaker and being driven executives. And the expectation is when people fill a room, they're trying to communicate and give a vision to them in this transition from money maker to money manager. you, there is going to be a learning curve. I know for myself, I walked out of managing orgs that were, you know, 100 people and now I'm sitting here at my desk trying to build relationships, trying to understand the skill set that I didn't have any formal training on. And to your point, Ron, it was finding the people that were a few steps ahead, that were living their life in the way that I wanted to live, right? And that's more holistic, right? Thinking about, to your point, the integrity, the character, and what they were trying to do with their wealth, and then really listening, right? And I think repositioning yourself back to that sort of apprentice mindset that we had when I was growing and scaling my career is really, really important. I would agree. Yeah. So when you when you're managing wealth, one of the things that you've been talking about recently that I'm incredibly curious about is this structural alpha, that seems to me that it's it's this, again, this holistic view to wealth when you're really thinking of your wealth, your family office is a complete business. Structural alpha is then not just what you're going to get from the investment, but what are all the other things surrounding it to ensure that you're maximizing tax-efficient returns. Can you explain a little bit more of how you think about this concept and how you're educating family offices about this?

05:54 - 07:13 | Ron Diamond: Sure. Well, let's say you invest in Citadel, which is a terrific hedge fund, and they're up 15%. How'd they do? They're up 15%. No, they're not. They're up 15% pre-tax. The only thing that really matters is post-tax. What happens is you've got the accountants in one room, the lawyers in one room, the money managers in one room, and they don't really get together. The only metric that really matters to you is not your pre-tax, it's your post-tax return. Very few people do that. Very few, they'll do the pre-tax returns, maybe they'll do after fees, but they're not going to take into consideration the taxes. We have friends who manage extremely large institutions. The institutions don't pay taxes, so they were investing alongside them. Their returns were good, but not as good as the institutions who weren't paying taxes. Structural alpha, to me, is figuring out a way to structure your—it could be with PPLI, which is private placement life insurance. It could be with different ways of doing tax loss harvesting, but structuring your things because again, the key, the only metric that should matter to an individual is your after tax return. Nobody or very few people focus on that.

07:15 - 07:52 | Christopher Nelson: Interesting. And it sounds to me, and one of the things that you talk a lot about in family offices is that it's easy as they get built out to have these silos between legal, between tax, between investing. What I'm hearing you say is part of developing a strategy because, correct me if I'm wrong, but I believe that structural alpha is something that then the family office manager has to really bring teams together to break down silos to then really put this metric in front of people and say, this is what we're chasing. How do we effectively manage that?

07:53 - 10:22 | Ron Diamond: Well, I'll give you a great question. I'll give you a perfect example. So private credit is probably the hottest asset class, certainly in family offices. It's thrown off 10 to 12% a year fairly consistently, not a huge amount of risk. Great bond alternative. But it's a horrible asset class from a tax standpoint. So you might be getting 10% consistently, and that's what people focus on. But if you live in California or New York, you might be getting 6% after taxes. The 10% is a moot point. The 6% is the only number that really matters to you. So there's something called private placement life insurance. There's a guy, Michael Leapskin, who kind of created the industry, but basically it's a tax wrapper. And basically what it does is the value proposition is for 50 bips, 50 basis points, you don't pay income taxes. So basically you've got about a 50 basis points drag per year. Which is 9.5% in the example that I gave versus 6%. That to me is structural alpha. And again, the only thing that should matter to individuals is your after-tax return. Compounding things and being patient and not selling is really, really effective. One of the interesting things, I just did a podcast with somebody on Wall Street where they talked about the private equity space and what happens to the private equity model today, and this goes right back to the example of Structural Alpha. Let's say they buy your company, right? They look at your tech company, you've done really well, and they're going to pay X number of dollars. I could tell you approximately when they buy it about when they're going to sell it because I know how they're compensated. Again, that doesn't mean bad people. They're going to sell it in about five years because it's a compensation model. And then they're going to sell it perhaps for a strategic, but probably to a second private equity firm. And then that's going to happen again. And if you look over the course of 20 years, this'll probably trade hands four times. If you look at the taxes and the disruption in business and the inefficiencies and the leakage versus a family office who could simply buy a company, hold it for 20 years and let it compound, the results aren't even close. So the point is that not everyone has a family office. Very few do have family offices, but understanding that the value and the importance of compounding makes a huge, huge difference. And people don't focus on that enough.

10:23 - 11:16 | Christopher Nelson: Right. Compounding over time. And then also, I mean, I think even scaling it down at a smaller private equity level, right, even investing for the people that have just a few million dollars is, you know, when you look at investments and you look at the churn versus the opportunity to hold it and get full appreciation while you're getting the cash flow, because I know For myself, having stepped into some different syndication models in 2013-14, all of a sudden I thought it was a five or seven-year hold, but I'm getting capital pushed back at me every three to five years or less. That then creates, again, a lot of churn and inefficiencies in my family office because then I have to go and deploy that versus I could let compounding work for me through some of those years that, you know, you think about 17 to 19 to 20, that still had a lot of upside. Right.

11:16 - 11:40 | Ron Diamond: And that's the biggest value of patients with the family offices. You know, we have a syndicate of about 100 families that we invest alongside. These are families between 250 million to 30 billion. And they don't care. IRRs are the moot points. They really just focus on the long term. And the biggest advantage I think that family offices have over other types of capital is they have patient capital. IR is a moot point and they don't have to sell. There's no shot clock.

