How I Invest with David Weisburd - E350: How Family Offices Quietly Build Generational Wealth

Episode Date: April 17, 2026

Is the real edge in investing not picking assets but structuring how you allocate capital? Terence Thompson is a Vice President of Investments at DF Enterprises, about how single family offices think about portfolio construction, liquidity, and structural alpha. We break down why Terry uses a total portfolio approach, how family offices create edge through flexibility, and why being a liquidity provider during market stress is one of the most powerful strategies. We also discuss concentration risk in public markets, the evolution of private markets, and how allocators can think about illiquidity, secondaries, and niche opportunities.

Single-family office is in some ways much more pure of an investment arm than the multifamily office. As you start to bring in other family offices, what dilutes in terms of focus? I don't want to be on the multifamily office structure. I think it's a great approach for maybe the $100 million to $500 million asset-based families, where building out their own team does get cost prohibitive. and the private banks are largely not set up to serve that cohort very well. There's a reason for it to exist. It's the specificity that comes with putting your time and attention and the teens' time and attention

into solving the needs and issues of one particular family. And when you start layering in five to ten operating businesses, there's only so much resources to be spread around with lean teams. Do the principal agent problems become greater when you're dealing with multifamily offices than single family offices? Or is it the same situation where you're simply the principal is not the agency, you have this conflict? That's inherent regardless of the asset owner type. The principal agent issues get exacerbated when we co-mingle assets with different pools of capital that have different liquidity provisions, different time horizons, different tax situations. there's enough to do with managing the family dynamics of one family.

Yeah, I don't envy the multifamily office, CIOs and portfolio managers that have multiple families that they need to contend with and sources of liquidity, concerns, drama issues, whatever. So TF Enterprises, you have a large single family office, and you've decided to go with a TPA approach versus the traditional endowment approach. Why? I call it a TPA-like kind of approach. Since the textbook strategic asset allocation process,

doesn't allow for sufficient dynamism to be a liquidity provider in times of heightened volatility, broad market stress, which are typically the most compelling entry courts for long-term investors. While you can use strategic acid allocation to rebalance out of what's working and into what's not working relative to your targets, it really stops there. And it also, you know, the flip side of that serves as a good governor against momentum, which interestingly has been the best factor trade of the last, you know, three, five years. What do you think is behind these momentum trades in the market. Is this a psychological phenomenon? Is there an economic rationale behind it? Double click on that. When you have low rates and a technical innovation breakthrough like we've had with

AI, it does create a winner-take-most kind of environment that permeates beyond just big tech and plays itself out into other areas of the market. There's an anecdote I read last week where you mentioned SpaceX earlier, SpaceX, OpenAI, Emprovic, Andrewl, were to go public. There's an anecdote. I read last week where, you know, you mentioned SpaceX, earlier, SpaceX, OpenAI, Emprobic, Andrewl, were to go public this year. Once they're eligible for inclusion of the S&P 500, concentration, the S&P 500 goes from 40% to 50% of the top 10 names. The market concentration issue isn't going anywhere, and I think investors seem to be very cognizant of where those concentrations exist and how diversified they want to be relative to the go-forward prospects in those names. One of the managers I love in today's market is Brad Gersoner, so his previous podcast, Brad Kirstner of Altimeter.

And what I love about his strategy is, first of all, he's obviously incredibly bright, but he is smart enough and humble enough not to say Open AI versus Anthropic or Anthropic versus SpaceX. He's essentially indexing in a capacity-constrained strategy into all the top companies,

knowing that one of them is going to win. And I think when I look at a lot of errors that people make in these tech revolutions, same with a dot-com boom, is this, like a better word, picking bias? where I need to pick Open AI Anthropic, I'm going to put a billion dollars into one of them.

