Investing Billions - E340: Why Family Offices Should Avoid 60/40 Portfolios

Episode Date: April 3, 2026

What if building a portfolio for high-net-worth investors is more about managing downside risk than chasing returns? In this episode, I sit down with Damien Bisserier, Managing Partner and Co-CIO at Evoke Advisors, to explore how he constructs diversified portfolios for ultra-high-net-worth families. Damien shares why after-tax returns, alternative assets, and private markets matter more than concentrated US stock bets, and how behavioral insights and client-centered thinking drive long-term compounding. He also dives into venture capital, the importance of relationships, and the nuanced ways to identify managers who deliver repeatable alpha.

Forbes recently ranked you number one RIA four years in a row. You got $65 billion in AUM after your recent merger. How do you still generate alpha at size? Ultimately, I think of the objective of a great portfolio is to deliver your desired rate of return as consistently as you can. And so if you're going to try to earn high returns, the way to do that more consistently is not to put most of your portfolio in one line item. And effectively, that's what most investors do.

they have a large concentration in U.S. stocks. And sure, you can maybe find somebody to add a little bit alpha to that by picking the right U.S. stocks, but that's not going to make that much of a difference, ultimately in your results. Ultimately, your consistency is going to come from having lots of return streams in your portfolio beyond just U.S. stocks that can offer you a similar return, but be different. So Zigg and Zag and at different times from how the U.S. equity market is zigging and zagging. And that requires you to augment your perspective and incorporate things within public markets that are different, whether that's different types of fixed income or credit or commodities,

other inflation hedges, or to incorporate thoughtfully alternative return streams. It could be hedge strategies in the hedge fund world. It could be private assets, private real estate, private equity, private credit, things that are uncorrelated like health care royalties or life settlements. The last thing I would say is that most advisors don't spend that much time thinking about taxes. You can, after you've designed that portfolio, do a lot to enhance after tax outcomes? What are the first principles that comes to building a taxable investor portfolio?

Whether you're taxable or not taxable. It's trying to incorporate as much diversification as you can into a portfolio and figure out the right allocation to meet your needs. But then there's a very important step in the process, which is understanding the tax consequences of every single line item you've incorporated. And that may be just being attentive. It may require you, for example, let's say there are certain uncorrelated hedge fund strategies you want to allocate to. There are certain of those that are much more tax-efficient than others. And so you can use that in your diligence. So part of our diligence when we're looking at a strategy is to say, what is the tax leakage

in this strategy? And then what is the after-tax return? And we want to evaluate that after-tax return versus other alternatives, thinking about not just the level of return, but also the diversification and risk aspects of that. So there's just a part of our diligence process that has to address tax and understanding every single line item. It is going to push you towards more tax-efficient line items in the construction. So things like equities, you know, passive equities, for example, or even implementing tax-efficient strategies like tax loss harvesting are things you can do in the equity category. But I would say at the high level, start with the allocation, be very disciplined about understanding the tax consequences of every line item.

And then you can implement additional strategies to make that overall portfolio more tax efficient. It's interesting because you say something simple like after tax returns. And yet if you look at 90 plus percent or maybe 99 percent of GPs, after tax is not something that's provided to the investors. Do you see that changing in the near future? There are already managers that are providing that level of detail, which is helpful. But it's it's the minority. And so it just requires you to be thoughtful as you're going through your evaluation of a given strategy. So, for example, I talk to a lot of alternatives managers and in the initial conversation,

I asked them for a K-1, and they're surprised. Like, oh, nobody has ever asked this for this before. Or I'll point out that, you know, in certain, just as an example, certain lending strategies within private credit, a lot of high net worth investors love to get checks. They love to get distributions from their investments every quarter. every month. And so private credit can offer that. You have to be really careful with private credit because there are some structures whereby the fees are non-deductible. So you're taxed on your gross return before the manager charges their fees. And I can see this very quickly if I look at a K-1.

Many of these private credit managers have never actually thought about this or looked at their own K-1s to understand this. I love that. That's such a good question. Show me your K-1. And the reason why these GPs oftentimes are not aware of, it goes back to historical there just haven't been taxable investors have not been an important asset class. And now you have by some accounts, the CEO of I Capital said that there's 150 trillion coming from retail over the next decade or so. Some estimates of 50 to 150 trillion, you're going to see this and you're going to see not only different tax reporting, you're going to see different vehicles.

