Investing Billions - E323: How Billionaires Build Their Portfolios Audio

Episode Date: March 12, 2026

What changes when wealth stops being about building and starts being about preserving? In this episode, I sit down with Jonathan Dane, CIO and Founder of Defiant Capital, to explore how family offices think about portfolio construction after a major liquidity event. Drawing on his experience at Goldman Sachs and Jefferies, Jonathan explains why independent advice matters and how families navigate the transition from wealth creation to long-term preservation.

Jonathan, I've been very excited to chat. Welcome to How Invest Podcast. Thank you, David. Happy to be here today. So Jonathan, you're the CIO at Define Capital, where you work with families with a couple billion dollars. But before that, you were at both Goldman Sachs and Jeffries. What made you realize when you were at Goldman and Jeffries

that there was a gap in the family office market? The sell side is a really interesting place. You learn a lot there. I enjoyed my time. But I think the longer you're on the sell side, the more you realize it's a factory that's a consensus. machine. And what I mean by that is so one, everything the cell side does is about not rocking the boat. And so they want to make sure that, hey, if you're moving things around the edges, whether that's

smoothing a circle, making things better, you don't want to rock a board. Just want to kind of keep its status quo, adjust here, there, but no big changes. But the other big thing on the south side is that there's this structural problem. You have institutions that are doing custody, advice, and product under one roof. And when you do that, you have this situation where what advice you're giving may not be the best advice for a client. And so what we started to realize, what I realized more and more is that, let's say you're working with a family office that or a founder that just sold a business for $30 million, $50 million, $60 million. And all of a sudden, these institutions are talking about investments, nonstop investments, hey, let's go into some great forward swatch.

I have this great product here, this private fund here, this there. But for someone who just sold their business and they're building a family office, that's not what their focus is. Their focus is, did I implement my estate plan right? Is my QSBS treatment going to come in right? How is my family controlling these assets. The investment is a great piece of it, but that's maybe at number three in their list. And so when I started the business and my wife as a co-founder with me, she had this saying, it's only helpful if it helps. And so for us, we start with what a family needs and then you work backward. And I think that's the big difference with where I saw the inefficiencies there and what we wanted to build from day one with defiance.

One of the biggest trends in taxable investing, arguably, is this rise of the RAs, the independent wealth advisors. And the independent wealth advisors will say that you need really to have an independent advisor, that the big banks are conflicted. Explain to me maybe why that is. Why can't a large bank give you independent advice and maybe direct each other products? What's what's incentive structure like? You can tell me your fiduciary, you can tell me all day that you're talking my best interest. But when half of your firm is building products and your bonus structure and your incentive structure is all about those products. Or when you're telling a client that, hey, I'm willing to waive a fee if you go into this product,

that's not the best advice for your client. Maybe it's a good product, but that's not the best advice for them. Because right off the bat, you are incentivized to go with your firm's product. If you go with someone independent, when the meat isn't made in my factory, I'm looking at the whole universe. And I really don't care whether I'm going with a Goldman or a Jeffries or a Blackstone or a Black Rock. It doesn't matter to me because all I care about is the right product for my. my client. I talk about this a lot to my clients. It's not that we're fee agnostic. Fee's matter. We always look at fees, but that's not going to be the number one thing I look at when I look at a

product. It doesn't matter who's waiving fees or who's giving me a discount. It's about where's the best product that fits the need that we have today. Last time we chatted, we have this funny conversation about first generation wealth versus inherited wealth. What are the key differences? And how does that show up in portfolios? For us, we focus a lot on first-gen wealth. We really work to build family offices with them. And what I've seen coming from, I've worked with third-generation wealth and second, and a lot on the first now, is the first-generation wealth, those families, they are operators. They have been in the trenches, their entire career, and they have built it. And they know every nuance of the business that they have built. I mean,

they typically even know who all their employees are on a first-name basis. In that level of detail, that level of involvement, when they come back into the investing world, for them, they're still in risk mindset. They're still, hey, I need to grow, I need to kill it. I need to get out there, hands on, do everything. And you see them kind of struggle sometimes because there's a mindset switch that happens. They have been all about growing their wealth,

doing whatever they have to do, being aggressive, and they kind of have to take a step back and talk, maybe I need to preserve it, think bigger picture about legacy. And then you have Gen 2 that comes in. Gen 2 never built a business, but Gen 2 has benefited from day 1 with the wealth that the family has had with the success of the business.