And if I'm right, obviously, I do really well. But the rational investment is to put half a billion in both of them. Is that the right way to think about it? Or is there a flaw in that rationale? It's fascinating because even I would beat up our public equity active managers when they would pick a space to make it easy beverages. And they don't co-can Pepsi because they like the space. And I would always push them to defend.

why they wouldn't pick one, because as a fee-paying client, I'm paying them to underwrite not only the subsector of the space, but also the value sheet of the company, the governance structure that go toward return prospects, the entry point, with their target return it. It does get more complicated when you look at late-state privates, particularly the large LLMs, because the space is changing and so dynamic.

And I heard Zach Kras speak who was Open AIs, open eyes go to market head. He framed it like cheering for the newest model release is like losing your mind for a basket made in the first quarter of a basketball game. They're going to continue to one another. We don't know who the ultimate winner is going to be.

There can be scenarios where you do have a preference for one versus another, maybe not on a product or capabilities basis, but what do the customers say? Well, who are their customers? From an enterprise versus a consumer lens, you can take a view that way and say one has had much more success selling through to enterprises and actually making large language models driven by a revenue model and meeting those customers where they are. When you're trying to boil the ocean and then you've got five different consumer segments that you're chasing all at once, that's a harder sell and more capital intensive because it suggests a much larger sales and marketing app. Expert calls have always been one of the most powerful ways to build conviction, but today,

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And that growth bucket split between obliks and privates. Private side has its own sub-targets across strategies, but also fund structures, which we think is important as well and then one not to be lost if you're truly being intentional about what your target returns are in cashable profile, liquidity, etc. So in terms of strategies and sales, we obviously have splits between venture growth and buyout, but also primary commitment, secondary commitments and co-investments. Like most families, our public exposure is largely semi-passive tax managed directly indexed equity, but we still maintain some active management exposure in managers that we think have a slight edge or differentiated complement to what we have in passive. The point that's lost on passive is you are betting on a benchmark, right, at that point. We already mentioned how concentrated the large benchmarks are. And there's issues with the small benchmarks as well. I just came off of doing a deep dive into the small and midspace.

And it's evolved a ton in the last 30 years. And I think a lot of folks in our seats kind of anchor on the Fama French models. And okay, you should get a small cap premium. You're taking incremental risk. You should be compensated for that. We haven't been in the last 25 years. And so what is it about the microstructure of markets that have shifted both on the private side and also on public that have created that environment.

Private companies are staying private longer. Private markets have evolved to create liquidity for founders and management teams that didn't necessarily exist in the same way they do today, 20, 30 years ago. And the IPOs that we do see, which were historically the growth engines for small mid-gap indices, the IPOs are skipping those and going straight to large-large gap. You know, we saw it with Palantir. We've seen it with Bobin hood. We'll definitely see it with SpaceX and Andral and Anthropic and like we open.

an AI. As a result, the Smit indices, which the quality there continues to sour because I think there is an adverse selection in the companies that choose to go public at a smaller scale, especially given the compliance and reporting costs of being a public company. And so you see a lot of profitless biotech and materials miners in that cohort. And we see that data reflected in the Russell 2000 is 40% or so of the companies in that index are unprofitable, which is up 3X from 30 years ago. It's being intentional on what benchmarks you're choosing, if you choose to be a benchmark relative investor,

and ensuring you have the types of exposure you want. Ken Finch was my business school professor, so one of the smartest people I ever met, I think that model was right for the last generation. But I do think small value is just fundamentally a different asset class, an entire podcast with us with the CIO of Hurtle Callahan, Brad Conger. And he talked about what is small value today? Small value today is companies that are fallen angels,

companies that are once large value, and now just somehow are smaller and their market share has decreased. A lot of these small values are broken go public transactions, most notably around SPACs that might have gone badly. And then what would have been great small value companies earlier, to your point, these private companies are staying private longer and oftentimes just foregoing the public market. So it's not that the analysis, the five-factor analysis was wrong.