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The first to see wins. The rest follow. Learn more at Alpha-sense.com slash how I invest. You hit on an interesting point, and this is actually a very topical conversation right now. because, for example, in private credit, you've had a proliferation of vehicles that allow retail high net worth investors or credit investors to access this asset class. Historically, maybe they had to go into a more limited access drawdown vehicle, like a private equity style vehicle. Now you can go into an interval fund, which is a form of mutual fund, or you go into a private BDC, and it's an evergreen structure. and it has those same underlying loans that used to be harder to access.

Now, they're quite easy to access. And as a result, that space has grown tremendously. And so you have a lot of the brand name investment managers have created either private BDCs to access private credit or interval funds. And right now you're at a point where this is going to be interesting, where many of those vehicles are facing redemptions that exceed how much they can let out in a quarter. It's just starting, but I think you're about. on the precipice here where over the next few quarters, you're going to be hitting these gates.

And that's okay. These vehicles are designed so that the investment managers do not have to sell these assets at fire sale prices. So they only let out typically 5 to 7% each quarter when redemptions come in. But if more than 5 to 7% of the fund level assets seek to have a redemption, then they will only give you a pro rata fill. So for example, if they're letting out 5%, 10% wants to redeem, you're going to get 50% of what you asked for if you were in that group redeeming. And so we're going to test that structure right now in terms of how investors respond to that, whether or not investors understood what they're signing up for.

I'm still thinking about what you said about K-1s. It's such a rare question, such an obvious one retrospect. I'm very curious, on venture specifically, when you ask for K-1s, either before or after, what percentage of venture managers are actually reporting on a QSBS basis? That's a good question. If you had to guess. I don't actually know. It should be a fairly high percentage, but I'm just not, I'm not really sure about that.

Because there's two things going on in venture around QSBS, which is qualified small business stock. One is it's 100% tax-free on a federal basis and on most states, California, not being tax-free, but New York and other states. And then on the other side is actually most of the returns come. from power law outcomes, which typically, at least until the recent mega rounds, would fit under this QSBS mandate. So if you look at it from a return standpoint, a big chunk of returns are actually not taxable. So I guess the second question is if they're still not, if they're QSBS exempt, but they're not reported, it doesn't really help the underlying LOP.

It's a good point. Ventures is a funny asset class because it's, it has this tremendous potential, right? The potential to be tax efficient, the potential for incredible returns. returns five, ten times your money. But the aggregate returns in the sector are not that great. And it's highly dependent on vintage. So if you caught the big upsurge in the mid-20s into the early 2020s before the big correction, it was great. And then post that, it's been really a slog. And I think we are personally very bullish on the potential for innovation to have tremendous wealth creation. And so we are trying to find the managers we think are best suited to participate

in that. But it's, you won't know really for 10 or 15. years. And so there's there's that tension naturally that exists between understanding tangibly that something is producing value right away, which I think there are a lot of strategies like real estate or credit where you can see the immediate feedback versus venture, which is something that requires a degree of patience, which frankly a lot of investors don't have. And I don't even think it extends to just doing the brand names. I think a lot of the brand names have gotten too large. The returns are not going to be that differentiated. So it's one of those things where I think it takes a lot of deep diligence work to understand who's connected, who do founders want to work with,

who's likely to help enable the success. Just being a check or having capital markets expertise, I don't think is enough to be confident there's going to be great results. You're referring to this dispersion between the median and the mean. So if you get the median and venture, it would be the worst asset class in history. I think it's like six to eight percent, highly liquid, 14 years before you get your money back. Terrible. But the mean is actually the top asset class in history, the average. With a quick side note, I had the CEO of Adapar and I said,

is venture capital the best asset class ever? And he said, number two, sports teams have outreform venture capital. So small caveat. But for most human beings with less than $10 billion, venture capital still remains the best asset class. But getting the mean is actually very hard. There's a really interesting group, Veritas. So it's the family office of the DuPont family.

