In this episode of Executive Connect, Melissa Aarskaug sits down with Ron Diamond, founder and chairman of Diamond Wealth and founder and CEO of Family Office World Media, to unpack how family offices really think about capital, control, risk, and long-term value. Ron explains why patient capital beats short-term incentives, why private markets continue to dominate family office portfolios, and what most founders get wrong after a major liquidity event. He also shares why governance matters more than most new wealth holders realize, how family offices are starting to professionalize, and where values, gratitude, and stewardship fit into the future of generational wealth.

This episode is for founders, executives, investors, and families who want to think beyond headlines, quarterly noise, and short-term wins. Press play before fast money thinking starts masquerading as long-term wealth strategy.

Chapters:
(0:16) How family offices really think
(1:40) What makes patient capital different
(5:00) Public markets versus private control
(7:37) Why private markets dominate
(9:36) Thinking in decades not quarters
(11:18) Talent, incentives, and family office growth
(17:37) What makes a deal unattractive
(19:19) Why governance comes first
(27:49) Real diligence among peers
(31:10) What leaders misunderstand about wealth
(39:34) Purpose, impact, and real world problems
(47:38) Values, gratitude, and legacy

Ron

(0:00) Focus on gratitude. (0:01) It’s hard. (0:02) We’re hardwired to worry about stuff.

(0:04) I’ve got 10 things that suck in my life. (0:06) I’ve got 10 things that are great in my life, and it’s very easy to focus on what sucks. (0:10) There’s so much to be grateful for.

(0:12) The more you could focus on that, the more abundance mindset you could have. (0:15) So it’s really about attitude.

Melissa

(0:16) The most sophisticated investors in the world don’t chase headlines. (0:21) They don’t react to the noise, and they rarely think in quarters. (0:25) While most people focus on public markets, family offices quietly manage trillions of dollars with a very different mindset about wealth, risk, and opportunity.

(0:38) Ron Diamond lives inside that world. (0:41) He’s the founder and chairman of Diamond Wealth, a syndicate of more than 100 family offices, ranging from $250 million to over $30 billion. (0:51) For more than two decades, he’s invested alongside these families across private equity, real estate, venture capital, credit, and special situations.

(1:03) He’s also the founder and CEO of Family Office World Media, a platform where some of the most influential families in the world exchange ideas, strategies, and perspectives away from the spotlight. (1:18) Today’s conversation explores how family offices actually allocate capital while private markets dominate their approach and what long-term investors understand about patience, discipline, and risk, the most people never, ever learn. (1:35) Welcome, Ron.

Ron

(1:37) Thank you. (1:37) Glad to be here. (1:38) Thank you for having me.

Melissa

(1:40) Now, family offices are often talked about but rarely fully understood. (1:45) From your perspective, what truly distinguishes them from institutional investors or traditional wealth managers?

Ron

(1:54) Time. (1:55) It’s patient capital. (1:57) We don’t look in terms of quarter to quarter or year to year.

(2:01) We look in terms of decades. (2:02) If you could look at that, the way the model today is built, the way the private equity model today is built, if a private equity firm buys a garage door company in Sun Valley, I could tell you when they buy it, when they’re going to sell it, approximately, not because I’m so smart, but because I know how they’re compensated. (2:21) That doesn’t make them bad people, it’s just that’s the model.

(2:23) They’re going to sell it in about, Charlie’s Munger said, show me the incentive and I’ll show you the result. (2:29) They’re going to sell it in five years. (2:31) They’re going to sometimes sell it to a strategic, but typically to a second private equity firm.

(2:35) I could tell you about when they’re going to sell it. (2:37) It’s going to be another five years. (2:38) If you look at the course, how the model today works, this one garage door company in Sun Valley, Idaho, it’s going to change hands over 20 years, let’s call it four times.

(2:49) If you look at the taxes and the friction and the disruption in business versus a family office who could simply buy it, hold it, and let it compound, the results are even close. (3:02) The family office model is objectively a better model. (3:04) The problem is very few family offices can execute.

(3:08) The good news is that’s about to change.

Melissa

(3:13) Now, why do they care about that differently than what Wall Street does as far as investing in the market?

Ron

(3:21) Because family offices aren’t worried about how they’re compensated. (3:24) Family offices are trying to compound money. (3:26) I mean, Einstein said what, ninth, eighth wonder of the world.

(3:30) I think that compounding, it’s not complicated. (3:33) Warren Buffett’s a brilliant guy, and so is Charlie Munger. (3:37) They just buy things, hold it, and let it compound.

(3:40) The maiden work is doing nothing. (3:43) People get so caught up in trading. (3:47) The market’s driven by fear and greed.

(3:50) COVID happens, you get freaked out. (3:51) This happens, you get really excited. (3:54) You find things that are of value, hold it for a long period of time, and compound it.

(4:02) That’s how you generate generational wealth, not by trading. (4:06) There’s very few people, if any, that I know that could trade the market. (4:10) I’m certainly not smart enough to do it, but I am smart enough to know that there are certain companies that are undervalued, and they’re not run very well, and if you buy them and hold them and operate them.

(4:20) One of the biggest problems right now today with private equity is most of private equity people are finance guys. (4:27) Now, I’m a finance guy, so I’m not denigrating that, but in order to create true alpha, you need to operate, and that’s what family offices do.

Melissa

(4:36) Now, I would imagine that drastically changes control and decision-making for people that are buying and holding. (4:46) How does buying and holding change someone’s decision versus, I’m just going to buy the S&P every month, a little bit of that, a little bit of that, and hold it for 20, 30, 40 years?

Ron

(5:00) Okay. (5:00) Well, let’s touch on that for a second. (5:02) Let’s go back a minute.

(5:04) In the public markets, where I think it’s very difficult to create alpha, I used to run a hedge fund, so I made my money in the public markets, but that was in the 90s. (5:12) It’s very difficult to create alpha in the public market. (5:15) I think you can create it in the private market.

(5:16) What you talked about, buying index funds and holding it, letting it compound, that’s the exact strategy that I do in the public market, and that is the best strategy. (5:26) I’m fairly certain that I’m correct on that. (5:29) In the private markets, where you can create alpha by operating a company, private equity, venture capital, real estate, credit, sports teams, special situations, I think that’s where you can create it.