11:42 - 12:08 | Christopher Nelson: So let's talk about that for a minute. One of the things that you advocate for a lot, and this is one of the things in my space I'm advocating for is to have people that are running small solo family offices, as I call them, where you have sort of one solopreneur that's running their family's wealth, anywhere from five to 20 million. And then you're doing this on a larger scale, but what are those efficiencies that happen when you bring together family offices to work together?

12:09 - 15:44 | Ron Diamond: Well, let's talk for a minute about what you just said. So you're talking about, you know, the solo family offices between one million to twenty million or something. Yes, that's correct. So it's very hard to do that. You know, multifamily offices were that's why multifamily offices were really good. To try to do everything yourself is very, very hard because you've got to know a lot about a lot of different areas. Um, the multifamily offices were really created for people who were worth between 5 million up to 250 million. That's really because rather than paying for your own admin, your own lawyer, your own accountant, between families we work with, you're splitting those costs. So I think that to, to, you call it a solo, I don't remember the term you use, um, uh, solo, what was it? No solo family office where. Yeah, you've got to be careful about that because there's a lot of family offices, even though they've sold their company for $100 million, which is a lot of money. It's not enough to have a single family office. So I think you've got to be very careful about knowing what you're good at, what you know, because you know, I'm really good at a couple things and not so good at a lot of things. And that's probably true with many of us. Yep. Um, find out what you're really good at and then surround yourself with smarter people. And the whole goal of what the multifamily office does is, they help you with those areas that you're, you know, if you're a great real estate investor, you're a great tech investor, you don't need help with tech, but you might need help with others. So I'm hesitant to recommend people go out and do this by themselves. Because I've seen a lot of families, they call themselves family, again, I don't judge anybody. I mean, sure, a company for $50 million, it's a lot of money and you could do whatever you want with it. It's just not enough to have a family. I mean, in order to make economic sense to have a single family office, you probably need about a half a billion dollars. Very few people have that much money. So less than that, you need a multifamily office. And what happens is a lot of people try to invest like a single family office, but they don't have the infrastructure. They don't have a deal team to do it, and you can't really do it by yourself. So if you're dealing with families with a wealth of $1 to $30 million, which again, is still a lot of money, it's very hard to do solo. You need to do this holistically. So what happened previously is you had the wire houses, the Merrill Lynch's, Bernstein's throughout the world. The issue with them is they're not even fiduciaries, which is head-scratching. That's why RIAs took off. RIAs are fiduciaries, and the RIAs of the last 15-20 years have grown exponentially. But the RIAs typically are helping you create alpha. They're looking at how to make money in stocks and bonds and different private investments. The multifamily offices look at it from a holistic standpoint. So they take into consideration the state planning and taxes and trust that you're setting up. So the goal is not necessarily to have to create the greatest alpha, which is important. The goal is to do enough state planning, get stuff out of your state, do some wealth transfer and things like that. And from one to 30 million, you can, not at the scale, but you can certainly do these things. And I think that that's why working with a multifamily office at that number, between one to $30 million is important. It's very hard to do by yourself. But the RIAs who have morphed into the multifamily offices, which is simply a holistic RIA, that's really the sweet spot for the people in your audience.

15:45 - 16:25 | Christopher Nelson: Excellent. And so, and part of that is, to your point, is just ensuring that they're getting that broad support around taxes and other things. And I just want to make sure that when I say solo, it's you have sort of an executive who's sort of transitioned to run the family office, but to your point, Uh, they're bringing in, uh, experts and other things to help them sort of manage that. It's not sort of like they're doing their own taxes or other things like that. Right. Got it. Yep. So now, as we see some of this, this chop in this churn and the market, right, how do alternate high net worth families sort of protect themselves and their wealth during these, these market downturns? Great question.

16:27 - 19:14 | Ron Diamond: My background when I started at Drexel Burnham and then I moved back to Chicago and started a hedge fund. I remember when I was raising my hedge fund and I went to one of the very wealthy family offices. I was trying to raise $10 million from them. I was talking about the strategy that we're using and here's what we do and here's what our track record is. He didn't have his accountant in the room. He actually had his estate planning attorney in the room. And I'm 31 or 32 years old. So I don't understand. So after the meeting, I just said, you know, Mr. So-and-so, with all due respect, why was the, I'm not being disrespectful, but it's like, why was the estate planning attorney in the room? Cause in my mind, I'm like, he has no clue what I'm talking about. And, and then he kind of patted me on the back cause he's twice my age. And he's like, The goal is not to be a billionaire. The goal is to be worth really nothing, but control as much as you can. And all trust and estate planning attorneys do is get things out of your estate. So the family offices, one of the interesting things is the wealthier the family, the tighter they are with their estate planning attorney. So your estate planning attorney, I would argue, is more important than any money man you're dealing with, because he's looking at everything holistically. He looks at the whole picture. So I learned an important lesson, and that was, again, all these trusts and estate planning attorneys do, asset protection, so you can't get sued, get stuff out of your estate, gives you the ability to transfer wealth from G1 to G2 or G3 in a tax-efficient way. That's really, to me, the structural alpha. It's not picking private equity. And what happens is people have a liquidity event and what do they do? They start investing and their friends know they sold their company for 20 million bucks and they want to have them invest in their real estate deal or private equity deal. The first thing you should do is talk to an estate planning attorney before you do anything else. And you have to understand governance and things like that. succession and all of these things. Now, they're true for the large family offices, but for the ones between one to 30 million, it's also very true too. The estate planning attorney is basically building you the foundation of a house. And without the foundation, the house crumbles. And what happens is people have liquidity events and they start investing and investing, and then they'll do some estate planning and then they'll kind of structure things and they get it all backwards. So I think in order to do this most efficiently, the first thing you need to do is talk to an estate planning attorney. Second thing is you have to set up governance. The third thing is family dynamics. Talk to other people who've done this. If you've had a liquidity event and then start investing. I tell people don't invest in anything for six or 12 months once you've got a liquidity event.