I had the CIO, Jamie Biddle and a head of venture, Steve Kim. And they've actually tried to literally get the mean. And the way that they do it is they invest into hundreds of emerging managers. I think they capture 20 to 25 percent of underlying companies of that year, a venture back startup. And so far, their returns have shown that they're able to get actually slightly above the mean, which, you know, if you went to somebody in any other ask class and said, I just invested 500 funds to get the mean, they think you're an idiot and you're paying fees on that.

In Venture, it's actually quite a both humble and impressive thing to do. I haven't seen anybody quite tried to do it that way. I worked at Bridgewater, and we took lots of bets that we had a slight edge in, and we had lots of data. We basically traded all public markets, and we looked over as much data as we could find. You know, hundreds of years of data in every country, and we wanted to make sure the ideas were stress tested. And when you make a determination, it's based on a lot of evidence that points you in a certain

direction. In venture, even great venture managers don't have that many at bats. They have a handful of investments they make in each fund. They may not have that many funds. They will have disproportionate amount of returns coming from just a few. Are they lucky? Are they good? Is it repeatable? There's a lot of smoke and mirrors in venture. And it's very difficult as an asset allocator to understand what is a reliable indicator of future success versus luck. So I generally struggle with venture. I do think over time we've gotten smarter. For me, ultimately, it's a talent recognition and acquisition game, meaning you're trying to find managers that are going to attract the very best talent

in terms of entrepreneurs. And ideally, part of that draw would be their ability to help enable those entrepreneur's success. And ideally, you'd want to do it earlier stage rather than later because the upside is so much greater. The challenge is, as you alluded to, is that many of these funds have gotten so large, the very best venture investors are not involved in the early stages anymore. The best way that I think about it is an access class versus an asset class in that you could be, you can have very high predictive returns as an LP if you have access to the top funds. And also, it goes all the way down.

You can have very high returns as a VC if you have access to a very top entrepreneurs. So many ways, the entrepreneurs choose the VCs. And in many ways, the VCs actually choose the LPs. Now, that may not be the case in the emerging manager space, although, a lot of those best funds are also access constraints. For sure. If you think about alpha in venture, one could argue that relationships matter much more than other asset classes where you're trying to really like pick, is this manager

better than other ones because everyone kind of has capacity. When you get into private markets generally, it becomes a relationship business. It may be more so in venture. It's really a network game. Like, what does your network look like? Are you able to leverage your network to help build this business? But certainly the case in real estate. relationships matter a lot, your access to deals, your ability to finance certain situations,

you know, what's your relationship with various financing providers? When we do diligence, and this is, I think, an important aspect of our platform, which we think is a differentiator, is many of the best investors we know are clients of ours. And so we can utilize that network to understand more about the managers we're thinking about allocating to than others. So we can talk to people that are not on the official reference list that have done deals with these individuals. 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,

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Ultimately, we're trying to find people that are best in class at what they do. but that are high integrity, honest individuals that we can entrust with client money. And to do that diligence, you have to have the network to be able to do it. As I mentioned, you have 65 billion you're managing. People come to you after liquidity events. Let's say somebody came to you with a billion dollar cash from an acquisition. How would you go about building his or her portfolio? The initial starting point is to understand what that family needs.

So there's probably some discussion around their estate plan. So are they gifting to the next generation? What are the various pools of capital that exist? Then within those pools, we understand their preferences, their needs, what are their income needs? What are the liquidity preferences? What are their target returns? Are they just trying to protect the wealth?

Do they want to try to generate a higher return, take more risk? And we design asset allocations for each of those. Again, based on that menu I talked about, we have this menu that's cultivated internally. And we select from that menu public and private returns. in order to meet each of those individual portfolio objectives. You started the conversation. You said that most portfolios are not constructed properly.

And you said that they're not diversified enough. The opposite of some people call overly diversifying, they say it's de-versifying. How do you know the right amount of diversification in the portfolio? And how do you go about thinking about that? It is certainly more diversified than what I think is the more generic starting point of If you go pick your life cycle fund at Vanguard, for example, and you're in your 40s, I think you're going to end up in a 70, 30, 80, 20 portfolio. So that is 95% plus equity risk.