(5:38) I think that when all is said and done, go back to align. (5:44) It’s not complicated. (5:45) Just go back to alignment of interests.

(5:47) Where are our interests aligned? (5:49) When you do that and follow the money, is private equity and venture capital disrupted the public markets in the late 80s because there’s a better model? (5:57) I ran a hedge fund, so if you’ve got a report to me every 90 days, it’s hard for you to run a company because you’re managing your earnings.

(6:07) Private equity and venture capital were a better model. (6:09) 2% covered the overhead. (6:10) 20%, I make money, if you make money.

(6:12) What happened is not all, but many of them bastardized the business and became an AUM game. (6:18) Now, it’s an inherent conflict of interest in many instances. (6:22) Family offices, is private equity and venture capital disrupted the public markets in the late 80s?

(6:27) I believe family offices are starting to. (6:29) They’ll never replace, but they’re starting to disrupt private equity because it is objectively a better model. (6:35) The thing we have to get right is right now, the model itself doesn’t work.

(6:39) I’m talking about how wonderful this family office model is, but the model doesn’t work. (6:44) Only 25% of families make it to the second generation and 10% make it to the third and 5% make it to the fourth. (6:48) Why am I so optimistic about this?

(6:51) I’m optimistic about it because it is objectively a better model if you can compete. (6:56) In order to compete, I think what’s going to have to happen, I put together a family office initiative at Stanford and helped put one together at the University of Chicago Booth. (7:04) I’m working on one in Oxford.

(7:06) I think by doing this, you’re educating these people and they’ll understand the value of patient capital. (7:11) If you’ve got a company in Wichita, Kansas, and you’re looking to sell it and make the most money today and not really care what happens down the road, you’re going to almost always sell it to a private equity firm. (7:23) You’ll almost never sell it because the family office won’t overpay for it.

(7:26) If you’re looking to buy a company and you’ve got kids in the business or community members in the business and you want it to last two to three generations, family office model is a better model.

Melissa

(7:37) Let’s talk about why private markets matter so much. (7:42) They dominate the family office portfolio. (7:45) Why is that so?

(7:46) Ready to lead smarter and invest wiser? (7:50) On the Executive Connect podcast, we unpack executive strategies for wealth and influence. (7:57) Hit the subscribe button now.

(7:59) Don’t just watch, act.

Ron

(8:01) First of all, companies are staying private longer. (8:04) A lot of the alpha is being created while the companies are private before they go public. (8:07) That’s number one.

(8:08) Number two, what’s so great about being a public company? (8:10) Before, it used to be like you want to go public, you ring the bell. (8:14) I haven’t done it.

(8:15) It’s probably pretty cool to ring the bell. (8:17) Once you’re a publicly traded company, you’re in a different world. (8:22) You’re not, in my opinion, running your own company.

(8:24) You’re managing your earnings and you’ve got people on Wall Street to report to every 90 days. (8:29) If you’re a privately held company, if they think you should make a $10 million investment, you don’t have to worry about what people think about how it’s going to impact your quarterly earnings. (8:38) You’re thinking in decades.

(8:39) Jeff Bezos said that the biggest advantage that he has, most people think in terms of three to five years, he thinks in terms of 10. (8:45) That’s the biggest competitive advantage that family offices have.

Melissa

(8:49) The main focus would be more about the returns and the money than the actual control of the money. (8:55) Is it that it’s more about the returns than control or is it returns or control with the private market?

Ron

(9:03) If you’re going to buy a company and hold it long-term and keep it private, you do have more control. (9:10) You don’t have to worry about alignment of interest as much. (9:14) You could just operate the companies you see fit.

(9:17) It’s not fun to be a publicly traded company. (9:20) I ran a hedge fund. (9:22) If you’re running a company and you’ve got a report to me or somebody on Wall Street every 90 days, that’s not a way to run a business every 90 days.

(9:30) Every five, 10 years is a better way to run a business. (9:33) That’s how family offices are able to do it.

Melissa

(9:36) I would agree. (9:39) Talking a little bit about capital allocation over the generations, like you mentioned, those numbers were really staggering to me. (9:46) I thought it was greater than those small percentages.

(9:50) How does thinking in decades instead of years change how families are allocating their capital?

Ron

(9:58) Let’s also take a step back for a minute and talk about the size of the family office market. (10:03) There’s currently $10 trillion in capital in the family office market. (10:08) To compare that, there’s roughly $6.5 trillion globally in the entire hedge fund universe. (10:13) Today, it’s bigger than the entire hedge fund universe, but we are about to experience the largest transfer of wealth in history. (10:20) There’s $124 trillion that are moving downstream from baby boomers to the next gen. (10:25) Largest transfer of wealth ever.

(10:27) This family office market, which is big, is going to become massive. (10:32) The problem is it’s inefficient, it’s fragmented, and it’s siloed. (10:36) I think we’re on the cusp, we’re at an inflection point where that’s starting to change.

(10:41) Family offices are starting to become more professionalized. (10:44) They’re starting to become more institutionalized. (10:46) They’re starting to understand if you want to get top talent, you have to compensate them the right people.

(10:51) Once we all get that right, the 25% make it to the G2, 10% to the G3, 5% to the G4, that’s going to change. (11:00) I think the preferred method of many companies, unless you’re looking to sell your company for the highest dollar, which is always in the private equity, medium and long term, you’re going to, in almost every instance, be better off with the family office if they have the right operators on the team.

Melissa

(11:18) Yeah, it seems to me that it’s a leadership. (11:21) Building teams and scaling teams, it really starts with what you’re talking about, is making sure you’re hiring not only people that are competent in whatever they’re leading, but they’re able to be good leaders to drive the revenue for the long-term growth versus just looking at, like you said, every 90 days.

Ron

(11:38) And one of the things we have to get right is right now, one of the things we do wrong in family, like the compensation model is wrong. (11:45) So Blackstone, Carlyle, KKR, they’re wonderful, large firms. (11:49) I can promise you when they pay somebody, a MBA student out of Stanford or Kellogg or Wharton or Booth, a quarter million dollars, they look at that person as a potential $20 million profit center.

(12:02) They don’t look at that person as a cost. (12:04) Most family offices, not all, but most today look at that as a cost. (12:09) In other words, I’m paying this kid $250,000.