And their mentality day 1 is actually preservation. I don't want my lifestyle to change. I want to continue doing what we're doing. So let's be a little more conservative. Let's do things. But at the same time, I see in Gen 2, they'll take a risk, but it might not be as calculated as Gen 1. Because for Gen 2, a little bit of a loss here or there, okay, I took a risk. It's not a big deal. And I think that there's this hunger that it starts to go away and you really see it with the Family Investment Committee and how they think about this pool of capital and growing it over time. One of the hardest things of investment, investing is seeing what's shifting before everyone else does. For decades, only the largest hedge funds

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hungry to actually get actual returns. And Gen 2 is almost hungry to prove themselves, to satiate their ego, to prove to the family that they're as smart as Gen 1. But I find this like different hunger and different drive in terms of what they're trying to prove where Gen 1 is willing to take more risk, willing to really go after it. But it's not because they're trying to prove themselves. It's because they're trying to really grow well. Some of the best entrepreneurs, they're so focused on their business.

that they oftentimes don't think about wealth planning and all these things. What are one or two things that an entrepreneur that's 24-7 in this business can focus on that could set them up for more optimal structures post-liquidity? When you're deep in it, you're right. You don't think about it every day. And one of the problems that we see is a lot of these families, especially, to your point, it's the Gen 1, so people who have built it, they don't even think about the real estate picture until they're at the finish line.

we talk a lot about thinking about what your family office will be as you approach your exit and putting that structure in place years before so so whether that's setting up an FLP whether that's setting up the trust whether it is gifting shares now we tell a family and this is one of the more important things too even if you think the exits 10 years away you're in that business every day you know better than anybody else what it's going to do you might have an opportunity today to gift shares at a valuation that you'll never get again and the valuation might be low because the business isn't doing well or it's a down year, but you're in it every day.

Like we said, Gen 1 knows exactly what they want to do. There's your opportunity. So if you think about estate planning as you're building that business, especially in the times that are tough, a down year, or right when you hit the inflection for growth, get in there, move shares, gift shares, set up that structure. And if you do it proactively, the benefits of it down the road are millions. I mean, truly millions of dollars in savings.

I have a high appreciation for people that are building their businesses that are not optimizing around crazy tax structures. But if you really distill it to the very basis, if you have a company that's worth $100 million, and let's say it's only worth $50 million on paper, you could take those shares at a lower 409A valuation and gift it to your heirs and be under that tax exclusion. So essentially, you don't pay that 50% of state taxes.

Is that a good kind of simple, simple thing that families could do? We try to look at it in two phases. to your point, if you do the trust the right way for the QSBS for the gifting, moving outside of your federal taxable state, that's really all that's too. And you can build great trust documents that give you the flexibility you need to later establish the foundation of your family office. And so, yeah, we tell our clients, look, how many kids do you have? What's your charitable inclination? What do you want to set up? Let's build this out with you, your wife, your kids, bring in the family, move the shares in now.

And the process, it is, to your point, it's not that hard. It does take time, but you can get it done pretty quickly. And once that's done it in place, then you spend the hours, the weeks, the months developing the family office infrastructure. Last time we chat, we talked about these two universes that exist from an investable side for families that have less than $50 million and more than $50 million. Talk to me about the investment universe when a family has more than $50 million, which fundamentally changes. once you've reached that threshold, once the wealth becomes truly, in our view, it becomes generational, becomes the idea becomes what happens tomorrow if you make $5 million versus lose $5 million and the downside becomes more damaging?

