Lessons - How the Ultra-Wealthy Make Investment Decisions | Ronald Diamond - Founder & CEO of Diamond Wealth

In this lessons episode, discover how to navigate the complexities of major liquidity events, the evolving role of family offices, and the strategic approaches to wealth management and philanthropy. Gain insights into fostering trust, avoiding common pitfalls, and leveraging entrepreneurial innovation to tackle real-world challenges. Well, you know, I'm curious about going through a liquidity event that large, and I know that, you know, you chair, I think, one of the offices for Tiger 21, and I've spoken to Tim from Tiger 21, and I understand that that's not an advisory for like a private equity firm, but it offers guidance as to what to do holistically, very, very similar to what you're saying, all the multi-family office services provided. It's a realistic view of what to do after a major liquidity event, right? And I think that, I mean, you see this firsthand, people going from operator to capital allocator that, like, on mass, like with huge amounts of capital, have no idea really what they're doing, and also maybe just, you know, speak through some of the things that they have to think about outside of just capital allocation that are the realities for them. I mean, like, you've just mentioned these numbers. These very devastating numbers about how quickly generational wealth is lost. So why does that happen? Um, in my opinion, a lot of it has to do with ego. It has to do with the ego of the founder of the person who had the liquidity event. Um, you have a liquidity event, you could do anything you want with your money. And I make no judgments. You do whatever you want. Um, but I'll, I think a lot of times people think that because they're good at one thing, that means they're going to be good at everything. And it's a different skill set to solve beanie babies than to take a billion and grow into two. So I think the problem with many people is because they've had such success with with so much money at such a young age. And remember, this is not generational. Back when the Rockefeller started, it took 10, 20, 30 years to create generational wealth. You can create an app today in a year and create huge amounts of generational wealth. So it's happening so quickly. And that's why the speed is happening so quickly. So family offices right now, um, you could talk to 10 experts and what's the family office? How much money do you need for family office? Why do you create a family office? You're going to get totally different answers. Um, I gave a keynote at Stanford five years ago. I had five billion dollar families and I asked each one of them, what is the family office and why did you create it? And there were five completely different answers. And nobody was right and nobody was wrong. It's just that's where we are in the industry. So I think that the fascinating thing for me is that in 1986, when I was a senior in college, my dad, who was a brilliant banker, wanted me to meet this guy who was also a banker. And he said, there's an industry called private equity. And I'd like you to look at it because I think it's going to be big. Well, when you're 20 years old, you're smarter than your dad. And so I said, dad, I already got a job at Drexel Burnham. I'm not going to listen to who you want me to talk to. And I went to Drexel. Well, fast forward two years, Drexel goes bankrupt and the person you wanted to introduce me to was John Canning, who started a medicine dearborn, which became one of the largest private equity firms in the industry was called private equity. So that to me, when I look at that point, and obviously in retrospect, I would have done things differently. But I do think that we're that inflection point right now, we're just like private equity investor capital firms disrupted the public markets. I do see family offices starting to do it. So I do think we're at a tipping point right now. And I think family offices can make a huge amount of difference, not just in creating alpha, but equally, if not more important in a lot of the philanthropic endeavors, they can engage in. And obviously to engage in philanthropic endeavors have to be successful and maintain that success. But I'm curious about this seems like there's this problem with the family office industry for lack of better term. It's that they're so fragmented. You mentioned this before. So how do you actively fix that? Because there's no, there's no group or organization that supports, you know, the collective body of family offices. So what drives them in the right direction? Well, in the other issues, you know, a lot of there's a lot of family office. First of all, every bank, every law firm, every accounting firm, you're trying to get into the family office world. We're all the money. That's what it makes sense. And you've got all these family office conferences. The problem with a lot of the conferences where these family offices are supposed to learn to invest is many of them have become a pay to play game. So if you're speaking, it's not that you're necessarily an expert in real estate. It's that you spent $25,000 to be able to speak. And you're really just selling your funds and hearing conflict of interest in my opinion. So I think that you have to look at from the standpoint of what is in the best interest of family offices and where are you getting your deal flow from and what are people's agendas? So everybody has an agenda and that's fine. But I just think that family offices in general, the first, second, third thing they want to know before they're going to work with anybody is can I trust this person? And then the fourth thing is what's your one, three, five, your track record, what's your biggest drawdown? That's flipped when you look at it from an institution. So trust is the main component of why family offices will work with somebody. When you work with you deal with this industry quite a bit, where are the biggest misconceptions about family offices that you've seen? There are so many misconceptions. How much money you need to have a family office, what's the point of a family office? I mean, a lot of these people, and again, I make no judgment. If you make the money, you could do whatever you want with it. But many people would be better off just finding a philanthropy that they like and outsourcing