19:15 - 19:59 | Christopher Nelson: Yeah. And I think that's wise because I have definitely seen in the tech space where all of a sudden people get, you know, this liquidity event, they get ahold of this capital. And the next thing you know, they feel like taking a pause is causing some sort of financial impact when in reality, it's the best thing they can do because many times the best investment you'll ever make is the one that you don't make, right? It's the bad one that you don't make. And I think that's very, very prudent advice. So do they, how does the estate planning attorney, I mean, cause obviously they understand a bit about taxes, but when you are going through higher liquidity events, when do you actually start bringing in the tax strategy team?

20:00 - 21:27 | Ron Diamond: Well, ideally, you want to bring in your estate planning attorney before you sign an LOI, a letter of intent. Because once you sign an LOI, then you've pegged what it's worth. So what the estate planning attorneys do, let's assume you think you're going to sell your company, but you haven't signed an LOI. Because once you sign the LOI, you've got a data point, right? It's worth $8 million or $12 million. If you do it before you do an LOI, you can do discount valuations and you can say, yeah, my company's good, but I'm still independent and these are the problems I'm having, so it might only be worth $5 million. You're really trying to position that it's worth less. Once you've pegged it to a number, a lot of the tools that estate planning attorneys can do to get stuff out of your estate, they can't do. The ideal time to do it is before you sign a letter of intent. Now, once you sign a letter of intent, there's still techniques you could use with an estate planning attorney, but 80% of them you can't use. What happens is people are so focused on your tech company or your widget company and you're doing that, they don't think this through. It's understandable because people don't tell them about this. But the answer is pre thinking about selling your company before you sign a letter of intent. The estate planning attorney can be hugely valuable by getting things done at discount valuation, getting things shown that your company's maybe not worth as much. And then when you sell your company, it's like it's the opposite, you want to show it's worth a ton. And that's what they do.

21:29 - 21:55 | Christopher Nelson: Interesting. So It sounds to me then how do you have the estate attorneys, like you talked a little bit about like G1, G2, et cetera. When in some of these processes do you start involving the other generations of the family? What have you seen as a sort of a benchmark? Is there an age or is there a readiness when you start bringing in the next generation to some of these discussions? Right.

21:55 - 23:33 | Ron Diamond: It's a great question. So remember, we're working, I'm investing with billionaires. I'm investing in a family of between $250 million to $30 billion. So it's a little bit of a different animal because the money is so big. But having said that, if you're worth $10 million, which is still a tremendous amount of money, there are things you need to do. And what you want to do, they give you a playbook on how to invest. They never give you a playbook on parenting, right? It's kind of a hard thing to do. Right. You know, I know people are good about raising kids with people who've been horrible kids. The two do raise an entitled know, you know, I just can't even afford a nice worth $10 million. Um, can put a down payment on a house for me or estate, but they're entitled to it. And so I think that you need to stress that and you need to have people understand. And it'll be better for the kids long-term too, because if you just give them stuff and hand feed them stuff, they're not going to have the grit that you had when your mom or dad or grandparents didn't give you a lot of money. So you get to figure it out for yourself. So I think it's better to do it. So it's really how it's raising your kids. I would say you do it as early as possible, but it's going to be somewhat dependent on the kid, because sometimes there are some kids who have a higher EQ. It's not the IQ, it's the EQ. And if you explain something to them with a high EQ, they'll kind of get it. But if they don't have a high EQ, you might want to wait till they're a little bit older. But you can do it in their teenage years.

23:34 - 24:31 | Christopher Nelson: Yeah, I think where the conversations that we are having with our kids at our age, and I mentioned before, right, we have a 12 year old into 10 year olds, it's just the fact that we're building a family business in the family business will reward creativity and contribution, but it won't reward consumption. So that's sort of the way that we're laying out this framework. Hey, if you have an idea that you want to contribute to the family or you want to contribute to society, here's how we want to accelerate that and how you can partner with the family to get those things done. But we're trying to really plant the seed that this family office that we see is passing off as a multi-generational asset will be something that will be there to augment contribution, creativity, and impact, but it will not Contribute to or support anybody that's just into sort of a raw consumption model, right?

24:31 - 25:08 | Ron Diamond: And you put guidelines. It's a great point You put guidelines down this here's what you know, dad's worked really hard or mom's worked really hard We've created a you know, a nice lifestyle for ourselves the money that we will help you with is medical education, maybe a down payment on a house down the road, that's what we'll help you with. And if you want to start a business, maybe we'll do that. That's what it's for. When I see a Ferrari or two Ferraris in an office, I can almost guarantee that it's not a successful family office. That's fascinating.