(12:12) It cost me $250,000. (12:15) It’s a potential profit center. (12:18) Until that abundance mindset changes, things aren’t going to change, but it’s starting to.

(12:23) And the most sophisticated family offices that exist right now, they understand that, because it’s not just the matriarch or patriarch who wants to get wealthy, so do the people who work for them. (12:33) In order to get the top talent, you have to incent them, and you have to change the incentive. (12:37) So that’s one of the many things we have to get right.

Melissa

(12:41) Oh, there’s so much to unpack in that. (12:44) I worked for one of those people that looked at salaries as a cost center, even though I was driving tens of hundreds of millions of dollars for the organization. (12:54) And so I love that lens of looking at people as an investment versus as a cost.

(13:02) There’s so much to unpack there. (13:04) I think even transactionally looking at people as transactions versus the long-term revenue that the right leader can drive to an organization. (13:13) Now, how do they define success differently, private versus public?

(13:18) Do they have different success metrics?

Ron

(13:21) Well, when you have a privately held company, you have more control, and you don’t have to worry about short-term outcome. (13:27) You don’t have to worry about how your earnings look every 90 days. (13:31) And I think that a lot of the alpha, as I said, more and more companies are staying private longer, so the profits can be made before they go public.

(13:40) So once they go public, there’s less profit to be made. (13:43) And I think you’re going to see a trend in that. (13:44) And more and more companies are realizing being publicly traded, it’s not fun, and it’s not efficient.

(13:50) There are reasons to go public for different companies. (13:52) I’m not saying no companies should go public, but in general, if you’re operating a company and you have a privately held company, and then you go to a publicly traded company, and I’ve seen hundreds of people do this, it’s a nightmare. (14:05) It’s myopic and it’s short-term.

(14:07) You’re not looking at things long-term. (14:09) And in order to create alpha, in order to grow a company, you have to operate something with a long-term basis. (14:16) And the public market does not commit you to do that based on how they incent people.

(14:21) The private market does.

Melissa

(14:23) Now, I’ve seen many companies that were originally private go public and then go back the other direction. (14:31) Do you see that more and more happening?

Ron

(14:33) Yep.

Melissa

(14:35) Yeah, I find it really interesting. (14:37) I work in industries that that’s happening a lot right now. (14:41) Now, what risks do they take very, very seriously in the private markets?

(14:46) And what risks do they ignore?

Ron

(14:48) Well, it’s not a question of what risks they take seriously or what they ignore. (14:53) I just think they look at it’s a different animal, right? (14:55) So they have more autonomy.

(14:59) The alignment of interests are more in line. (15:02) They don’t have to do things in order to please people or to make earnings. (15:08) They do things in order to how they think they can grow the company the best over the next 10 to 20 years.

(15:14) I can financially engineer any company. (15:16) I could strip it and put on a lot of debt and make money in three to five years. (15:22) Now, how that company is going to look after five years, probably not great, but that’s not the goal of many of these private equity firms.

(15:30) The family office looks at things from a long term perspective. (15:34) So even though what I’m saying is the family office model is objectively a better model because it’s patient capital and it’s long term. (15:42) If we can’t execute, it’s a moot point.

(15:45) So yeah, it’s a better model, but you can’t execute. (15:47) So what difference does it make? (15:49) That’s starting to change.

(15:50) And one of the things we’re trying to create at University of Chicago Booth, we put together an actual class. (15:56) It needed to be an MBA student, the first class in the country that did this. (16:00) And we didn’t know how it would do.

(16:01) We thought it would do fairly well, but we didn’t know. (16:03) So we did a half a credit course thinking maybe people wouldn’t sign up for it. (16:07) It sold out quicker than the private equity class.

(16:10) My belief is that today, the top kids out of the top business schools want to get into private equity, venture capital, real estate, credit, hedge fund, et cetera. (16:18) Very few want to get into family offices. (16:20) My belief is I’m correct, but I could be wrong time-wise, but I’m correct directionally.

(16:25) At some point, whether it’s three, five, seven years, the first choice of these kids out of these major top business schools will be to work for a family office. (16:33) It’s not today, but it’s going to be. (16:35) I taught one of the classes.

(16:36) I’m not the main teacher, but I taught one of the classes at Booth and I gave out my card and there were 65 kids. (16:45) And I’d say of the 65, I gave out my email address just in case anyone had any questions. (16:50) Nobody emailed me asking me for a job, but I have 48 out of the 65 just reach out.

(16:55) Hey, I’ve got a job in private equity. (16:57) I like what you said about family offices. (16:59) Is it too early?

(17:00) So there’s huge interest in this, but again, we’re at an inflection point. (17:05) And I think I used to think we’re in the third inning. (17:07) Then I think we’re in the second inning.

(17:08) Sometimes I think we’re in the first inning. (17:10) This is going to change. (17:11) It’s going to fundamentally change how companies are financed.

(17:13) And it’s going to fundamentally change how a lot of these charity philanthropy, a lot of these real world problems are solved.

Melissa

(17:19) First of all, kudos to those students that reached out to you and took action. (17:24) When somebody that’s been through it and wise like yourself that knows well and has done well for students to reach out, kudos to them. (17:33) They’ll go far no matter which direction they choose in their life taking action.

(17:37) So circling back to kind of what you were saying about some of these deals, what makes a deal unattractive, even if the returns look good on paper, like you were mentioning, if you’re putting these deals together?

Ron

(17:50) I don’t understand the question.

Melissa

(17:52) So what would make a private office not want to invest in a business or what makes a deal unattractive to them?

Ron

(18:02) First of all, when you use the word family office, it means so many different things to so many different people. (18:09) I keynoted a conference at Stanford. (18:11) I had five multi-billion dollar families.

(18:13) I said, what’s a family office? (18:14) And I had five totally different answers. (18:16) The other thing is some people are looking to, they’ve sold their company for a billion dollars and that’s more money than their great, great, great, great, great grandkids are going to need.

(18:25) So they’re looking to preserve wealth. (18:27) Some companies have a billion dollars and they’re looking to grow it from a billion to 10 billion. (18:32) Nobody’s wrong.

(18:33) So it’s really the question of what your goals and objectives are. (18:37) And some companies are looking more for wealth preservation. (18:40) Some companies are looking more for growth.