Over $50 million is now about family governance. It is about putting structures and processes and these other types of vehicles into place now have got the wealth for generations. This is really where we talk to families about, let's talk what does your family office look like. What are your goals? What is important to your family? And we start building that. And yes, the investment plan, everything else becomes a piece of that. And how we invest becomes needs to be more documented. And it needs to be more institutionalized. But that all happens once you breach that lecture beforehand, under 50, there's still a lot of scrappy investing going on. You're

looking for those best deals. There might not be as much structure. But once you break that threshold, now it's time to talk structure. And that's where you need to talk not just about the investment structure, but it has to tie into the estate even more. What trust is owning it? What asset location is this going into? Who is controlling that? How are these things being handled? And it becomes a much bigger piece at that point. Let's talk portfolio construction. What's the portfolio construction look like for a typical $1 billion family office? When you, in a billion dollar family office, you're going to be heavy in the alts. Public markets are a very small piece. You have a little bit of fixed income, but your alt's portfolio is going to dominate it. And it's going to be well over 50%

on the portfolio. I mean, that's just on average what it looks like. And in that alt sleeve, then, you have to start breaking it down. How much is private equity? How much is venture? How much is real asset? And what I would say when it comes to portfolio construction there is thinking about the income, because at that level, families, they may not have an operating business anymore. The income that the portfolio is producing matters more than ever. And so when we look at those portfolios and we think about it, you really need to develop the ALTS program in place. The equity is, the bonds. You can put processes in place for that. But in the ALTS bonds, you can put processes in place for that. But in the alt's bucket, you need a diversified program. You can't just be putting

money into every single need opportunity that comes to you. You need a process. You need to figure out we need our real assets because why, because it's going to generate income and provide our stability. We want the private equity for this reason. We want this. This is going to be our risk bucket of venture. Here's how we're doing it. And so I think at that point, the diligence becomes even more important because you're not just diligenting it for, hey, a one-off return. You're now looking at it as this holistic portfolio of how does each piece talk to the other, is adding this new venture investment, truly adding any portfolio value? And that's where having the teams and being able to actually analyze what you're investing in becomes so much more important. One of the most positive

developments for family offices is now managers are focusing for the first time, I would argue, on taxable investors and tax-aware strategies. How should portfolios for family offices, let's say it's a billion-dollar family office, how should that differ from a billion dollar endowment or foundation. It drives me crazy when you talk to managers because they don't, half the time they don't think about taxes. And so you get there and you start talking to them. And all of a sudden, well, what's your turnover?

What do you, what your tax looks like? Can you send me a sample K1? And they just don't care because half of their investments have been, to your point, these endowments where taxes have never mattered. When the managers realize asset location matters that much, it really opens up the seat in them because I am so much more willing to go into it when I know that you're thinking about taxes too. And that's the other thing. I'd say the other piece, too, is when it comes to K1 reporting,

you know what managers worry about taxes when you get their K-1s. How are they breaking things down? How are they classifying versus the manager that they've never had to deal with taxable money before? So the K-1 is what it is. There's no effort spent to it. It's an afterthought. This trend of managers being more focused on the taxable investor is going to take care of itself. One of the most underappreciated things is that institutional investors in most asset classes have more or less picked their core. managers. They've picked their 15 to 25 core managers. They're looking for very specific things. I'll talk to an institutional investor and they'll say, I'm looking for a secondary product. I'm looking for a lower middle market PE, very specific things. Sometimes even more niche than that,

they're looking for lower middle market PE focused on AI implementation in widget companies. So they're looking for something very specific. The taxable investor, on the other hand, is just coming on board. So you have a confluence of factors. You have retail coming in, which doesn't mean literally, but oftentimes it's through platforms like I Capital or it's through RIAs. It's through multifamily offices. I think we're going to see much more tax-aware strategies by virtue of it's going to be a big enough market and it may become the biggest net new investor over the next decade. It's an important concept. And I think it also ties to something else that we're seeing in the investing world. And that is this shift from portfolio silos to holistic portfolio

