If you don’t have the liquid net worth of a Vanderbilt or status as an accredited investor, you probably aren’t going to score a meeting with a top-tier family office advisor. They specialize in investment strategy for the ultrarich, and only the thinnest sliver of investors employ their services. Still, the strategies they apply to their clients’ portfolios are helpful at nearly any investment threshold, and offer many lessons in investing well no matter the economic climate. A recent report from Goldman Sachs containing data from 166 family offices worldwide shows that, aside from cash and public market equities, the ultrarich are keenly interested in alternative investments. We found four top-tier advisors and asked them about investing in infrastructure, agriculture, and mobile home parks (among other things!)—and found some surprising intel on how to make your money work for you.
Jason Katz
Managing director and private wealth advisor at UBS Financial Services
New York
I’ve been at this for 30 years. I have a team of 18 people, and we oversee $4.5 billion in assets. At this stage, my clients want a return of their money, rather than a return on their money.
Right now, my clients are looking at less-liquid investments, alternative investments, structured solutions, private equity, and hedge funds. While alternative assets are less liquid, fees are higher, are more sophisticated and esoteric, they do offer more diversification and reduce overall portfolio risk. One thing to look at within private equity are funds that focus on food and agriculture. There’s a trend of offshoring food supply chains in light of Russia invading Ukraine. This isn’t about tomorrow’s great trade. While the best exposure to this segment in my view is through private equity funds, for the everyday investor, there are several ETFs and mutual funds that focus on the space.
In real estate, look to public trusts or private REITs that have reasonable minimums. If you aren’t able to invest directly beyond your home, there are ways to target real estate. Focus on logistics or e-commerce or industrial or things of that nature that can mimic what the ultrahigh-net-worth are doing in the REIT market. We tend to favor the private side given our preference for investing in these types of assets through less liquid vehicles, which are not subject to the daily fluctuations of the market. That said, there are plenty of public REITs that accomplish similar goals. Looking at the commercial real estate market, it seems obvious that there are “haves” and ‘have-nots,” specifically data centers and e-commerce (haves), which are increasingly important, and metropolitan office space (have-nots) that we look to avoid as much as possible. Both public and private REITs have specific mandates or, at a minimum, show investors where and what they are invested in, so in a space that is going through some major changes and price volatility, it is important to see what is in the underbelly of the REITs that you are buying, both on the private and public side.
Heather Loomis Tighe
Family advisor and venture capital partner
Jackson, Wyo.
Bonds are valuable again, especially short-term bonds which pose relatively low interest-rate risk. Municipal bonds, many of which are not subject to taxation at the federal level (and in some cases, state level) can make a lot of sense. Watching the yield differential between taxable and nontaxable bonds is a valuable practice the top one-percent investors do, or hire an expert to do. Over time, investments in bonds tend to act as a ballast within an overall portfolio and will typically perform better than equity or other risk assets as the general economy falters, rendering it an attractive, cash flowing, investment which can act as “dry powder” for opportunistic investments down the road.
There are also a host of niche investment opportunities that the top one percent like. This is everything from leasing land for cattle grazing, to funeral home investment to rescue lending in private credit markets, to buying positions in venture-backed companies in the primary and secondary market as prices have fallen. One other niche investment where we see a focus today is in mobile home parks. Mobile home parks typically generate stable and consistent cash flow. The income is derived from the rental income collected from the residents who own their mobile homes, but lease the land.
This consistent income stream can help investors weather economic downturns. In fact, manufactured housing communities were one of the top performing real estate asset classes in the 2008 crisis. They largely depreciate on a 15-year cycle rather than a 27.5- or 39-year cycle like most other real estate assets, which can be advantageous from a taxation perspective. These parks tend to be less correlated to other asset classes given their relative scarcity and the demand for affordable housing.
Doug Evans
Chief investment officer and partner at Callan Family Office
San Francisco
Small business in America is a phenomenal asset class. What I call the serial entrepreneur; they tend to want to invest directly into operating companies. They want to own a string of car washes or funeral homes. Roll-ups in consumer industries are a very common practice among small businesses, and there’s a certain charge you get from it. But it also takes a lot of elevated risk. You tend to only need one or two small bad things to happen and watch the whole thing go poof. You better know what you’re doing, and have some backup plans.
There are some other broad categories worth considering. The big one everyone can back the truck into is private credit. There is a squeeze in overall credit right now because of the difficulties we’ve seen in the public markets. Base rates have come up 5% or more, and spreads have widened out; there are private credit opportunities with low double digits of yield. That’s a better defensive position that we’ve had previously, and it presents an opportunity for a lot of people. Trillions of dollars of debt maturities will be coming due in the next couple of years. First, you have better conditions as the lender than what you’ve had over the last decade, and you have access to much better pricing, more top-line financial reward.
The next pain point is regional banks. We just lost seven of them, and most people don’t realize that they represent 40% of the overall loan market and 70% of the commercial real estate market. Regional banks are the ones who finance those buildings. The junk market is tapped out. Leveraged loans are tapped out. Regional banks are tapped out. It’s an ocean of refinancing, elevated pricing, and improved conditions. Our wealthy clients and the average investor, through public vehicles, can all get a little bite of this apple. It’s not the financial crisis, but it’s like the financial crisis in a box.
Greg Buzzell
CEO, Kadens Family Holdings
Columbus, Ohio
What we are really trying to do at the family office level is make some long-term investments, and we want to be diversified. That’s cliché, for sure, but how we’re thinking about taking risk is really more about how we manage risk. We aren’t making 30 investments, thinking 20 will go to zero and five will be home runs. We’re playing more singles and doubles baseball.
We think there’s a lot of opportunity in the private space. There’s a premium to be had because the market is inefficient. We like industries, sectors, and markets that aren’t sexy. If it’s not sexy, it’s not crowded. You’re not competing in a space where prices are getting bit up and returns are whittled down. Also, if a space is super fragmented, people don’t think about it. We invested in a fund that’s acquiring and rolling up HVAC and plumbing businesses. We like that because if you think about who owns HVAC and plumbing companies, they’re individuals in their fifties and sixties with no real way to exit or monetize their businesses. We provide value to the seller, and the fund provides sophistication. From a defensive perspective, we love that. I don’t care what the Fed is doing. People need their ACs fixed and their toilets unclogged. You may not hit a home run, and you’re not creating a new market, but it is attractive because you’re not taking a risk.
Another space we are working in—in a direct way where we are investing directly into the company—is engineering services. We are building a portfolio of engineering firms. One company is a civil and structural engineering firm that does a lot of work in biotech. It’s not sexy; it’s physical infrastructure. Plus, there’s a macro tailwind in terms of government investment in the space with the Inflation Reduction Act. The end market they focus on is biotech and pharmaceutical companies. Pfizer, Merck, Johnson & Johnson—they need to build and update their facilities. They’re going to do that irrespective of macro cycles. These are things people take for granted, and they’re in demand.
Similarly, we’re making a sizable investment in end of life services. We are taking a defensive perspective: People pass away, and they need services around the whole ecosystem of end of life and end of life care. It’s a very stable business. The idea is to create specialized or niche holdings that you feel strongly about. This is nothing new: zig while everyone else zags. It’s a bit of a contrarian approach so you have time to build out your investment.
This article is part of Fortune’s quarterly investment guide for Q3 2023.