25:09 - 25:32 | Christopher Nelson: That's a fascinating data point. What do you think, how does community and collaboration sort of play into this? Obviously you're, you know, one of the founding members of Tiger 21, I know in Chicago and are a part of that sort of group, you know, but there is something to be said of, to your point, who do you surround yourself, the values, the character, and how does that help you as you are managing your wealth?

25:33 - 27:20 | Ron Diamond: In an ideal world, you want to be the dumbest and the poorest person in every meeting. Ideally. So my father taught me something interesting. So my dad was a very successful banker and he used to tell me that he could always hold board meetings and 10, 12 people, and he could always tell who the attorneys are. The attorneys were the people in general who wanted to show that they're the smartest guys in the room. They know what to do. The entrepreneurs, sometimes they were loud and sometimes they didn't say a word. But their whole goal of the meeting was not to show that they're the smartest person. They just wanted to find the smartest person in the room. And that's all I try to do. I try to, I'm pretty good at a couple of things, but I try to surround myself with people that are a lot smarter than me in different verticals that I trust implicitly. And that I can't emphasize that enough. You have to trust them implicitly, but people who are smarter than me in tax, people are smarter than me in venture capital. People are smarter than me in real estate. I'm good at it. I'm not. Great at it. I know people who are great at it so you have to take your ego, push your ego down and say look to be around to be in a group to be in an environment where you are. I don't want to say intelligent but. you're dealing with people that are smarter than you in other areas and wealthier than you. And also, the last thing I say is older than you, because I think, again, from an age standpoint, it's not that everybody who's older than you is more wise than you. But if you look at your own life, I'm guessing you're probably a little more wise than you were when you were 20 years old. And I think that's true. So those are what I try to do is older people, wealthier people, smarter people, and listen and don't talk so much. That's all I do. It's not complicated.

27:21 - 27:28 | Christopher Nelson: And would you say that it's because of those practices that that's helped you have success in the wealth management business?

27:29 - 29:10 | Ron Diamond: Yeah, 100%. I mean, look, when I started my hedge fund, I had no clue what I was doing. I started my career at Drexel Burnham, and Drexel was the most profitable firm on Wall Street, and they imploded. And I was so disillusioned with what happened, I just said, you know, I didn't consider myself an entrepreneur, but I came back and started a hedge fund before I really knew what I was doing. And we just started with a couple million, and we kind of ended up growing it. And we actually did well, but we also had some tailwinds behind us. And again, it comes back to ego, right? So I'm smart enough to know that I wasn't that smart. In other words, if I took my exact same strategy that I ran in the 90s, it wasn't that hard to make money. And so we had tailwinds behind us. Most people don't take into consideration the fact that usually there's an element of luck in anything they do. And in my case, had I run this in a different decade, I would have still done fairly well, but I wouldn't have done nearly as well. So taking that into consideration, understanding, taking your ego and the ego, the biggest obstacle to most, whether you're worth 5 million or $5 billion, the biggest obstacle to most of us is our ego. And again, we have to be able to suppress that and realize that you don't have to be, if you want to really succeed, you have to surround yourself with people that are smarter than you and know more about you. Because there are people that know more about me in every aspect. Maybe I'm fairly good at running a hedge fund, but in private equity and venture capital, real estate and estate planning, whatever, I don't want to be the smartest, I don't want to show that I'm the smartest. I would just want to surround myself with people that are smarter than me and guys like Saul who get more stressed out than me when my taxes are getting close.

29:11 - 29:14 | Christopher Nelson: Right, right. Who cares more about some of that stuff than you do.

29:14 - 29:30 | Ron Diamond: I literally have to calm him down. I'm like, it's going to be okay. And again, he's a great accountant. Is he the absolute best accountant in the country? Probably not. He cares. And that makes a huge difference.

29:30 - 29:50 | Christopher Nelson: That's right. That's right. He's going to help make sure you're successful. So what do you think? What is a financial trend or something that you're seeing in the market today? Right. I know there's obviously, you know, in technology, we see a ton of hype around A.I. and other things. Where do you see some interesting trends that you have your eye on for the future?

29:51 - 31:04 | Ron Diamond: Well, I gave a lecture at Stanford and the professor who spoke right before me had a picture of a fire, a picture of a wheel, the word internet and the word AI, artificial intelligence. And what he said was, and this is what I believe, that as transformative as fire was to Mankind and then the wheel and then the internet. This is how transformative AI is gonna be so we don't. I don't invest. I'm again not smart enough to know which AI companies are gonna do but I am smart enough to know that this is fundamentally gonna change how the world exists. So in 1995 I didn't pick the great internet company. I might've put money in Netscape rather than Facebook. So basically you're trying to find the right company. So I understand from a standpoint, this is clearly the trend and it will fundamentally change investing and it'll fundamentally change every aspect of our lives. But I'm not trying to say, you know, pick which individual company, AI company to invest in, because 9 out of 10 are going to go to zero. All I know is that the trend is there. So we look at things from a macro standpoint, not from a micro standpoint.