And that will have great stretches like the last 10 or 15 years. Or it can have horrific stretches. Like if you did that same strategy in 1999, you probably wouldn't make money until 2010 on your invested assets. And most likely along the way, between 1999 and 2010, you most likely couldn't tolerate the pain of the big drops. And so you probably sold. So my assumption that you made money by 2010,

and this is the S&P, basically, my assumption that you made money holding those stocks by 2010 assumes you didn't sell. Most people would have sold. So we think that you can get to where you want to be more consistently, more reliably, by not putting all your eggs in one basket. It's not to say you don't want to hold U.S. stocks,

but to depend on another 10 or 15 years of blockbuster returns from an asset class that is now historically expensive, that seems like a dangerous strategy in our view. I want to double click on that because it's such an important point, which is marrying behavioral finance with traditional finance. So let's say that the S&P 500 on average could have returned maybe 8, 9%, and but you have a portfolio that returns seven to eight percent. Now, some would argue, well, you want to be more diversified, you know, it feels better.

It's a better process. But you can also make the argument that you're never actually going to get that 9% because when things go down, you're going to sell. And when things go up, you're going to buy. So you might actually end up, in best case, at that 7 to 8% with a worse ride and also potentially underperform a more diversified portfolio that you can actually hold through turbulent times. I said another way, most investors are not going to put 100% of their money in the stock market.

So I think what you were quoting was kind of if you had it all in the S&P. So in reality, you're going to have like a 60-40 or 70-30 type portfolio. And on the 30 or 40, if you take a more conventional route, you're going to have some munis or some bonds. And that's not going to do a whole lot. It's going to be cash plus. And so you're really just getting watered down stocks. If you instead take the 30 or 40 and put it into higher returning things that have returns that are closer to stocks, maybe better in some cases, but that are different, you are going to get a meaningfully better result than that 6040 or 7030.

For example, you can invest in things that are non-directional, head strategies that don't necessarily require the markets to be going up in order to make money. You can invest in things, this is, I think, very topical recently. You can invest in commodity exposure. These are real assets in a world where currencies are being debased. And inflation is running hotter. If you're trying to protect the purchasing power of your portfolio, I think it would be a responsible not to have some portion of your portfolio on tangible assets. And so it's just thinking

through how do you design something that for the widest range of potential outcomes, you can get an acceptable result. It's not about necessarily avoiding the drops in the panics. You know, hopefully you can mitigate those to some degree, but those tend to recover quickly. It's about not having a lost decade. There's two ways to invest. One is capital preservation, and the other one is essentially capital appreciation, obviously much more aggressive. For those families are coming to you and saying we want to keep on compounding. We're afraid of, you know, this money's going to be gone by the next generation. What's a good portfolio construction for that? What are some frameworks to think about the family office that's trying to grow their portfolio aggressively?

The private markets are one area where a lot of family offices that want to compound at higher race or return will allocate more of their assets. Theoretically, by taking on a little bit more leverage and investing in less efficient asset classes, you should generate higher returns. It's not a guarantee. obviously, and a lot of these asset classes, they carry a lot more risk, too, that you have to be mindful of. But there's the potential for higher returns. That's why otherwise a logical person would never part with their liquidity. And so if you can thoughtfully cultivate a private asset portfolio, that can potentially target higher returns and also potentially offer diversification

relative to the public markets. That can be part of, I think, part of an effective strategy to compound wealth at higher rates long term. The other thing that's interesting about the private markets is there's just a lot more alpha potential. Think about an apartment building that is passively owned with a third party management company where people aren't paying attention, versus what you would expect the NOI to be on that same apartment building if you had some maniacal owner who was managing himself. And he was thinking about the water bill and where he puts the leasing office and collecting all the late fees on the rent payments and making sure that that property was managed as tightly as possible, they're going to have much higher ROI.

And so, and that is a much easier thing to assess than who's going to outperform the SP 500. That's a guess. I think they're smart. I think they can add some value. But here I can look at this is a well-managed building and this is a not well-managed building. And most buildings, frankly, are not well-managed. So that's real alpha and it's easier to assess.

So you can do that in the private markets in a way that I think in some cases is easier than in the public markets. The razor for that. What I've seen the smartest family offices, they're obsessed over GP commit percentage. They are so maniacic. The family offices themselves are maniacally focused on GP commit. And that's certain benchmarks. If it's less than 2%, we will never invest.