It's that it was just over a different data set and different time where it was easier to go public. Companies were going public earlier. And there wasn't as many companies that had gone public that shouldn't have gone public. You know, when you go back to the 70s, 80s, 90s, private markets weren't as efficient as they are today. There was it trillions of dollars of dry powder sitting on the sidelines waiting either to extend the cash runways of the more venture back companies or to reinvigorate the private companies that were either looking at a job. generational transition or management team turnover or a buyout or even looking at corporate carveouts. I mean, the small cap indices have been starved of what their historic growth engines have been. And I mean, you could talk to small cap managers and I don't think they can argue against

that sentiment. It's a pretty pervasive fact in the data. I think the basic fallacies of asset management is that you will have positive or negative tilts on asset classes as if the asset classes themselves don't have capital markets provision. So a small cap value, if everybody now agrees, small cap value is bad. And this proliferates, this meme proliferates throughout institutional markets for five years. In five years, it's going to be the perfect opportunity to buy something. It'll be a buy point.

Exactly. Absolutely. Yeah. Sentiment has a massive impact on multiple appreciation or degradation. And so the multiple investors are willing to pay is going to be informed by market sentiment. And I mean, you can make the argument that once the, the, you know, pharma French three factor model came out, that that premium got squeezed to zero because investors bought into that, that narrative and said I should be earning 11 to 12 percent rather than

nine to 10 percent that I do have historically in large caps. But that also misses what you were alluding to, too, is the changing macro environment where you do have ample liquidity, sufficient private market participation. And then the costs and regulations of being a public company, I think it doesn't have the same shine that it had 20, 30 years ago when you talk about all the reporting requirements and stocks regulations and it's a very, it's a very different market structure today than it was 30 years ago. If you've been considering futures trading now might be the time to take a closer look. The futures markets has seen increased activity recently and plus 500 futures offers a straightforward entry point. The platform provides access to major instruments including the S&P 500, NASDAQ, Bitcoin, natural gas and other key markets. across equity indices, energy, metals, Forex, and crypto.

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Qualified purchasers and retail capital is not going to flow into small buyout strategies. It's going to go to the KKRs and Carlisles and Blackstones of the world that have the infrastructure to accept that capital and the means to deploy it quickly and its scale. What that means from a second order effect, the small biobanagers that aren't getting the benefits of the retail inflows should see a higher bid for their assets when they take it to market to sell to the bigger fish.

There's a lot of parole clutching and hand-wringing around, what is this going to mean? Is it going to drive down the cost of capital? Yeah, it will. but for the large buyout strategies for the direct lending strategies that are uniquely set up to deploy that capital. The smaller, niche-ier parts of the market will even be more compelling than they are today because there's just going to be more dry powder at the top willing to take out those strategies. Ties together with what you were saying around the Fama French model.

Once that research came out, the institutional bid came in and bidded it up and maybe took away that alpha. And the question is, well, why won't that happen when the retail investors come in? It's because retail investors, without being disparaging, are not going to be primarily driven through first principles alpha decision making. They're going to be driven by brand. Yeah, I think that's right. More specifically, the agents sitting between the funds and the retail investors, the RAs, multifamily offices, private banks, everybody's part of this system. They're going to be driven by telling their retail investors to access. the KKR, the Blackstones of the world.

On top of that, if you look at what's already happening, 95% of funds from retail today have actually only gone to five firms, those top five firms. So it's already happening. Question is, well, something changed in the future. And maybe it'll probably go down to maybe 90-10. But if you think about the incentives driving the mechanisms, if you think about the bankers, the multifamily offices,

are they going to want to go to their client and say, well, great, now you can invest into private equity funds, invest into KKR or Blackstone, or are they going to say invest in this lower middle market firm? And although there are some, their handful of very sharp, very kind of aligned principal, private bankers, the majority are not going to stake their career on an unknown brand

because one of the biases that come in is attribution bias. So let's say KKR and a lower middle market investor invests into the same exact company. Let's say it's that one company that doesn't do well. If it's KKR or Blackstone, they're going to say bad company. If it's the lower middle market firm, they're going to say bad manager.

And that fundamental attribution bias is something that really distorts thinking in this part of the market. Loss subversion plays into it as well, right? As you go down market, you're going to see greater dispersion. And so loss rates are going to be higher. And that is probably the key benefit of targeting larger strategies is tighter dispersion and lower loss rates, which I think retail is uniquely situated to invest in because we see they are driven by fear and panic.