31:05 - 31:29 | Christopher Nelson: Interesting. And so do you then, would you then be open and look at a fund type approach or is your, when you think about investing, are you looking for more companies that are coming out in a sort of post IPO when they actually get into the market and they actually have a business case, they have customers and growing revenue or is a venture capital investing something that is of interest to you?

31:30 - 32:05 | Ron Diamond: Venture capital is something that is of zero interest to me and to be of zero interest to everybody, unless they're a venture capitalist. So it's the hardest asset class, right? If you're in the top decile, it's great. And you see it in your world and technology, everything sounds great, whatever, but it's really about execution, right? And you have to find, you have to, I'd rather find a great jockey with good technology than a good jockey with great technology. Because what happens is you typically have to pivot one or two or three or four times. And how is that person going to do it? So we basically, that's how I look at the world.

32:06 - 32:59 | Christopher Nelson: 100%. This is something that has taken my investing from more of a technology perspective into private equity and in real estate to counterbalance, I think, some of the holdings that I've personally had before in different technology companies that I worked in and I got a lot of stock compensation was to start creating some of that balance because I find you know, a lot of volatility in that marketplace. And then I definitely made the choice of not to go into a lot of venture investing, which I've seen, you know, in my, you know, in sort of that one to $20 million net worth technology executive, I find that a lot of them do have a proclivity to believe that they're smarter than the market and go in and start deploying some capital there after a liquidity event. And nine times out of 10, it doesn't end well.

32:59 - 33:47 | Ron Diamond: Well, the model, I mean, the model for the venture capitalists who are doing pre-revenue companies is six out of… These are people who do this full time. Six out of 10 are going to go to zero. One or two are going to be doubles, hopefully, and then hopefully you have one home run which gives you 3x for the fund. If you're an expert and all you do is venture capital and you're picking individual ones, you're assuming that six out of ten are going to go to zero. Why as an individual would you consider picking one? Again, it comes back to getting rich quick or finding the next Microsoft or the next Apple. That's very hard to do. Again, it's not something that I try to do. I've never bought a stock at the bottom. I've never sold a stock at the top. I try to stay between the 20-yard lines and you'll do fairly well that way.

33:48 - 34:19 | Christopher Nelson: Well, and I think that that is some again, again, talking about age and wisdom and experience, right? Is, is there's a lot of money to be made, you know, sort of painting inside those, those sort of risk adjusted lines and saying, Hey, I'm going to, I don't need to go to the fringes of the bell curve to try and hit home runs or try and, you know, hit that Eagle, right. From a golf perspective, right. I can actually play. like you mentioned between the 20 yard lines and actually significantly growing my wealth slowly and steady over time.

34:20 - 35:59 | Ron Diamond: compounding and not selling. In the public markets right now, I made my wealth in the public markets and the hedge fund, but that was in the 90s. Today, it's extremely difficult, in my opinion, to create alpha in the public markets. I have money in index funds. I think you can create alpha in technology and private equity and venture capital and real estate and credit and sports. You can do it there. But in the public markets, the indexes will almost always outperform the money managers, almost consistently. So I just have money in index funds. And again, I might be smart enough to pick the one money manager who could outperform the index every year or whatever, but I just look at it from a statistical standpoint. If four out of five money managers, if the S&P index is going to beat four out of five money managers in a given year, right? And then look at the following year, and the following year, and the following year. Objectively, it is clearly a better model, in my opinion, and I'm right here, to put money in index funds in the public markets. And then there's ways you can do it efficiently in index funds, because there are certain index funds that have things like tax loss harvesting, where you're not just investing in an index fund, it's actually kicking off losses as well. So you can invest, which comes back to structural alpha. So you can invest, it's not just investing in the S&P 500, it's investing in a company that does the index, but also can kick off losses for you. And that's structural alpha. And again, that comes back to the holistic path that I'm talking about.

35:59 - 36:09 | Christopher Nelson: The holistic view, right, of making sure that you're looking at wealth as what's going to be your total sort of net return, minus fees, minus taxes. structural alpha.

36:09 - 36:12 | Ron Diamond: After the tax return, they don't talk about it.

36:13 - 36:15 | Christopher Nelson: No, it's definitely not talked about enough.

36:15 - 37:27 | Ron Diamond: What's interesting is like this, even for the large family offices, the CIOs of these large family offices, There's almost a conflict of interest because they're compensated on pre-tax returns, not post-tax. If you show a tax strategy to a lot of these CIOs, it's not that some will, if they're truly in the best interest of the matriarch or patriarch, they'll take that into consideration, but that it doesn't impact them because they're just compensated on how they do pre-tax. When you have these strategies, which are much more holistic, if you take it, like PTLI is a perfect example, to the estate planning, I'm sorry, to the matriarch or patriarch, they'll get it right away. All they care about is their after-tax returns, where the CIO is more focused on pre-tax returns. Not always, but in general. And again, I think with Wall Street in general, always look at everybody who has an agenda, right? And always check out what the conflict of interest is, because there's always some agenda. And that's not necessarily a bad thing, but see what the agenda is, see what the potential conflict of interests are. And once you understand that, you can make a better informed decision on the way to go.