(18:43) The bottom line is that the model itself doesn’t work. (18:47) Because like I said, if 25% make it to the second gen and 10 to the third and five to the fourth, something’s flawed with the model. (18:54) And I think what’s flawed with the model is what happens is you have a liquidity event.

(18:58) You sell your company for a billion dollars and you live in Austin, Texas. (19:00) Well, everyone in Austin, Texas knows you sold your company for a billion dollars as public knowledge. (19:05) And all your friends start hitting you up and you know this guy and you put some money in this private equity guy, this real estate guy, this hedge fund guy.

(19:13) That’s the last thing you should do. (19:15) There is no playbook for family offices and that’s what we’re trying to change at Booth. (19:19) So what should happen is you sell your company for a billion dollars.

(19:23) You don’t make any investment. (19:24) Now, very few people will follow what I’m going to say, but this is what should happen. (19:28) You don’t make any investments for a year.

(19:30) And yes, you’re going to miss out on a great opportunity and you should have done it. (19:33) Fine. (19:34) The first thing you need to do is something called governance.

(19:36) Second thing you need to do is something called succession. (19:38) Third thing you need to do is estate planning. (19:41) Your estate planning attorney is more important than your money manager.

(19:45) It’s called structural alpha. (19:47) So there’s a big learning curve. (19:50) And what’s happening is you’ve got huge amounts of money in inefficient hands.

(19:53) And just because somebody sold a widget company for a billion dollars and they’re great at making widgets, doesn’t mean they know anything about investing in private equity or real estate. (20:02) I was fairly good at running a hedge fund. (20:04) It doesn’t make me an expert in venture capital.

(20:06) So I’m good at a couple of things and I’m not good at a lot of things. (20:09) And that’s true for many of us. (20:10) And I think what’s driving this is the ego of the founder, the matriarch or patriarch, because they have a liquidity event.

(20:16) Everyone’s telling them how wonderful they are. (20:18) Ty Warner is a perfect example. (20:20) Beanie Babies is a brilliant business idea and brilliant.

(20:23) And I know him. (20:24) And I couldn’t have created what he did. (20:26) But then he thinks he could be a hotel guy and bought the Four Seasons and got clobbered.

(20:31) So you’ve got huge amounts of money in inefficient hands driven primarily by ego. (20:35) I think that’s going to change. (20:36) And I’m trying to help to professionalize an industry that is very inefficient and very silent right now.

(20:44) But it’s going to take some time to do it. (20:46) And it’s going to have to happen at the university level, because right now you have all these family office conferences. (20:51) And I keynote a lot of the conferences and people, the investors, we’ve got about 125 families that invest alongside us, between 250 million to 30 billion.

(21:00) And they’ll say, hey, I see you’re keynoting this conference. (21:02) Should I attend? (21:03) I’m like, no.

(21:04) I mean, 99 out of 100, because they’re pay to play. (21:07) So if you’re speaking, you might be smart. (21:09) You might not.

(21:09) You might be competent. (21:10) You might not. (21:11) But you’ve spent 25 grand, and that’s the reason you’re speaking.

(21:14) That should not be the reason to speak. (21:16) So I think that it has to work at the university level. (21:19) And I think we’re trying to change that right now.

(21:21) We put together, I did an experiment where all of these conferences, I’m keynoting these conferences, and I had a couple of people say, well, you tell me not to go to any conference. (21:29) What conference should I go to? (21:30) Because you’re telling me not to go to any one.

(21:32) So I put together a conference at Stanford. (21:35) I chaired the Disruptive Technology Center, the advisory board. (21:38) And I put together a conference, and I’m not a conference guy.

(21:42) I don’t know how to put together a conference. (21:44) So I went to Kirkland Ellis, their family office division in EY. (21:49) And I said, look, you guys do the heavy lifting, and I’ll put together a conference that I will tell all of my investors they should go to.

(21:57) I’ll do only two things, but it’ll be the two most important things. (22:00) I’ll pick the content, and I’ll get world-class speakers who don’t have an agenda. (22:03) So three examples I’ll give you.

(22:05) First guy I called was Paul Carbone, who’s a good friend. (22:08) Paul runs a family for Tony and JB Pritzker. (22:10) He wasn’t pitching a fund.

(22:11) He wasn’t raising money. (22:12) He was just saying, here’s how we do due diligence. (22:14) You start with 500 companies, goes to 200, goes to 50.

(22:17) I kind of come in here, gets to 20. (22:19) We have an investment committee meeting. (22:21) Then we decide if we want a board seat, et cetera.

(22:23) All he was doing was educating without an agenda. (22:25) Second example, Tim Callahan. (22:28) Tim was Sam Zell’s partner.

(22:29) He wasn’t raising funds three or four. (22:31) He made a fortune in offices. (22:33) He was simply opining on what he thought was going to happen to the office market because, remember, during COVID, when this took place, people didn’t know if people would ever go back to offices.

(22:41) So all he was doing is giving his thoughts, and there was no ask. (22:45) The last example I’ll give you, Denise Illich is a close friend. (22:49) They own Little Caesars and a couple of sports teams.

(22:51) She, along with Dan Gilbert, helped to rebuild Detroit. (22:54) She wasn’t asking people at the conference to donate to her charity to make Detroit better. (22:57) She’s just saying, I don’t care what your charity is.

(22:59) You need to run it more like a business. (23:01) Here’s kind of what we got right. (23:02) Here’s what we got wrong.

(23:03) Here’s what we got right. (23:05) There was no agenda, and there was no ask. (23:08) We had 880 families from six continents on a Zoom call during COVID, $420 over a billion.

(23:14) That was like tenfold what Kirkland, Ellis, and EY expected. (23:16) I knew it would do well. (23:18) I didn’t know it would do that well.

(23:20) But the beauty is we didn’t have to make money on this. (23:25) That’s why I think it has to come down to the university level. (23:29) Again, I don’t judge anybody.

(23:31) I mean, everybody has to make money, but it’s just not a good use of time for a family office to go to a family office conference in general. (23:39) If it’s a pay-to-play model, they’re not going to learn. (23:41) They made their money in something, and they’re really good at something, but that doesn’t mean they’re good investors.