What concerns me the most about it is anytime there's financial engineering or innovation that creates new ways for the mass market to access strategies that where the assets and where the duration of the investment and the liquidity provisions aren't a lot. We're seeing it play out in real time with the BDCs, right? And there's good reasons that a lot of those are trained down in in Indian and funds in the credit space, levered loans, right? It takes three weeks to three months to settle some leverage loan trades. Those are thought of as relatively liquid, but if my liquidity provisions in my interval funds say, I need to be able to get capital out with 30-day notice

at the end of the quarter, there's a misalignment there. And then the manager is forced to sell something that's more liquid that maybe can settle in two to three days rather than two to three months. And then you have the kind of death spiral effect that we've seen anytime these structures come out where that mismatch is at the chagrin of underlying investors. So another way, if you want to be a liquidity provider, when there's a lot of liquidity, aka panic in the market, and you want to avoid being the opposite, if you're part of a highly liquid structure, that structure could itself hurt your returns by selling at the exact wrong time. Exactly.

Yeah, we see it all the time in muni markets, right? You know, uni funds are historically retail driven, given the large taxable investor base there. And when there's panic in the streets, the muni funds have to sell their most liquid strategies. And so the resulting fund looks a lot junkier than it otherwise would have been if there hadn't been the run on assets. And so it's a tale that's played itself out throughout the history of financial markets. And this is just the latest iteration of it. It makes me wonder whether smart investors are going to set up funds that essentially predict this sell-off and essentially a secondary fund that take advantage of the structural disadvantages of the liquid funds. It absolutely will feed the secondary market as that continues to evolve.

It's almost like this parasite swimming around a fish waiting for that fish to go to sleep. There's this meme in the market that is there even an illiquidity premium in today's market? Is there illiquity premium in the market today? As a private market investor, I have to believe what there is. Otherwise, why would I even bother with it? It takes way more time, resources, attention to diligence of private strategy than it does a public strategy. It's just a fact, the cost of doing business. While the last three years, you have seen public equities, a particular outperform private equity and venture in aggregate,

we think over a secular horizon, there is still an illiquity previa and why does it exist? It's structural and efficiencies, opacity of the market and price discovery, right? And so if capital markets were open in a way that we were seeing lots of IPOs, credit was flowing freely, There wasn't a fear or continued hand-wringing over defaults. I think that you'd see private equity and venture continue to outperform public equities. But that's not the environment that we're in today, but we don't expect that to persist.

These things happen in cycles. I mean, we think over the long term, there is still an illiquity premium to be harvested. That said, you know, if retail capital really buys the private equity story and comes into that market in mass, perhaps that inefficiency is ground down like we've talked about in other markets. And that premium or alpha

that you thought you were getting above and beyond what's available and achievable in other markets is squeezed. So I think that suggests for a dynamic allocation posture and maintaining a liquid bucket to you can use as a funding mechanism for your private commitments. When people ask, is there illiquidity premium?

I think that's fundamentally the wrong question. And the right question is, what is the right amount of capital for a specific sector or for specific manager? So you could kind of take two extremes. One is, let's say, the large buyouts. I'm not going to use their names. But let's say that there's a good way for them to deploy $5 billion in capital in their strategy. If there's $50 billion in capital they're able to raise, the nicest way to put that is, at best, their alpha is diluted on a 10 to 1 basis. At worst, they're probably actually getting negative alpha.