37:29 - 38:11 | Christopher Nelson: Yes, because when you're investing with somebody to your point, whether that is somebody that is a public markets wealth manager or somebody that has some sort of private placement deal in front of you, you want to make sure that you're understanding where their incentives are, where they are getting compensated? What does that model look like? Because then you're sort of reverse engineering too, so where your risk may be. Because when incentives are aligned on an outcome and a result, that's where you then are tied to that particular person. But if they're actually incented to not have to manage well, or they're compensated when things go up and down, then incentives may not be aligned.

38:14 - 39:26 | Ron Diamond: Conflict of interest or how things are aligned. It's not necessarily that they are bad people. So I'm gonna be a perfect example. We had a friend who sold his company for about 50 million dollars . He never had a lot of money before it's all built in the business and he went to a wire house. I'm not going to say which one, but one of the wire houses. I knew exactly how this was going to play out. He was going to invest in the wire house credit fund, the wire house private equity fund, the wire house, because that's where they're making their money, right? They try to sell their own product. Now the broker who's doing what he's doing for the company right doesn't make a bad person right because he's doing what he's doing. What the company says he should do and they're not bad investments. but he's not taking the extra, going the extra layer and saying, well, in private credit, you know, Monroe's fairly, is probably better than our firm in this or in private equity, this firm is probably better in this. So they've got to take that into consideration. So always understand the alignment of interest, potential conflicts of interest in the agenda. And once you do that, you can make much more informed decisions.

39:27 - 39:40 | Christopher Nelson: That's so good. How do you see the family office model evolving now over time? I mean, where do you see it going sort of in the next 10 years? I know this is part of, of things that you think about a lot.

39:40 - 44:32 | Ron Diamond: Yeah, no, that's a great question. It's going to drastically change how companies are financed and how a lot of this is real world philanthropy, how these real world problems are solved, which is really my North star. So right now in, in family offices, and again, in order for it to make economic sense to have a single family office, you need roughly $500 million. So there's obviously not a lot. But there's currently about $10 trillion in capital in single family offices throughout the world. But over the next 20 years, we're about to experience the largest transfer of wealth in history. There's $124 trillion that's moving from the baby boomers to the next gen in the next 20 years. Largest transfer of wealth in history. So what's going to happen is you're going to have huge amounts of money, right? And in general, it's in inefficient hands because what happens is, at least in the world that I'm in, the family offices, they sell a company for a billion, $2 billion. I'll give you a perfect example. Ty Warner was a brilliant businessman. He created Beanie Babies and it was a phenomenon. And I remember going to the trade shows and there were lines to get in the line to get in the line. He was a brilliant businessman. Well, what happened? He tried to buy the Four Seasons Hotel. and you get crushed. And that's driven, I think, by ego. So because you did really well in something doesn't mean you're good at everything or other things. And I think that's what you have to do. So right now, how I see this playing out is that private equity and venture capital disrupted the public markets. I'm running a hedge fund in the 90s, and you're running your tech company, let's say you're public. If you've got a report to me every 90 days, there's no way you could have scaled your company the way you've scaled it. Do R&D when you want to. And so public companies, the problem is you have to manage earnings every 90 days. So private equity and venture capital took off. It was a better model. 2% covers the overhead, 20% I make money if you make money. But here's what happened. Many, not all, but many of the private equity firms bastardized the business. It became an AUM game. And they realized that if they could run a $5 billion fund and they get 2% of $5 billion, as an annuity every single year, irrespective of what happened. And I had a friend who did a rollup of logistics companies and he needed $150 million. It was a niche strategy and an incredible track record. PlaceMajor was thrilled. Based on his track record, she was able to get him $500 million. And she called him and my friend said, that's great. I just need $150. The PlaceMajor actually came to New York and wrote down 2% of $500 million equals X, 2% of $150 million equals Y. What am I missing? And my friend, who's a bit incredulous, says, here's what you're missing. If I do what you want me to do, it won't be fun, too, because I can't deploy the other $350 million. I'm smart enough to know that 2% of 500 million is more than 2%, so I'll make more money short-term, but it's not gonna be good long-term for the investor. That's a microcosm of what's wrong with the industry, and that's why I think private equity and venture capital disrupted the public markets. I do believe family offices will never be replaced, but they're gonna start to disrupt, because if you look at what happened to the model today, a private equity firm buys a garage door company in Iowa. Like I said, I can tell you when they're going to sell it. They're going to sell it in five years. It's going to trade hands four times. Whereas a family office has something called patient capital, they could simply buy it and let it compound. The biggest advantage family offices have is they have something called patient capital. There's no shot clock. And again, that goes back to the alignment of interest, how they're compensated. It doesn't make the private equity people or venture capital people bad people. That's just how they're compensated. You just need to know that going in. And that's why I think to answer your question, the trend is going to be, if you're looking to sell, you're your second, third, fourth generation in a business, and you're looking to make the most money, you almost never sell it to a family office. It'll always be a private equity firm. But the family office where they will come in is in 3, 5, 7, 10, 20 years. If you care about the employees and their relatives and you want the legacy, they're going to be more focused on the long term. And whereas a private equity firm in general is going to be focused more on making as much money short term as possible. In order to create alpha, you need to operate. And a lot of these private equity firms do something called financial engineering. So I could financially engineer any company and strip it and give it a lot of debt and make money short term, which will make me money, but not necessarily in the best interest for the company, medium or long term. So the people who are looking just to cash out right away, sell to a private equity firm. If you don't care about whatever, sell the private because you'll make more money today. But if you're focused on what's going to happen to the employees and what's going to happen to the company three years, five years, 10 years, 20 years down the road, a family office model, I believe is objectively a better model.