If it's less than 5%, it's kind of like a yellow flag. And they're just maniacically focused on the just GP commit because they want to see that skin in the game. They want to see this maniacal focus. And it's not just about having the highest IQ, which is one source of alpha. It's really about how aligned are you with the manager? How much do they care? For sure. That's an important piece.

And one thing about private real estate is you tend to have more skin in the game than you do in the other asset classes. because typically the GPs are required to put in at least five or 10 percent of the equity check themselves. When we think about active managers, and this applies to public and private, there are a few aspects that we always look for that we think are determinants of future success. Probabilistically gives you better shot at future success. So we want managers that have a definable edge. We have to understand where is their source of outperformance coming from and is it repeatable. So can we understand it and is it repeatable?

This is a business with exceptional talent and intelligence. So the average investor tends to be very smart. So you have to find somebody who's extraordinary. So do they see things that other people don't see? I always love going into a meeting where you talk to a manager. I'm sure that you've done this in your podcast where they will talk about an asset class or they'll talk about the world in a way that's completely unique. And when you think about what they said, it's like, that is absolutely true.

But nobody has ever said it to me that way before. they see things that other people don't see. You know, my former boss, Ray Dalio, was like this. He would distill the world into these simple frameworks that were so obvious. Like, of course that's the case. But nobody ever pointed this out before you did. So that is, I think, a determinant of success as well. It kind of goes back to that Einstein quote,

which is if you can't explain something simply, you don't truly understand it. Do you find this kind of the best GPs also are able to distill their edge the best way? Or is it just kind of two completely different skill sets? No, I think they should be able to distill it. It's obviously a little bit different with quantitative managers. There it's not, you're not going to understand the signals they're using, but you can certainly understand the organizational resources and the talent pool. So there it's like, do they have the experience, the people, the highest level of talent to sustain that excellence?

And also when you're evaluating these organizations, you want to see excellence throughout. So to your point that you want to be able to hear consistent message, a consistent message from every individual that you interact with. Like to me, that's an indication of strong culture. And they would all be able to tell you that edge and quantify it or describe it in a way that's consistent. I was literally going to go there. I oftentimes think about some of these top organizations like Walmart. We want to consolidate costs. Google.

We want to organize the world's information. If you can't distill the positioning and you can't repeat it over and over, there might be a couple smart executives, but you're not going to have this organizational alpha where if everybody knows, for example, Andresen Horowitz did this really well. We serve the entrepreneur. This like simplification of the competitive edge sounds very simple, but it's actually has a lot of downstream consequences. And this is why there are so few organizations that last beyond their founders in our industry.

There are a handful of organizations, I think, are excellently managed. But it's typically not a skill set you find in a lot of great traders or investors to be a great manager and builder of a business. You know, Ray had it. I think Andreas Halverson and Viking has it. You know, there's a handful of these folks. but in general, it's not a skill set that is necessarily goes hand in hand with being a great investor. And so with these organizations that are managed well, there's this excellence that permeates that organization and a, this adherence to driving excellence in everything that they do.

They tend to be difficult places to work and people get burned out, but, but that's how you sustain that organizational excellence beyond just an individual. And it's certainly something we look for. The other thing we look for is, is a culture where, where investors invest in their own strategies and they close the strategies. So they're in the business of generating returns, not just trying to gather assets. And that's difficult to do, right, because you want to give opportunities to your employees to grow, but you ultimately never want to compromise your ability to generate great returns. And so there are naturally capacity limits. So we want to see organizations that adhere to that discipline.

Double click on that because that's a really important point, which is if you have an open strategy where you could allocate more capital to, you're going to corrupt your own thinking when you think of ideas. It might be on a subconscious level. You might automatically discount an idea because it's too small. It might have a lot of alpha, but it's not enough to scale. And you're subconsciously thinking, how do you market? How do you attract AUM? Also, if your own money, if you're your own largest investor, then your utility function's different, right? You're not thinking about how do I earn the most fees. You're thinking about how do I compound my wealth at the highest possible rate. And I want you to think like that because my wealth is invested alongside

not yours. What's a timeless principle that you've changed your mind on in the last couple of years? That's a good question. One thing I've learned as I've been in this business for a long time is how to construct a portfolio that is the right portfolio for clients. If you invest in a vacuum, you may make certain choices that from investment perspective seem optimal, but that are not right for the client. And so understanding, it's marrying both the understanding of the investments and how to build a great portfolio and how to think about taxes and all the things we talked about with. What is a client's perspective on these things? What are they comfortable with? What can they hold on to?