(23:47) Again, we need to change that. (23:49) I think it’s going to start to happen. (23:52) When I announced what we’re doing at Booth, I got calls from MIT, from Harvard, from probably about a dozen top schools.

(23:59) In five years, every major college, in my opinion, every major business school is going to have family office programs. (24:05) Right now, just a couple of them do. (24:06) It’s just the very, very beginning.

(24:09) It’ll change, and it’ll professionalize an industry that’s completely non-professional today.

Melissa

(24:14) I would absolutely agree with that. (24:17) I was reading, was it two weeks ago, how little people are going into the college settings anymore for these very generalized degrees anymore. (24:30) They’re investing in going into these kind of areas.

(24:32) This has been a subject I’ve heard recently, but I know that there’s not, like you mentioned, many of these programs for people at the college level. (24:42) That’s why all these trade shows and conferences are gathering people to bring them together to build these ecosystems, not just around money and wealth, but about leadership and growing businesses. (24:54) It’s a full-fledged ecosystem versus just these onesie-twosies programs.

(25:00) I love your point of starting it at a university level and getting it really professional and organized versus disorganized, like I see right now. (25:12) I want to piggyback off that and talk a little bit about what you were talking about, selling your company for a billion dollars, getting governance around it, and then hiring or getting somebody who knows about whatever’s next for you. (25:29) Peer learning, I’ve been very privileged in learning from people who have taught me, and I knew nothing about industries that I went into, so where does peer learning matter more than information in this world for these businesses that are selling and have no experience, say, in real estate or the other kind of markets you were talking about?

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Ron

(26:21) Well, I think where it’s so important, I mean, the most valuable thing I could do with a family office is not let them know, here, this is a terrific private equity deal, or this is a great real estate deal, or this is a great sports team we should buy. (26:35) The biggest value that I provide to a family office is introducing them to other family offices because they live in the same world, and they’ve got the same set of issues. (26:44) They’ve got one hand on their ear and one hand on their wallet.

(26:47) Every bank, every law firm, every accounting firm, every net jets, every service provider is trying to get into the space because that’s where all the money is. (26:55) That’s fine, but you need to know who’s got the right agenda and who’s got your interests aligned. (27:02) I think that right now, there’s disalignment because people see you sold your company for a lot of money.

(27:09) I run a private equity firm, and I think you can invest $10 million. (27:13) I want to get you to invest in that. (27:14) There’s nothing wrong with that, but the family offices need to understand they need to take a generational thing.

(27:21) They need to look at generationally rather than how am I going to make the most money in a year or two years? (27:26) More and more family offices are starting to do that. (27:28) Once we professionalize this industry, which is going to probably take three to five, maybe even seven years to do, I truly believe that the top kids out of these top business schools get a job at Pritzker, Crown, Dell, Balmer, Gates, one of these family offices, that’s going to be the best job, not Blackstone, Carlisle, or KKR, which it is today.

Melissa

(27:49) Now, what does the real due diligence look like among peers?

Ron

(27:55) Well, that’s a great question. (27:57) Joel Lonsdale is one of the founders of Palantir and also started a company with Jake Miller called OptoInvest. (28:06) Basically, what they’re doing is they’re utilizing artificial intelligence.

(28:09) Here’s what happens today. (28:12) There’s certain family offices. (28:14) I’ll give you Paul Carbone, who’s a good friend, who runs a family office at the Pritzker.

(28:18) He’s got a team of 85 people. (28:20) He can compete directly with Carlisle, Blackstone, KKR, and he’s actually got a better model because he doesn’t have to flip the company every five years. (28:28) But there’s very few of those, very few of those.

(28:31) I think that what Joe and Jake have created at Opto, and Ryan also, who’s the CEO, they’ve created basically to level the playing field. (28:41) I can now go 90% of the time that the large family offices, the small family offices, the individual investors spend, when you’re actually spending time, you’re just doing the diligence, looking at the deals. (28:54) When you look at the deals, 9 out of 10, maybe 29 out of 30, you’re not going to do.

(29:00) It doesn’t fit your criteria. (29:02) What if you can create something through artificial intelligence that says the following? (29:06) I’m a family office and I only invest in lower middle market private equity firms between 2 to 5 million EBITDA that are based in the Midwest and I don’t touch alcohol or tobacco.

(29:18) 100% of the companies that you’re going to now see will fit that criteria. (29:22) You’ll get zero that will say, I don’t do that. (29:26) Now, rather than investing in one out of 100 companies, you might invest in one out of three based on the management team.

(29:31) I think AI is going to change things. (29:33) I’m chairing the advisory board for Opto Investments. (29:35) I think that this is going to be a game changer because what’s happening is it’s permitting the smaller, and again, smaller is relative, half a billion dollars is still a ton of money, but it’s permitting the smaller family offices not to compete with the larger family offices who don’t have a team of 75, 80 people.

(29:51) You tell them what you like. (29:53) I only like multifamily offices, multifamily real estate in the Southeast, and I like B-rated building. (30:01) Whatever the criteria is, you’re going to need less man hours, less manpower.

(30:06) They came out of stealth mode in October. (30:10) This will fundamentally change how investments are made, not just for family offices, but even for the big RIAs and the MFOs. (30:17) With this, with the inflection point, I think the AI is going to help to transform the family offices and also help to make it more efficient where you’re not going to need a team of 50 people who are really expensive.

(30:28) You might need a team of three to five people and then AI to figure out your strategy and do that. (30:34) I think we’re at an inflection point. (30:37) My world’s changing literally in real time.

Melissa

(30:41) As someone who works in that space, I’m super (30:44) excited about the future when we know how to use it and we’re building the correct models that give (30:50) whatever we’re researching and searching for the right guidelines so we can purdue our own (30:56) internal analysis versus relying on other research reports or industry reports that (31:02) may or may not be relative to us and what we are laser focused on, like you mentioned. (31:08) I love that insight.

(31:10) Let’s talk a little bit about what leaders get wrong as it pertains to wealth. (31:15) What do successful founders and executives misunderstand about wealth once they reach that scale?