44:32 - 44:57 | Christopher Nelson: Wow. That's really powerful because then all of a sudden now you are having this patient capital buying what you might consider a legacy asset where somebody is saying, I don't want this to be just a pure dollar play for me and my family. We've put our heart and soul into this for potentially multiple generations. Let's transition this over to a family office that then is going to continue our legacy and not just cash this out.

44:57 - 46:01 | Ron Diamond: Then that's a different player, right? And the reason is what happened is these private equity firms, it's become an AUM game, right? Not always, but in general. And these firms have become massive and they're making their money on it. Many of them are making their money on 2% and that's sort of 20%, which is how they're supposed to make their money. So what happens is because they have so much money in 2018, 2019, You know, we were looking to buy companies and we love companies. We were going to buy them. And then a private equity firm would come in and pay twice what we would pay. And it's like, it's crazy. Now, the reason they do that is once they've raised the money, the private equity firm has two options. They can return the money, which they've done 0.0% of the time, or they can invest the money. And sometimes they have to invest in it when it's overpriced. alignment of interest. They've got the money, so they have to invest it. I'm not going to give it back, right? Because then I'm not paid on it. And then I'm going to invest it and I'll pay probably one and a half times what it's worth. Again, alignment of interest, understanding where everyone's coming from.

46:02 - 46:21 | Christopher Nelson: Fascinating. It's such a great perspective and viewpoint to everything, Ron. I really appreciate that. So when you're thinking again of my audience who I'm talking to right here, what are some pieces of advice that you would give people thinking about growing and protecting their wealth in this current day environment?

46:22 - 48:24 | Ron Diamond: The first, second, third thing is the same thing that the large family offices do, which is find people that you trust implicitly. So what the largest family offices do is the first, second, third thing they do when they're going to make an investment is they, it's all based on relationship. They want to know who you are as a person. The fourth thing they'll find out is what's your track record, what's your strategy, what's your investment thesis. That's flipped institutionally. The institutions want to know what's your one, three, five year track record, then they'll kind of do some diligence and you know these people. For an individual who makes between one to thirty million dollars, which again is still a lot of money, the first thing they need to focus on is the relationship and they need to trust the people. Because again, integrity, intelligence is a commodity. There's a lot of really smart people. Integrity is nuts. That's the most important thing. I can't emphasize that enough. Secondly, I think that learning as much as you can so you understand it. You're not going to be an expert in real estate and venture capital and private equity, whatever. But once you surround yourself with people that you trust implicitly who are smarter than you in those verticals, And you're listening to what they're doing, and you listen to the mistakes that they've made, and you take your ego, and you take your ego out of this. I mean, the biggest obstacle that most family offices have is their own ego, right? I mean, just take your ego out of the equation and just say, look, I, these guys are smarter than me, these guys are richer than me, these guys are whatever, and they know more than me in this stuff. And that's, so that's what you really need to do. So I think you have to look at it from a holistic standpoint, take your ego and bring it down, and listen to people, find out, you know, Once you've found everybody has people they know implicitly that they trust, I would put money with somebody that I trust implicitly that's got a good track record versus somebody that I kind of trust that has got an incredible track record. And I think the mistake most people make is they would do the latter, not the former. And I think the former is the better model.

48:25 - 48:57 | Christopher Nelson: How do you think as you get to know different operators and you are building this trust, how then do you think about asset allocation? Is there a limit to what you're going to allocate to somebody who you trust implicitly? You froze for a minute. Can you repeat the question? Oh, yeah. I was asking about asset allocation. So if you know, like, and trust somebody implicitly, you have a good relationship, I'm sure there's also a limit to what is the percentage of dollars that you're going to allocate to that particular person.

48:58 - 51:13 | Ron Diamond: Yeah. Your audience is between one to 30 million. Let's just call it 10 million. You want to have a diversified portfolio. I mean, real estate has done great, but you don't want to make a bet that you're so confident in real estate that 85% of your portfolio is in real estate because if interest rates go up and you can see what would happen. So you want to have a diversified portfolio. People understand that in order to create true wealth, to really crush it, what you do, you have a technology company. That's where you're going to make your money. That's where you're going to get wealthy. You're not necessarily going to get wealthy by investing. Investing should give you a better market return for what you do. If the S&P is up five and you want to be up six or seven percent, but there will never be any investment that you can make that can be better than investing in your company. So having said that, that's where you're putting the bulk of your time and efforts and energy in what you do. The other things, all of these wirehouses and RIAs and multifamily offices, There's not that much of a difference in many of them. That's why I say trust is so important. They're trying to beat a benchmark by a couple basis points, and that's what they're trying to do. So if you're looking to invest to get rich, typically that's a bad strategy. The good strategy is to try to get rich in your own business, in your case, in your technology company, and that's where you make your money. And then you grow your assets and compound it. through investing, period. And people need to look at it from that lens. And we are so myopic many times, and we want to see this shiny object. And everybody's got friends. Oh, they invested in this. You talk to your friends at a cocktail party. They'll all tell you about these companies they invested in. They were here, and they're up 100x. All I can tell you is I'm fairly sophisticated and I've done fairly well, and I've had a ton of companies that have gotten crushed. And you just learn from these mistakes and just talk about it. Because again, when you're listening to a cocktail party, everybody's making a ton of money. So you want to take the easy road out, and it's just not the way to do it.