construction. For family offices, for taxable investors, we've always looked at every opportunity as how does it matter in your portfolio? Yes, I like lower middle market, but it doesn't have to only do this. What I want is this theme. And I'm looking at you in absolute terms. What are you doing to get me value? What is the net of tax, net of fee return that you're putting in my portfolio? And when I look at that, I compare it to everything, whether it's public equity, bonds, venture, I'm looking at it. And what I think you're starting to see is that approach is, is broadening to institutions and endowments. And I think the focus on just true net a tax, net a fee, absolute return,

what are you adding to my portfolio's value, is another trend that when the slack on the edges where they could get away with things goes away, and one of those is inefficient tax management. Because now people are looking at you more in absolute terms for everything, you have to really batten it down. And you have to get the institutional infrastructure in place to do it the right way. How would you go about building out that portfolio for this taxable investor that just came into a billion dollars. Day one, for us, it's working backwards. And it's about

the net of fee, net of tax return. So we're going to start day one with what is the cash flow that we need to generate off your portfolio. What's it look like and how are we going to meet our capital calls? Because liquidity, at the end of the day, liquidity management is one of the biggest pieces of investing that people don't care enough about. The big institutions might do it, but family offices and even the $100 million families, there's not enough focus on how you think about liquidity management. And that's going to be our focus day one of. How do we think about how much capital we're committing to the funds because we don't want to overallocate to the wrong places? I think the other thing that we always look at day one is where do you want to be actively involved

versus where do you want to be passively involved? So are there boards that you want to be on? Are there industries that because you sold your business, you don't just want to buy. When you want more, you start your business with Northwest Registered Agent. They give you access to thousands of free guides, tools, and legal forms to help you launch and protect your business all in one place. With Northwest, you're not just forming an LLC, you're building your complete business identity. From what customers see to what they don't see, like operating agreements, meeting minutes, and compliance paperwork, you get more privacy, more guidance, and more free resources to grow the right way. Northwest has been helping founders and entrepreneurs for nearly 30 years.

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Get started with Experian app today. Results will vary. Not all bills or subscriptions are eligible. Savings not guaranteed. Paid memberships with a connected payment account required. See Experian.com for details. Let's be honest. Subscriptions out of fast. Streaming services, apps, memberships you forgot you even signed up for. And canceling them is usually a pain. That's where Experian subscription cancellation comes in. Experian can take the pain out of canceling subscriptions by handling it for you. You just keep the ones you want and put money back in your pocket. pocket. Over 200 subscriptions are cancelable. You can also save money by letting Experian negotiate the

rates on your bills. They'll keep an eye out for new deals and saving opportunities and negotiate directly with your provider on your behalf. And the best part, you keep 100% of your savings. Get started with Experian app today. Results will vary. Not all bills or subscriptions are eligible. Savings not guaranteed. Paid memberships with a connected payment account required. See expirion.com for details. Do a fund you want to be there? And we're going to carve that into its own piece of the bucket. We're not, for those specific instances, we're going to do one of three things.

We're going to write a huge check to a fund to make sure that we can be on the LPAC committee and be a part of it. We're going to go out and buy a company and operate it ourselves, or we're going to go out with another family office or another investor. We're going to buy a company and we're going to be some type of executive chairman role helping guide it. And that could be a huge piece of the portfolio. I mean, I have families that after they've sold it, they'll put 20, 30 percent of what their liquidity. back into another business. And so you have that piece of it has to be considered in the holistic portfolio. So once we know that, where you want to operate, what it looks like from a cash flow we need,

then the rest of it starts to fall into place. We build a program. How much do you want to do an venture, real assets, public markets? We need the beta exposure. What's that look like? But I really think it comes down to just working with the family to understand where their mindset is. I love that.

So you start with the liquidity because that's essentially constraint. if you need to have $10 million a year, you can never have a situation where the market draws down so much that you can't access that $10 million. So you start with the constraint and then you actually go in the other direction, which is you play to their strengths.

Where does that family have alpha? Where could they build alpha within their portfolio? And then size that accordingly and then build out the rest of your portfolio. I'll give you an antidote because I have a family. They're actually still owner operators of a business. And I spoke with them recently and they overcommitted to all these funds.