a lot of what they're doing. It's a full time job. If you're going to do it right, it's a business. In many of the family offices don't look at, don't take it as seriously as they did their business. If they did, then they would realize the full time job. And if they did that, I think it would become more efficient. I think that's starting to happen. But the beauty to me of where we are in the world from an economic standpoint is this is changing real time right now. So the family offices, they're not there today. The smart people want to find the rich people and the rich people want to find the smart people, but the smart people don't know how to find the rich people and the rich people hide behind a veil and want to be secret. So how are they going to find the smart people? This is starting to change. And I think it's going to happen over the next three to five years. It's not going to like click in all the sudden. It's going to happen. But I think it's going to gradually change. And people will start realizing the value of working with the family office. A lot of people who are in real estate, a lot of people who are in private, you know, who have deals, independent sponsors, they would prefer to work with the family office rather than a private equity or venture capital firm. The problem is how do you find them? So one of the things that I'm trying to help with in the industry and it's a massive task is how do you connect the rich people and the smart people? Because once they're connected and they know what everybody wants and everybody says this is kind of what I'm looking for, it will be a much smoother market and it'll be like more a fission market. I was okay. So we've spoken through significant, significant amount of info on family offices. I'm curious if you want to take us in a couple of different directions because there's other things that you do for these families. I mean, you literally invest in them. So I'm curious if you want to go into how you source and look at deals and what your thesis is for what is good and what is bad and what you put in front of families. We could do that. Or I was, you know, we can also go into wealth transferring that's super interesting because you hear all the time about why are the rich not paying enough tax and what's going on with that? Well, I mean, there's strategies as well to help you avoid tax that maybe the average person doesn't know that much about. So whatever you feel like you want to go into, which is the most relevant, but they're both really interesting topics. No, they are. And also philanthropy, which is huge. That's been a big, I don't know a question to ask about philanthropy outside of I'm assuming it's a focus. I mean, I'm not at that level of wealth yet where I have to worry about philanthropy. So well, so kind of my north star is so my dad passed away from prostate cancer. Yeah, if he's having my first boss was Michael Melkin, Michael Melkin developed prostate cancer. What Michael Melkin did is rather than throw a hundred million dollars at the American Cancer Society, he built it like a venture capital fund, right? So he put 250,000 to this crazy idea, 500 here, two million here. But because of him, you and I and all the male listeners will die with, but not of prostate cancer. You look at what Bill Gates did for vaccines. I would argue he did more than the US government. My point being that if you can't run a, a, a philanthropy or family or a charity exactly like a business, but you could run it more business like. So kind of my north star, if you take these really innovative entrepreneurs who've done extremely well and you apply that more towards philanthropy, and I think that's going to solve some of the big world problems. So I just did a podcast with David Rubenstein the other day. He owns the magnetic card. He owns, I mean, he, he helped rebuild the Jeff some memorial. He's done, or the Lincoln Memorial. He's done so much for philanthropy right now. And so I think there's a lot of good that can happen out of that. I mean, you're starting to see that. No, I was going to say, so it's interesting. So you think that some of the future of philanthropy and it's not, this is not to generalize that this has to be all a philanthropy, but it's, again, it's more doing direct investment into causes that you can actually see. Fighter think something or. Yeah, I think that if you'd look at milk in or you look at gates or you look at what Bloomberg's done, you, you can take these business minds and you again, and apply it more towards to solve some of these real world problems. I don't think it's going to come from the government. And I don't think it's going to come from the corporate sector. I think it's going to come from these entrepreneurs who can make a difference. So I think for me, philanthropy is the most important aspect of family office because at the end of the day, you could only, you know, the Pharaohs tried to barely bury themselves with money and that didn't really turn out to be a great idea. What else could you can't take it with you? So giving it away and doing it in a way that are important to you is something that's really, really relevant. So we do a lot of work with family offices, figuring out ways to, and prostate canches near and dear to my heart because my father passed away from it. No, I think that the smart, a smart way to look at philanthropy because I think the way that I default to looking at it is the way that I think most people do is just how do we put money into an organization or a government or something that's already set up. And that's not the only way to truly do for me. And also, what's the first, if somebody has a philanthropy, the first question people ask is what's the overhead? It's not a good question. You don't go to Apple or Microsoft and say what's your overhead? Is there relevant what your overhead is? It's what's, you know, you can have a lemonade stand that the overhead is 1%, but you're going to only create $5. So I just think you have to start asking the right questions and looking at it from a big picture standpoint. Thanks for tuning in. If you found this valuable, don't forget to hit that subscribe button so you never miss an episode. And if you want to dive deeper into this conversation, check out the links in the description to watch the full episode. See you in the next one. you