How the 0.001% invest

I&#x27;ve worked for a family office in Hong Kong. What was really telling for me was how the rate of return KPI was measured. We were not benchmarked against the S&amp;P 500, or any index. We were measured directly against the fund of another frenemy family. So long as the fund outperformed the other family, all was good. It&#x27;s crazy because you could be underperforming treasury bonds, and still be good because the other office was worse.<p>I guess when you that much money, more money means less than vanity and bragging rights.

0.001% of the world is about 75k people [1], there are about 2200 dollar billionaires [2], so only(!) ~3% of these people are billionaires.<p>Not a real point to make, but I was wondering, and it might save someone else time.<p>[1] <a href="https:&#x2F;&#x2F;www.wolframalpha.com&#x2F;input&#x2F;?i=0.001%25+*+world+population" rel="nofollow">https:&#x2F;&#x2F;www.wolframalpha.com&#x2F;input&#x2F;?i=0.001%25+*+world+popul...</a> [2] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;The_World%27s_Billionaires" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;The_World%27s_Billionaires</a>

I struggle to understand the point of the article.<p>&gt;Rich clients have taken a closer look at private banks’ high fees and murky incentives, and balked.<p>OK. Rich clients were not happy with the way external managers managed their funds and decided to do it themselves. I get it.<p>&gt;As they grow even bigger in an era of populism, family offices are destined to face uncomfortable questions about how they concentrate power and feed inequality.<p>How on Earth is it related to populism?<p>&gt;Family offices have created inequality.<p>If the author&#x27;s explanation of what family offices are is correct, they didn&#x27;t create inequality. If you take your money from a deposit and decide to invest yourself you don&#x27;t create inequality. You undertake higher risk and potentially receive higher award.<p>What&#x27;s the point of the article?

Back when I was fantasizing about what I&#x27;d do if I won the lottery, I looked into family offices a bit and concluded that there&#x27;s basically no point as far as the investing advice goes. It&#x27;s still likely a good idea for some of the ultra-wealthy for estate, tax, and philanthropic purposes, but on the investment side? The standard passive indexing approach used by middle class individuals scales in a cost-effective manner to the <i>billions</i> of dollars of assets. And as a bonus, you don&#x27;t need to stake your fortune on a trust-based relationship. Instead, you get to base things off of institutions and audits - Vanguard isn&#x27;t going to take the money you shoved into VTSAX and embezzle it through investing in their distant cousin&#x27;s &quot;company&quot;, even if it is a billion dollars.

The article only considers new investment. Jeff Bezos may be worth $150bn, but approximately $125bn of that is in Amazon stock. He&#x27;s 80% invested in Amazon.<p>Does it really matter where the worlds richest man puts the other 20% when he could afford to lose it all on moonshots and not give a damn? The risk-reward trade-offs you and me make while investing just don&#x27;t apply to Jeffs personal investment decisions, and therefore aren&#x27;t all that interesting.

<a href="http:&#x2F;&#x2F;archive.is&#x2F;o3LVk" rel="nofollow">http:&#x2F;&#x2F;archive.is&#x2F;o3LVk</a>

The family offices I&#x27;ve worked with do pretty much everything. Part of the reason to do everything is that you have the freedom to do so. I literally called a friend on behalf of another friend to get him a bridge loan for a house once.<p>A free mandate makes for more interesting work, plus as the manager you can stick things in illiquids that have no mark-to-market. That&#x27;s the uncharitable view, of course. The charitable view is that you are better at evaluating opportunities and are able to do things other institutions are not.<p>Main thing about FOs is they are just the article says, totally idiosyncratic. One FO I know is basically just a wily old guy who does all his business by phone, meets people to look them in the eye, that type of thing. Made a lot on crypto.<p>Another FO is basically a hedge fund. Bunch of different desks doing various things, a lot of focus on regulatory approval (that&#x27;s still a thing, not sure why the article makes it look like there&#x27;s no hurdles).

The majority of the world&#x27;s richest people have their wealth tied up in companies they either founded or inherited.... if they are investing their capital they have limitations most of us do not have to face. If I go from having to invest $1m to $100m to $100bn, my investment universe shrinks each time.<p>For example, a small investor can invest in companies with market cap of ~$50m+....not possible for Warren Buffet. He can only invest in maybe less than a few hundred companies...with market caps in the region of a few $100bn.... there are of course treasuries&#x2F;bonds but no seriously wealthy person has all of their money in bonds. In part because the returns are so low and income taxes are meaningfully higher than cap gains.

<a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;The_World%27s_Billionaires" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;The_World%27s_Billionaires</a><p>Interesting to see the deltas (YoY) increase in wealth of these billionaires.<p>The top 5 have a growth of $8-15bn a year in wealth in the past few years. This increase in wealth is mostly an increase in institutions that keep growing at a very healthy rate (Amazon, Microsoft, BH, Facebook, etc).<p>I think it&#x27;s important to remember that all of these persons (Bill Gates, Jeff Bezos, etc) are the primary owner of a large institution that creates the wealth. Building orgs to put money to use is what they did to make their money in the first place, so it makes sense that they would do that with their private wealth as well.

I&#x27;m not particularly convinced by the risks stated here.<p>Yes Bill Gates could buy 65% of the Turkish stock market, but if he wanted power, there are surely cheaper and easier ways to do it.<p>And regarding stability, you could make the case that these funds could increase stability. If you&#x27;re in the 0.001% then surely you have the money to have a long term out look, which means they aren&#x27;t going to worry about that short term blip.<p>I think the last paragraph headline sums it up for me. They&#x27;ve rediscovered DIY investing.

After some small amount (5 million?) you are less interested in capital growth and more interested in protecting your capital. That’s what drives this the 0.001%

&quot;If you invested in a very low cost index fund — where you don’t put the money in at one time, but average in over 10 years — you’ll do better than 90% of people who start investing at the same time&quot; --Buffett

It seems like the very rich feel comfortable having a large percentage of their wealth in a few investments. At the opposite end of the wealth spectrum, I like extreme diversification- caring to preserve some spending power in the face of an unknown future rather than maximizing investment gains. I believe that all people need to be happy is a comfortable place to live, good food and fellowship with friends and family. Because of this belief, a conservative highly diresified approach makes sense to me.

[removed fun fact due to it being false and still being published in modern books .. sigh]

There&#x27;s a lot more fragmentation than this suggests. I&#x27;ve worked at a hedge fund that had exactly one investor for example.

TLDR: they use family offices, we don&#x27;t know what they invest in as there&#x27;s no transparency, and they didn&#x27;t outperform the global stock market in 2016 and 2017.

Paywalled.