And what ended up happening is I was reviewing their private investment portfolio with them. And they had capital calls coming in. They couldn't meet because they just kept committing, committed, committed, committing. And what they had to do is go into their operating business, get a new line of credit, draw down from that just to fund their capital calls and commitments. And that's what happens when you build your investment portfolio without that liquidity structure in place from day one. Because they weren't changing their lifestyle. They still needed their money to live their life.

The business was running. So how do you get the money to fund the capital calls? Unfortunately for them, they had to go into the operating company and do it that way. That's never a good answer. Institutional investors talk to me about they're much more sensitive towards long-dated commitments and draw-down vehicles. Do you see that transfer over to the family office side? And so what are some ways to solve around that? I get a ton of pushback lately about every single long-dated fund we go into, especially in the venture world.

Because I'm hearing endowments live forever. institutions up forever but families family money if you want to see that return materialize and so every time we bring another fund to the table the term of it becomes i would say a top two discussion what's this what's this fund look like where are we going to hit our return when we even get our money back i would say families have become more and more stuck on the idea of am i really locking up money for 15 years in a venture fund to maybe what do i ultimately get a three x return Is that worth it? And so I think that's where when we invest now, there has to be something in that structure. It's not just private markets beta. If we're going to lock up for 10 years,

15 years, ideal liquidity premium has to justify that lockup. And the families care about it more so than ever. Do you think that's the right approach? I think they locked up money needs to be rewarded. Nobody would give the IRS. Nobody likes paying quarterly estimates and nobody likes overpaying taxes because that's a free loan to a company. If I'm working with a manager and their docs say that I'm paying a 2% fee on committed capital, which maybe that phases down after the investment window. But if I'm paying a 2% fee on the capital, I commit to you, but I'm not going to see the bulk of my return until after eight years.

Is that really the best way to give you money and earn a return versus hindsight and recency bias aside? The NASDAQ, which has kicked off 15% a year, which I could have put into a tax-efficient and structure, tax loss harvested, did a long, short extension, and sit here with almost no tax implications of it versus I just sat through a 300 page K1 from this company. I'm paying taxes across 17 different states. I think it matters a lot. I think that, I think if I'm locking up capital for a long term, you have to show me something unique that you're doing with my capital that justifies that long term lockup. I think there's a couple of things at play here.

One is, I think there's a psychological aspect. There's almost this desire that you don't want to believe that in 15 years, you'll be 15 years older and you don't want to wait till 15. You want that money sooner. So I think that's probably noise and that's probably inefficient. What you said about, if you're getting a 3x over 15 years, depending on when that cash flow comes in, that's not a great return. You should be getting a higher return in that asset class in venture. On the other side, I see the best thing you could do from a tax structure is to compound

the returns for as long as possible because you're not paying money on a compounding. Obviously take advantage of QSBS and other things. I kind of see both of those sides, but I do think there's this egotistical drive to want to have the money sooner and to feel like you're doing well sooner that distorts the thinking. It does. And it also comes into play with older families. So when let's say you've been working with a family or family became liquid when the founder was in his 40s, 50s, the horizon, you know, 40, 50 years old, your horizon still feels endless.

You're 40 years away, 50 years away, it doesn't matter. So now flashed forward 20 years, the family's patriarch is 72 years. old. And now he's starting to think about life expectancy and legacy and you bring him an investment. A phenomenal venture fund that is doing the earliest of early stage venture investments. We're looking at an 8x projected return for 15 years. So he sits there and he's like, I'm 72 now. So maybe at 87 I'll see this return. Is it even going to work? I don't know. Where are my kids? Where are they going to see? They're going to understand why we did this. And so I think this, to your point, the psychological aspect starts playing a bigger factor,

the older the family gets, which is. why the investment committee matters so much, but when you're older, you want to see those returns hit faster and sooner. And it doesn't help that the media just sensationalizes the one or two big wins that come out every two to three years. And if you had invested yesterday, you would be at a billion dollars today. But people see that. That's what's on top of your mind. And then why am I investing for 15 years when I could have been in something that hit it in two years? When the max seven is beating venture beta, that's a problem. Yeah. I mean, I hear that every single a day. It's, hey, why? I mean, I had this conversation two weeks ago with a family. Why am I still