Ron

(31:25) It’s a great question. (31:27) There are people like Stephen A. (31:28) Cohn who started a very successful hedge fund that have family offices that are finance people, but most of the people at these hedge funds, they created Beanie Babies or Guess Jeans or Giorgio Perfume or Mr. Bubbles. (31:42) I was on a panel, by the way, to create Mr. Bubbles. (31:46) I studied a lot of economic theory for 10 years and I heard this guy picks out plastic. (31:53) Who’s the idiot?

(31:55) Anyway, because you’re good at something and these family offices are good at something, it doesn’t mean you’re a good investor. (32:02) Some people are really good investors, but most people aren’t. (32:05) What you need to do is surround yourself with people.

(32:07) What I’ve done is it’s not a complicated model. (32:12) I surround myself with people that I trust implicitly that are smarter than me in each asset class. (32:17) If I’m going to do a private venture capital deal, there are a lot of professors at Stanford that we work with that are a lot smarter than me in venture.

(32:25) I’ll defer to them. (32:26) If I’m going to invest in private equity, Paul Carbone has been doing this for 25 years. (32:30) I understand it.

(32:31) I’m good at it. (32:32) He’s an expert at it. (32:34) If I’m going to invest in real estate and offices, rather than having a good opinion on it, why not go to a guy like Tim Callahan who’s made a fortune in this?

(32:43) I think how it’s going to play out is a lot of these family offices that don’t work, they’re primarily driven by ego, in my opinion, of the founder, the matriarch or patriarch. (32:53) Again, humans are wired. (32:55) If everyone comes up to you and says you’re great, it’s hard not to feel that way.

(33:02) If you’re looking at it from a generational standpoint, and also with the kids, you sell your company for a billion dollars. (33:09) How do you raise kids with gratitude and non-entitled kids? (33:12) That’s a really, really challenging thing.

(33:14) Let’s say you have three kids or five kids. (33:17) Three of them are really ambitious. (33:19) One of them is really lazy, and one gets into drugs.

(33:21) How do you navigate all of this stuff? (33:25) The governance piece of this, which most people don’t even think about, once they have a liquidity event, the first, second, third thing to think about is, how much should I put in private equity? (33:35) How much should I put in real estate?

(33:36) How much should I put in the public markets and index funds, et cetera? (33:39) That’s the wrong answer. (33:41) The question you need to ask is, how do we structure the governance?

(33:45) How do we structure everything? (33:48) Like I said, the estate planning attorney, it’s boring, but it’s like the foundation of a house. (33:53) It’s not fun to watch your basement be built.

(33:56) It’s fun to watch the deck and everything above it be built, but without the foundation, the house will fall apart. (34:02) That’s really what happens, is that they don’t have the governance, they don’t have the estate planning set up. (34:07) They start with the investments, and then they have to go backwards.

(34:10) That’s part of the reason the model doesn’t work. (34:12) We’re trying to change that.

Melissa

(34:13) Now, what becomes harder, not easier? (34:16) The more wealth, the more you’re creating, the more money you have, the more money you’re moving?

Ron

(34:22) Greed. (34:24) I mean, just human nature. (34:27) I’ve seen families, just the mom or dad or matriarch or patriarch passes, and all of a sudden, it’s a food fight for the money.

(34:37) A lot of the kids feel entitled. (34:40) I can’t tell you the amount of multi-billion dollar families that mom’s suing dad or grandson is suing grandma. (34:48) It’s just insane.

(34:49) It’s not worth it. (34:53) It’s not that they’re necessarily bad people. (34:55) They get the estate planning attorneys who say, hey, your mom is doing this or your dad is doing this, and it breaks up the family.

(35:02) Again, a family office, what’s the first part of the word family office? (35:06) It’s a family. (35:07) It’s no different than any other family.

(35:09) It’s just they have more zeros in their bank account. (35:11) Because they have more zeros in their bank account, some of the kids will feel entitled. (35:16) Some of the kids won’t and will work very, very hard, but that’s a question of parenting, and that’s a whole other conversation.

(35:22) It’s a very hard one to do. (35:24) How do you fly private everywhere and raise your kids who don’t have to work or your grandkids who don’t even have yet, who won’t have to work, and have them be productive members of society? (35:36) I think to raise kids with gratitude is really, really important.

(35:41) There’s been a lot of studies that what’s interesting is a lot of the people who’ve made the money, if you ask them, hard work, diligence, sweat equity is really how they did it. (35:55) When they look at the values they’re trying to pass on to their kids and their grandkids, they want them to be enlightened, have mindfulness, have peace of mind, which are wonderful things. (36:09) They’re basically saying their life was really hard.

(36:11) I want my kids’ and grandkids’ lives to be easier. (36:15) I don’t know that that’s necessarily the best way to do it. (36:18) Yes, we all want our kids.

(36:20) I’ve got two beautiful daughters, 25 and 22, Zoe and Bella, and I want their lives to be wonderful and great. (36:26) I want them to find enlightenment and fulfillment and all those wonderful things, but is the best way to do it just making their life easy so there’s no consequences? (36:37) If they screw up on something and I just write a check for them, what’s the point?

(36:44) It’s a hard thing. (36:45) It’s tough love, but I do think it’s incumbent upon the family offices and we don’t do that. (36:51) Making your kids’ lives easier is not necessarily doing a benefit to your kids, in my opinion.

Melissa

(36:59) So much awesomeness in all of that. (37:02) I couldn’t agree. (37:03) I think we learn best from the mistakes we make.

(37:07) It helps us build courage. (37:08) It helps us build knowledge, but if our parents are unpacking every hiccup we have in our life, we don’t develop that muscle. (37:16) We don’t develop those skills.

(37:21) I can’t think of the right words, but really buck up and take responsibility for the choices we make. (37:29) I love that you mentioned that. (37:30) I think it’s so important.

(37:32) I also love the part of gratitude. (37:36) I’ve been guilty of it in my life, just achieving things and moving on, achieving things and moving on, and not really sitting in all the beautiful things I have in my life. (37:46) I think it’s been about five years, before the pandemic, but really solidified for me during the pandemic, about how simple being grateful for all the things we have in our life and how simple it is, but how few actually do that or thank people that are in their organizations, helping them build their business.

(38:09) Not just gratitude, but being thankful and grateful for the people that are helping you along the way. (38:15) What responsibilities, picking a backup to what you left off on, what responsibilities emerge from those patriarchs, those leaders of the families? (38:28) I heard you say a little bit about teaching the next generation, but is there responsibilities to our community, to our world, to politically, outside of the family, what other responsibilities emerge?