51:14 - 51:58 | Christopher Nelson: Well, and I think you're talking, too, about what I find is when people are transitioning from I've made my wealth in concentration around working for a company, I'm getting a salary, I'm getting significant equity compensation. Now they want to transition to managing their money. To your point. The returns aren't the bright, shiny object. To your point, you want to get it so that you're compounding one or two points ahead of the market, that you're making sure that you're getting income off your portfolio so that you're not into some sort of a drawdown type of scenario, and you can ultimately let your wealth grow. That is a very measured, structured strategy and not an IPO moment.

52:00 - 53:13 | Ron Diamond: You can get rich by investing, but it's very hard to do that. You can typically, unless you run a hedge fund or you run a private equity firm, you're going to get rich or wealthy in your own vertical, your own widget company, your own technology company, your own whatever company. Look at your investments as a way to beat the market by a little bit. Compound things. Again, when you find people that you trust implicitly, it's really not that hard. You just need to understand there are so many conflicts of interest. Everyone has an agenda. Just get back to the bottom line and find out what are the potential conflicts of interest. Insurance people are trying to sell you as much insurance as possible. That's how they're compensated. If you're worth $10 million, you don't need a $50 million insurance policy where the insurance person might show you metrics to show you why you need that much. You don't need that much. So I think that you really have to look at things, understand everybody's agenda, understand where there are inherent conflicts of interest, look at investing as a way to compound your wealth, not to make your wealth.

53:14 - 54:04 | Christopher Nelson: Going back to diversification just a little bit, I am curious, right? We know that the public markets are actually getting consumed by the private markets as we've been seeing a lot more public companies getting taken private and et cetera, et cetera. How much, like when you think about, you know, When I talk to people who are, let's say in that one to $5 million range, like they've been exposed the majority of their lives to public equity and private equity seems like a foreign world. But I do think that it is important to diversify in that direction because it gives you another dimension in your portfolio that protects you during downsides. And it also allows you to grow your wealth in that steady sort of measured way. What do you think about, Yeah, people getting exposure into the private markets. How important do you think that is?

54:04 - 55:04 | Ron Diamond: I think it's very important. I mean, the trend is that the number of public companies are going to go down. The number of privately held companies are going to continue to go up. Part of the reason is a lot of the alpha that's been created, they're creating more alpha. Before the company goes public, right? So they're making their money while it's private. And then people are realizing that it's not necessarily so fun to have a publicly traded company. Again, I ran a hedge fund, so people had to report to me or an analyst on Wall Street every 90 days. That's not really a great way to do it. I think the model in general for the pride for the privately held company So I think the trend is going to continue where you're gonna see fewer and fewer privately publicly traded companies The number of privately held companies are going to continue to go up and that's where you're gonna create the alpha and I think for the investor who's worth 1 to 5 million dollars They can get into these funds right now that invest in the private markets. And again, I think they can create better alpha there. And in the public markets, my personal advice, and I am correct, is put money in index funds.

55:05 - 55:21 | Christopher Nelson: Excellent. Well, Ron, I am just so appreciative of your time in coming in and speaking to us today. I don't know if there's anything that you would want to leave us with as we're, you know, moving, you know, into 2025. And we are seeing, you know, a little bit of market disruption.

55:22 - 55:50 | Ron Diamond: I'll leave you with just be. the something that I tell my children, just focus on gratitude. We all have stuff going on in our lives and investments or things. I've got five things that suck right now. I got things that are great. I used to think that happy people were grateful. It's flipped. Grateful people in general are happy, happier. And I would just focus on gratitude. And I think that that's just the way I live my life.

55:51 - 57:35 | Christopher Nelson: That's beautiful. Oh my gosh, Ron, such a pleasure to have you on. Thank you so much for your time today. Thank you for having me. It's a pleasure. I don't know about you, but that last little nugget that Ron left us with was just absolutely amazing. that it's really the grateful people, the people that are appreciative for what they have, they're so happy. You know, when I reflect on this and I think about how many ultra wealthy people that Ron is with, they still have this attitude of gratitude towards their wealth that, you know, creates something different inside of them. As I reflect on this as somebody who is, you know, a first generation millionaire for myself and my family and the stewardship and wanting to do the right things with the money and also wanting to pass on the right principles and things to my children, this is so important to me. I don't know about you, but I did not think that Ron's, you know, the focus of this episode was going to be so much on mindset and positioning and simplifying. But that goes to show you that running a solo family office is not rocket science. There's foundational fundamentals and the things that are happening at the ultra high net worth level, we can apply those as well. And I think it starts with mindset. It starts with principles. Well, I could go on about that all day. I'm going to leave you with this. If you want to know more about what we're doing here, managingtechmillions.com. If you go to our sub stack, you can subscribe to our newsletter. Every Tuesday, we send something out at 6 p.m. Pacific time. Or you can also follow our podcast on Apple, Amazon, Spotify, wherever you listen. Episodes come out every Tuesday early. So we'll see you next week. Bye.