putting money in early stage venture when the Mag 7 has outperformed it for the past, I think it's five years now, or I guess roll it back. It's even a whole decade. Well, why am I still locking up capital on them? Why don't I just go on the Mag 7? We'll do a long short extension. We'll overwrite it. We'll do all this. There won't even be taxes on it. That's a really tough conversation to have. Yes, portfolio construction, beta side, draw down volatility. But if you're just worried about returns, I mean, that is a very hard conversation. and that is top of mind with people. And I have a lot of families that they're very frustrated at the lack of DPI coming out of funds.

It's great that you're marking me on paper after four or five years, multiples, three, four, five X. Moex, that's great. But I haven't seen more than $1,000 get distributed to me. So when do I actually get this money? And that's becoming a real concern of families that I talk to that I don't really care what paper says. When am I actually going to see the dollar? Talk to me about, Laura.

middle market, PE, it's one of your favorite asset classes. Why do you love it so much? There's three reasons we like it. One, the growth of mega funds has created this massive inefficiency in the space because the bigger funds, which to your point of bringing retail money and all the time of money, they can't write 30 to 40 million dollar equity checks. It doesn't even move the needle on their fund. So you have a lot of smart institutional money that can no longer invest in the space. And when you do that, it narrows the bucket to a lot of regional private equity firms or I'll call them the super regionals and want to come into it. So you have this smaller bucket of people, some of it less institutionalized, less experience. But in this country,

in the Midwest and the Rust Belt, we're private business owned in this country. I mean, that's where all wealth is created. That's the majority of how businesses are. You have this huge pool of companies and you have a lack of smart money chasing it. That creates an inefficient market and great opportunities for buyers. So that inefficiency is something that we love. The other thing is there is simply tangible value creation in middle market private equity. These are family-owned businesses. These could be first-gen or second-gen families that they've just been running it, and the families have done really well for themselves. They've made a lot of money. They have a great lifestyle. But there may not be processes and procedures in place. They may not have a real

CFO or real sales channel. They may not have integrated into ERP systems. And so when private equity comes in, there is actually a legitimate playbook you can put in place to create operational value. We're not even financially engineering or talking bolt-ons for top line and multiple ARB. We're talking true operational value of just coming into a company with a fresh set of eyes and making things efficient in it. And so I love that because it's not contingent on multiple expansion or engineering. It is there's a core operating way to increase it.

And then the last piece of it, and this is when my love-hate relationship comes in, how do you exit it? Well, you bought in a space that the big funds couldn't plan. But if you grew it, you may have grown it to a size. where you can now exit to the big funds. And so it's this interesting dynamic of, I don't need to compete with the big fund to buy. I can put tangible efficiencies in place to grow it.

Oh, but now I'll take advantage of this massive market of dry powder, billion billion dollar funds and sell to them because they have to deploy. And if I have a half-feasant company, what a great exit we can build. Said another way, the amount of dry powder is a problem for the large buyouts. It's an opportunity for the lower mill market that's selling to them. That's correct. 100% is. Lower middle market, I think there's, correct me if I'm wrong, hundreds of thousands,

if not maybe a million of these small businesses. What specific subsector of the lower middle market do you like the most? I'm in Pennsylvania, we're based in Pittsburgh. And in this demographic, which I'm just going to lump into the Rust Belt, the lower middle market manufacturing is a phenomenal space to play in. There are so many opportunities there, especially in this region of the country, that I look at them and, And we love it because you don't have the volatility of like a consumer package good or something.

You have businesses that because of manufacturing, they can be scaled. They can grow. Because of what they do, you can put sales systems in place and truly create value. And it's really our favorite place in all of middle market of all of lower middle market private equity. We love manufacturing. We love value at distribution. And I would say we love anything on the industrial side. There is just so much of value to be unlocked there.