What's appropriate for their needs? And blending those things to arrive at a solution. And sometimes those solutions are much simpler than you might arrive at if you go down the path of strictly optimizing for the very best investments or the most important. diversification, but simplicity is important in our business because whatever strategy you take, whether it's 60, 40 or something more along the lines of what I've discussed, you just want to make sure that this is a strategy you can stick with through thick and thin. When I came out of Bridgewater, I was like much more of a portfolio engineer and I was thinking much more about optimizing without understanding the client's perspective. And just the longer I'm in this business,

the better I can understand where the client's coming from. And ultimately, this is their money, want to build the thing that's right for them. To be fair, portfolio, engineering, as you call it, would be really useful if it was an AI investor. But of course, we're human beings. It's not even just what portfolio they have and simplicity of the portfolio. There's an education aspect and there's a rootedness in their thesis. Why do we have this portfolio? Well, every seven years, it's going to go down by 10%. But on average, it's going to outperform by 2, 3%. So over 10 years, you're going to be better. Preparing people for these market fluctuations. You have to do this ahead of time. People over-emphasize return.

and they underappreciate the need to protect on the downside. But in practice, that's what's going to determine whether or not they can hold through is not experiencing those heart-stopping moments on the downside. And the compounding is painful, right? So if you lose 30%, you've got to make 50% to get back to flat. And so protecting on that downside, but still generating a reasonable return is really our North Star in terms of how we try to structure portfolios. If you could go back to 2000, you know, just graduated Princeton,

what is one piece of advice you'd whisper in the ear of younger Damien that would have either accelerated your career or helped you avoid constant mistakes? Listen more. You know, I think earlier in my career, I was so excited about everything I was learning. I just wanted to regurgitate that out. You know, and I think you learn way more by asking questions and listening than you do by trying to demonstrate your newfound knowledge. That's definitely something I've learned over time.

I was just talking to a, you know, a student, a university student who had reached out to me today to try to learn about our industry. So I was kind of having that conversation with her today about, you know, what advice I'd have for her. And it was exactly what she was doing, which is we're in a world now where the processing is going to be almost instantaneous. And where I think you're going to have success, and I would have said this, you know, to the 2000 Damien as well. but I think it's especially important today is to follow your curiosity and your interest and go find what it is that you're excited about and invest yourself as deeply in that thing as you can. And don't feel constrained by the fact that at your college career fair, there's some

eye banking representatives and some consulting representatives. And so those are your choices. Those are not only choices. You can do anything you want in life. You've just got to go out and figure it out. And it's hard to figure that out. It's going to take you several years and you're going to have fits and starts and mistakes along the way. But all that time, you should be learning and reflecting and continuing to reach

out to people, just as this university student did with me to say, oh, that's an interesting thing. Let me learn more about it. Let me leverage my network and my relationships to understand what it is that that is and learn about these things. And I think those people will be the ones that are successful, the ones that can follow their curiosity and create things and invest themselves into things and be passionate. And I think if you're waiting for the world to say, travel down this path and you're going to be successful, I think it's going to be increasingly difficult to do that. She was telling me that college students are really struggling to get jobs coming out of universities today, and partially because I think a lot of the entry level jobs are

going to be replaced by AI. She said, like, now it's like hyper competitive for internships. Like, so sophomore year or junior year, because that's how you get the job coming out. And so I'm thinking of myself, like, again, she's sort of like restricting her worldview to like, okay, those investment banking internships and the consulting internships, but there is so much more that is out there. And you can leverage your alumni networks. You can leverage your parents' networks. Just go learn about all these different things that people do and find what it is that you're excited about. And I think when you're excited about something, it's not work. It's like it's fun. It's like building something. And I think that that translates

to just better engagement, better outcomes, and better success. Damien, this has been absolute masterclass. Thanks so much for jumping on podcast. Looking forward to continuing this live. Thanks, David. Appreciate it being here. Thank you.