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Ron

(39:34) So that’s a great question. (39:36) And this is kind of my North star. (39:37) So right now you’ve got huge amounts of capital being transferred into fewer and fewer hands, right?

(39:44) That’s not from a societal standpoint, that’s not good. (39:47) You don’t want the rich to get richer and the poor to get poorer because without a sustainable middle class, bad things happen historically. (39:52) You could look at any society and without a sustainable middle class, it’s not good.

(39:56) So the rich are getting richer and the poor are getting poorer. (39:58) That’s a bad thing. (40:00) But here’s where I’m optimistic.

(40:04) My belief and kind of my North star is my father passed from prostate cancer at 57, very, very young. (40:09) And this was 30 years ago. (40:11) And at the same time, my first boss was Michael Milken, who also developed prostate cancer.

(40:16) Michael was the founder or one of the top guys at Drexel Burnham. (40:20) And he was a visionary financier. (40:22) He also got prostate cancer.

(40:24) What my dad did is what I would have done. (40:25) And what many people would do is you go to three, four or five doctors and get second, third, fourth opinions. (40:30) And he could afford good doctors.

(40:31) And he lived four and a half years and then he passed. (40:34) What Milken did, he did that, but he also built it like a venture capital firm. (40:38) In other words, you put 2 million here, 3 million here, 5 million here, $500,000 here, up to a hundred million dollars in order to create something that’s going to solve for the problem with prostate cancer.

(40:53) And because of Michael Milken, me and most men will die with, but not of prostate cancer. (40:59) Fast forward 30 years, Bill Gates, irrespective of what you think of him, I would argue he did more for COVID than the U.S. government. (41:06) Eric Lefkoski is the founder of Groupon.

(41:08) His wife got breast cancer. (41:11) He didn’t like the data. (41:12) So he started doing diligence.

(41:14) He didn’t start as a result of that, a company called Tempest, which is now a multi-billion dollar publicly traded company was created. (41:20) He didn’t create it because he wanted to make money. (41:23) He created it because his wife had breast cancer and he loves his wife and he wants to save her.

(41:28) And Sergey Brin is the last example. (41:29) He’s got a predisposition for pancreatic cancer. (41:32) And is he going to solve it?

(41:34) He’s donated a billion dollars. (41:36) I don’t know, but I put my money on him over the American Cancer Society. (41:40) So my point is my North star is, and a lot of these people look at these, it is bad to hoard money just for the sake of hoarding money is a bad thing.

(41:48) And again, I don’t, you can do anything you want with the money you make. (41:52) I don’t make any judgments, but I do think that a lot of the next gen feels very passionately about making the world a better place. (42:02) I bought a pair of jeans when I was a kid.

(42:04) If it fit, I bought them. (42:04) If it didn’t, I didn’t buy it. (42:06) My daughters, well, they got to fit, but then they go to their phone.

(42:10) Who makes them? (42:10) How do they treat their employees? (42:12) What’s their, you know, they could find out how do they pull it?

(42:14) They could find out all this information. (42:17) It’s not, I have the Encyclopedia Britannica, they’ve got the internet. (42:20) So I think that where my optimism lies is in the next generation who does want to make the world a better place in general.

(42:28) And I think that, I don’t think it’s a panacea, but I do think that family offices are going to solve not all, but many of these real world problems because it’s not going to come from government. (42:38) They’re not good at that. (42:39) I don’t think it’s going to come from corporate.

(42:41) I think it’s going to come from family offices because family offices, my mom has dementia. (42:45) My dad passed from prostate cancer. (42:48) There’s alcoholism in distant relatives.

(42:51) So those things that have touched me, you’ve got five things that have touched you. (42:56) So if you figure out something that’s touched you and you’re passionate about it, your kid has diabetes or autism or whatever it is, and you’ve got the means and you’re an entrepreneur, that’s where these real world problems are going to get solved. (43:11) So that really is my North Star.

(43:13) So a lot of people look at this as, and I agree objectively, it is bad for the rich to get richer and the poor to get poorer and no middle class. (43:22) But the optimistic thing is if while this is happening, if we could start solving some of these real world problems and you can’t run a business exactly like a, you can’t run a philanthropy exactly like a business, but if you run it more business-like, we can solve a lot of these problems. (43:36) So that’s why I’m optimistic.

Melissa

(43:39) Yeah. (43:39) And I love this. (43:40) I think there’s a huge emotional shift going on as well.

(43:44) Like kind of you were saying, I think about same situation with my father as how I look at the world as far as purpose and impact and legacy doesn’t necessarily just mean dollars. (43:56) It means how am I going to help others alongside? (43:59) And I think the same way we were talking a little bit about AI, I hear a lot from younger generations that don’t feel like they have the knowledge to to make things happen.

(44:11) But with government and regulation, it lags in getting things done. (44:17) It’s just a lagger to get a policy through, getting a decision made, putting regulations in place. (44:23) It takes time and a lots of decision-making.

(44:27) And family offices, they don’t need the regulation. (44:30) They don’t need the time. (44:31) They can just go do research about different things they want to research on and different things they want to invest in.

(44:37) So they have kind of that autonomy to start putting money in things that drive them with purpose and impact versus kind of waiting for regulation to catch up, like what you were mentioning about COVID. (44:53) Now, where does purpose enter this equation outside of just how do we empower the younger generations to find their purpose? (45:06) If their family invested in, by the way, I invested a bunch of money in Mr. Bubbles. (45:11) We have used tons of Mr. Bubbles products. (45:15) So if your family was in the bubble business, in the toy business, in the widget business, and you have no interest whatsoever in any of the family business, how does the next generation’s purpose enter into that equation?

Ron

(45:34) It’s a great question. (45:35) I think it’s incumbent upon the parents. (45:37) If we can afford, if the investors that I invest alongside, they can afford to do or give anything and make their lives easier.

(45:46) But I think people grow and there’s a problem, like any time that I’ve grown as a human being is when I’ve had a problem. (45:53) Now, I’m not hoping problems happen, but when problems do happen, I look at this and like something good is going to come out of this. (45:59) I don’t know what.