One of the most interesting trends that I see in the lower mill market is independent sponsors. To your point, you have these former KKR, former Blackstone partners that have been classically trained in a large bias. They're now coming in and buying smaller assets. How does a family go about accessing something like that? We work with independent sponsors, but they're not the number one place that we go to. And for us, it really comes down to skin in the game. I'm happy to work with an independent sponsor, but I like to see them put something into the table, too.

My biggest concern with them is, many of them know the playbook and they know how to do these things. But then it's just on from one deal, on to the next. Bought it, dropped it, I'm finding the next opportunity. And that lack of conviction around the idea, that lack of staying power can be problematic. I like independent sponsors who, they are, they came out of a larger institution.

they want to make a name for themselves. And so they're out there deal hunting. But they're putting everything into it. Like this is going to be their deal. They're going to buy this company, pour their personal capital in. They're going to build it, grow it, get it sustained, and then they'll find another one.

I mean, I love that. That's almost like a family office buying a company because that independent sponsor, they are hungry for everything. And you know that you can get behind them and actually rely on them to do something. What's the most common mistake that families with 50 to 500 million

routinely makes. I see families just starting out building their family office infrastructure overinvesting. When you have $50 million, you do not need to be in 30 different private equity funds. You do not need 22 different managers that you're investing it. What that does is basically give you a beta private equity portfolio that you could have just invested in one fund of funds. You didn't create anything interesting. And I can tell you all the arguments about why family wants to do it. We're building relationships. We want to make sure that as further liquidity comes in, we have access to their funds. But what you forget along the way is you need to keep investing in every fund or the manager is going to cut you. I mean, if you don't invest in fund two,

they might not give you the offer for fund three. And so I don't like that argument. That is the biggest problem I see because it leads to a consolidation of returns from a family office structure standpoint, you can barely manage it because you don't have a full infrastructure in place yet. And then just trying to understand and follow and monitor those investments doesn't work. I I tell smaller families all the time, just go into a fund of funds. What's the highest leverage way that you're implementing AI today as for? Let me start by telling you where I'm not implementing AI. And that's for investment decisions.

Especially in private markets, nothing will beat judgment and experience and talking to a person. We have a saying that we don't invest in funds. We invest in people. And that is more true than ever today. Because AI is doing so much work that people are for, getting to meet with the person, compare stories across analysts and GP and managers. Everybody aligned in the infrastructure. So we are not using it there. So where are we using it? Data processing, research processing. If we're digging into a data room and we're looking at decks and we want to

start aggregating returns and ripping out that data, we're absolutely using it there because it will do the work of two analysts and two minutes. We can load in memos and we can load in quarterly commentary and it can scan it, extract what we need to do and show us performance numbers. We can use AI to help overnight with, hey, we want to see how the beta of this fund compares to our portfolio and it can just show us from historical numbers and investment types and what they've done, how it compares. So quantitatively, we love it. It saves time overnight.

The other big place to use it is we are using it with our client communication. AI is absolutely helping to prepare a client for content or helping to prepare content for clients. That doesn't mean it's doing it all. But if you're not using AI to enhance your workflow, you're just shooting yourself at the foot. If you could go back to 2008 and you could give younger Jonathan one piece of advice that was timeless, what would that one piece of advice be that would either help you accelerate your career or help you avoid cost of mistakes? I would tell my younger self, the answer is always no if you don't ask. And I would say my career, whether it's been working with families, whether it's been working with managers.

If you're afraid to ask, then the answer is already no. So what's the worst that could happen? Hey, can I join the board of this company that you just invested in? No, okay. I wasn't on the board anyway. It didn't hurt me. But being afraid to ask that question, being afraid to ask any question is a, it's a career hinderer. You won't move forward because you've never put yourself out there.

And so I would say I didn't start asking the questions early enough in my career. Jonathan, this has been an absolute masterclass. Thanks so much for jumping on the podcast. Looking forward to continuous conversation live. Thank you, Jordan, as well. That's it for today's episode of How I Invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person in your network who'd find a valuable or leave a short review wherever you listen. This helps more investors discover the show and keeps us bringing you these conversations week after week.

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