but they're deploying into the marginal opportunities. And if you keep on doing that to the extreme, you're actually losing money. You're actually underperforming a liquid index. And then on the other side, because these are dynamic situations, if now you have buyouts deploying $50 billion or $5 billion, now you have this lower middle market where there's 10 times more demand for the same assets. And if they don't have 10 times more capital or let's say they're even underfunded, then that illiquidity premium goes from the large buyouts to the small buyouts versus this private

versus public, which is kind of an overgeneralization. It's economics 101, right? It's supply and demand. But where is there a demand for capital and how much supply of capital are chasing those opportunities? You alluded to it, our kind of core private equity exposure

is small buyout. And one of our managers has this great chart where they show there's a trillion in capital in megafunds, as defined by funds that have over a billion in fund size, chasing 9,000 companies with revenues over 250, $250 million. There's 150 billion of capital in funds, 250 million to a billion,

chasing 110,000 companies with revenues from 10 to 250 million. So it's a broad generalization, but you have a much more compelling supply demand backdrop, which warrants a higher cost of capital, which means GPs can be more discerning on valuation, selection, if there's 15% of the capital chasing 12 times the guilt one. You've told me privately your tech size and your access, you have access to some of the best asset classes

and sub-asset classes in the world. What's the most underrated sub-acic class today? I don't know if I could pick just one. So if you'd humor me, I may have to give you a handful. I mentioned our core private equity exposure is small buyout. That seems to be getting more traction, given the optionality at exit. Large allocators are trying to figure out ways

the SMAs and other mechanisms to come down market or bundle up on shops, et cetera. VC is going through a consolidation cycle. I think you can make an argument there for barbelled exposure, whether it's to the very early stage and some of the crossover names. Our law is undefeated, and you've got to be ultra-diversified there to keep up and make sure you've got some access to the right-tail outcomes that it does feel like fall into most of the established brands, tier one shops in that space.

Despite the negative headline private credit right now that are largely focused on the BDCs and interval funds, there are still really compelling opportunities in some of the esoteric credit strategies. Credit secondaries is an asset class that still, that's relative infancy. We like that space a lot, the kind of secondaries on broadly syndicated loans or kind of traditional private credit if you go but farther out of the risk spectrum

in distress and distress, we think there's really compelling opportunities there. Real estate credit continues to be of interest despite the space changing rapidly since the talk of privatizing the GSEs has come back to the four. Freddie KB pieces was one of our favorite trades until Freddie put the gavash on it

like last year early this year. And we still like low income housing tax credit debt, which is super nichey regulation, and there's a moat around the size there. The last two, I'd give you, biotype launch short is really compelling here. There's a large dispersion of outcomes. It's not really tied to the broader economic cycle. I haven't spent as much time on it to have a perspective on underlying strategies,

but from a portfolio perspective, it's very compelling. But perhaps the most out-of-consensus call that I would have on underappreciated assets is active management of large-gap equities. I told you most of our public exposure is passive or semi-passive, which has had an incredible run and as passive tends to win in markets that are driven by momentum. But given the potential for continued concentration today and winners and losers, both in hardware, software, which is such a massive part of the market, if AI works and they can figure out the revenue model, overcome the hype cycle that typifies called electivity, it'll create even more market

dispersion than we've seen this year in public equities. And so we could be entering a new age of golden age for active equity managers that can execute strategies which benefit from AI disruption, not just in the large language models and the tech providers that are building out the infrastructure, but cross-sectionally. So when we're looking at staples companies or energy companies, what companies can drive down their cost structure? So much attention gets paid to the revenue model of the large language companies. But how can companies implement AI strategies to reduce their costs? that's largely lost in just looking at the TAM increase or potential revenue of the AI model companies themselves. Given how much of a factor AI is playing across the market, but also in the public markets,

they're not an argument that there should be AI first managers, not that AI should be running the fund, but that they should be taking an AI-based fundamental research versus a human-based. There could be. I mean, I think Andreessen should get their flowers for this, right? It was four or five years ago, they pivoted the entire firm to AI. And I think at the time, everyone is thinking, okay, wasn't this the software is going to eat the world shop? And then they're betting the farm on AI working.

