I comment on an article in London-based Family Capital, a publication that published some of my material in the past. I have had plenty of conversations with Family Offices over the years.
This time, a fellow named Lex van Dam, director at Rinkelberg Capital, describes how Family Offices are tired of conferences, the impetus for creating a Single Family Office Alliance (SFO), as a better way to source and share information about new deals.
Now this all sounds dandy if you have never seen this kind of collusion before. I have seen the same collusion unfold in the Institutional Investor circles I roamed in when the ILPA was formed, those investors now struggling to outperform each other, as well as in Venture Capital using the NVCA to share best practices, while 99.4% of VC’s still cannot produce repeatable monolithic venture-style returns for their limited partners.
So, here is my comment:
How are you going to produce outlier returns that differentiate you from any other family office by colluding? You are doing the same as venture capitalists in Silicon Valley have done, collusion leading to subpriming of the theory that determines what innovation can be discovered, and thus subsequently, subpriming the nature of the innovation.
As an investor, you must be responsible for a unique investment thesis that, in the words of Einstein, determines what can be discovered. That unique insight is the core competency for which you were hired in the first place. Piggy-backing on the expertise of, or seeking consensus with others, leads to the collusion of thought and execution that makes your money no different from any other.
Deal sharing also leads to disastrous risk aversion, deal fragmentation, and deal syndication, in-turn resulting in the subpriming (ie uniformity) of the investment thesis as I depict in the brief presentation below, with deflation of returns to boot.
A staging of deals with other investors is also not recommended, as I predicted against the pageantry of populism 2-years ago, would be SoftBank’s downfall. Another prediction that came true.
You must be the first capital-in to demonstrate that the foresight of your unique insight matches an outlier that knows no precedent. Or else you are no different than any of the mainstream private equity firms chasing the S&P 500 tail, an index of self, guaranteed to lead to infinite regression of returns.
Dare to be different, like the success of the families you represent, or go home.