(46:00) And then you work your way through it. (46:02) If you don’t give your kids the tools to do that and you just basically say, here’s a check, I’ll solve for that. (46:08) You’re going to have very unhappy kids and it’s not going to be good for anybody.

(46:12) And it’s hard because intuitively you think, I want my kids to have an easy life, intuitively. (46:19) But is that in their best interest? (46:22) I didn’t really think this through previously, but because mom and dad, if you lived a fulfilling life and did really well and built enough money for a family office, why wouldn’t you want to instill those same values in your kids versus saying, well, I had to bust my ass to do everything.

(46:41) Now the next three generations are going to make it much easier. (46:44) That’s actually not a good thing.

Melissa

(46:47) Yeah. (46:48) And I think as soon as you said that, I had gone to school in Nevada with some very wealthy families and they bought their children when they turned 16, very nice high-end vehicles. (46:59) Several of those kids crashed their cars more than once.

(47:03) And every time they crashed them, they got a new car. (47:05) And so it’s so spot on. (47:07) And so I want to kind of, in closing, just unpack how do values influence these decisions as well, showing our children what it means to be grateful and lead their life with integrity and do good by our world and really build those values in them very young.

(47:29) So they live those values versus kind of what we talked a little bit about, about entitlement or greed or other different types of systems.

Ron

(47:38) Well, I think it’s a great point, but I think kids are sponges, right? (47:42) They absorb, they observe you. (47:44) And what happens, I could tell my kids, look, reading is really important.

(47:47) You should read. (47:48) And I can emphasize the importance of reading, et cetera. (47:51) If they never see me pick up a book, I’m a hypocrite.

(47:53) They’re not going to read. (47:54) You tell them smoking’s not good for you. (47:56) And they see you smoking.

(47:58) They’re going to do what you do. (48:00) So they watch you. (48:01) So if they see you working hard, they’re going to be incented probably to work hard.

(48:09) If you tell them work hard and they sit in there watching TV all the time, it’s a disconnect. (48:14) So I think that we need to model and kids are sponges and they listen and learn. (48:20) Even when they’re really, really young, they learn a lot, even though we don’t realize that they’re learning a lot from it.

(48:27) So I think the answer to your question is it’s incumbent upon us to live the lives that we think we’re supposed to lead, which would be work hard, treat people fairly. (48:38) If one of my kids wasn’t nice or didn’t make eye contact with a waiter or a busboy, they’re going to get reprimanded for that because they’re no better than the busboys providing a role. (48:49) And so is the waiters providing a role.

(48:51) So I think we need to instill that. (48:53) And again, I just think you needed an abundance mindset. (48:55) And look, at the end of the day, we’re all in this together.

(49:00) And with an abundance mindset, there’s enough for everybody. (49:03) And if everyone tries to do their little part in making the world a little bit better place, it’ll be a lot better. (49:09) And right now we live in a world that’s constantly fighting and constantly bickering.

(49:14) And for political reasons, which I won’t get into, it’s just become, it’s not become a good situation. (49:20) But I think that I’m optimistic going forward. (49:22) And I think that if we can instill the goals to be a good human being, to make the world a little bit better place, and to be thoughtful and to be kind and to be sympathetic and empathetic.

(49:33) If those are the values that you live by, and the kids see that, typically they’ll follow that. (49:39) But if they just see you trying to buy eight different houses or again, I’m not judging anybody, but if all they see is the material things and they don’t see the values things, that’s what they’re going to think is important. (49:51) So that’s what we’re trying to instill in this next generation.

Melissa

(49:55) That’s great. (49:56) Kind of quickly in closing here, someone listening wanted to start thinking about long-term capital instead of short-term money. (50:04) What’s the first mindset shift you would suggest they make today?

Ron

(50:08) Well, I think that learning about family, again, it is a relatively new industry. (50:16) So 68% of the family office that exists today started since 2000 and half started since 2008. (50:22) So this is a very new industry that doesn’t work.

(50:25) It’s fragmented and siloed and inefficient. (50:29) So understanding that, I think that in order for the next generation to really get their arms around what to do is really looking at some of the family offices that have made it four or five, six generations. (50:41) What do they do?

(50:42) I mean, yes, they’re good investors and they surround themselves with smart people they trust, but they have mission statements. (50:49) They have quarterly or yearly, biannually retreats to get families together. (50:55) What can solidify families?

(50:57) Things like philanthropy. (50:58) Maybe everyone’s really into the environment or everyone’s really into helping people with education. (51:05) Whatever it is, that can be kind of the glue to help the family stick together.

(51:09) But again, the goal is not to make as much and hoard as much money as possible. (51:15) The goal, I think, could and should be that if you’re fortunate and you’re given a lot, a lot is expected of you. (51:24) And I do think this next generation in general feels that.

(51:31) And I think things like impact investing, which the older generation doesn’t think makes sense. (51:37) They look at it like you make your money here and you give your money away in philanthropy. (51:41) What’s impact investing makes no sense.

(51:44) I’m not judging whether, and there’s a lot of greenwashing, so I’m not going to give a total pass, but people don’t want to invest in certain industries if they’re bad. (51:53) Tobacco, if it’s bad for people, they don’t want to do it. (51:56) So I’m optimistic.

(51:58) And I just think that we’re at a point where family offices are going to fundamentally change the way companies are financed. (52:06) And more importantly, more importantly, the way a lot of these real world problems are solved.

Melissa

(52:12) That’s great. (52:13) Ron, thank you so much for being here and sharing your knowledge and time with our listeners. (52:19) This wasn’t about getting rich fast.

(52:22) It was really about thinking clearly, protecting what matters to our families and making decisions that last much longer than headlines. (52:32) So thank you so much. (52:33) Any final thoughts or anything you want to leave with our listeners?

Ron

(52:37) Focus on gratitude. (52:39) It’s hard. (52:39) We’re hardwired to worry about stuff.

(52:42) I’ve got 10 things that suck in my life. (52:44) I’ve got 10 things that are great in my life. (52:45) And it’s very easy to focus on what sucks.

(52:49) There’s so much to be grateful for. (52:51) The more you could focus on that and the more abundance mindset you could have. (52:54) So it’s really about attitude.

Melissa

(52:56) Thank you, Ron. (52:57) That’s the Executive Connect podcast.