And I don't know the specifics, but it seems like almost every incremental dollar being allocated in DZ is going that direction. Perhaps there's a point in time when two engineers and a CEO can scale a company, you know, 100 million in ARR, that is a thing. implementing it for investment research is going to continue to be a very powerful tool. But when it comes time to actively make a decision, present a recommendation, those are going to be, I haven't seen an asset owner that's willing to accept the output of an AI

generated investment thesis. There's always going to be a human element in the actual decision making. Prior to DF Enterprises, he spent six years at Bluecroft's Blue Shield, which of course is a tax-exempt investor, in what ways is being a taxable investor change your strategy. I won't belabor view with the taxability or the organization of the blue cross system, but they're actually a fully federally taxable nonprofit. Don't think about that too long or make your head hurt like it did mine. So while taxes undeniably drive a huge part of investment strategy, we're cautious at the family office and we were the same at

the insurance company to not let the tax tail lag the investment dog, it absolutely informs those decisions, but we wanted to be cautious of it. But with families of a certain wealth, it can very easily wag to dog. And there are a lot of stories of single family office is born of a kind of principle and they hire a tax person first. The investment people come later. The tax people come first. And there's a reason for that. It's a massive cost. Is that the right model direction? I don't, I don't know if it's the right model necessarily. It's more typical because the psychology around paying taxes. and then generating a return.

I think everybody sees investments as more accessible than taxes. And so getting professional tax advice and somebody that can understand the dynamics there first is of import. And then getting more specific and complex on the investment side comes after you figured out governance structure, you know, trusts, what the broader tax strategy is, what the liability is going to look like today and into the future. And then we can sprinkle in investments to complement that strategy.

If you could go back in time, right, when you graduated undergrad, and you could give younger version of yourself one piece of timeless advice that would have either accelerated your career or helped you avoid constant mistakes. What would that one timeless piece of advice me? Like a lot of folks in my generation, more specifically in the cohort coming out of undergrad into the financial crisis and coming to the labor market during that time, that experience really informed and I would argue hampered,

our collective willingness to bear and accept risk, both human capital and investment. And so I'd likely encourage myself to be more comfortable taking risk, be less risk-averse. If I were to tie things back to my military days and my home in Arizona, you know, Barry Goldwater had a quote where he said there are old pilots and bold pilots, but no old pilots. And that sense of risk aversion, I think, is prevalent in many acid allocators who, like me, were being more comfortable, being a mile wide and inch deep generalist to avoid the career risk in tying your career to external forces that are outside your control, like the economic cycle, the rate cycle, or like we talked about earlier, investor preferences and tastes

and sentiment, that seemed very scary to me as a 22-year-old, but obviously there's a ton of wealth created in specialization and in specific strategies. But in a portfolio context, to work professionally, the market isn't kind to complacency. So being comfortable taking risks, being comfortable, being dynamic, not getting too dogmatic about any particular investment school of thought or philosophy is something that I would push my earlier self to you. I think there's some real psychology behind risk aversion sounding smarter and risk taking sounding naive. But longer term, given the history of market returns and the equity market in particular being a positive sum game, why do we pay so much attention

to the vocal minority who always seem to claim that the sky is falling, right? One of my favorite clips of, you know, any of these clipbait to the gloom market posts is someone in, very like going back

and charting out that the author is successfully predicted a hundred of the last five recessions or whatever. You know, the U.S. economic machine is undefeated. And while we can all bring our hands about valuations and etchum multiples and distribution desert leverage

and geopolitics and dollar strength, I continue to believe in the resilience of the U.S. innovation engine. And I think we do our best to keep that front of mind, especially in times in heightened volatility, like we're experiencing today. I was recently at a dinner with one of large banks and that their chief economists or whatever his title was talking about their predictions over the last three, four years. And people were literally sitting there eating of this absurd narrative how they were correct in every single quarter. It was one of the most

absurd things I've heard. And then I look even more crazy. I looked around and everyone was buying it. I'm like, this is crazy. I'm like, am I losing my mind or has everybody else lost their mind? every shop on the street predicted three years straight of 20% returns. I'm like, let me see your prop book. This must be like the best performing fund of all time. On that note, Terry, thanks so much for jumping on podcast and looking forward to continuing this conversation live. Thanks for having me. I appreciate it.

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