This week, Marcus Baram provides an insider’s perspective on investing in space. Family offices have often been the "first money in," playing a crucial role in advancing the industry. Continue reading to discover the family office approach to this asset class.
Andrew Cohen also reports on the reaction of family offices to President Biden’s tax cuts amid the ongoing great wealth transfer. Spoiler alert: They are far from pleased.
Finally, we're happy to announce our role as the media partner for the upcoming 2024 FOX Family Office & Wealth Advisor Forum in Chicago, July 15-17. The forum will focus on operational themes including insurance, governance, tax and estate planning, and addressing talent and transition challenges.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: Family offices set sights on space, as news investments propel industry
By MARCUS BARAM
When it comes to the frontier of investing in space, family offices are aiming for the stars.
Since early 2022, deals have exploded in the sector. Most recently, G3T, a single-family office for one of Spain’s wealthiest families, helped raise more than $70 million for a Munich-based developer of small launch vehicles, Isar Aerospace. In 2022, there were at least 25 family office investments in aerospace, quintupling the amount of deals in 2021. And there were at least 12 investments worth more than $500 million in total in 2023, according to data provided by FINTRX.
Overall, the space economy is expanding fast and is expected to be worth $1.8 trillion by 2035, according to the World Economic Forum. That’s due to the increasing prevalence of satellite and rocket-enabled technologies — which drive a dizzying array of devices and systems, from smart watches to weather forecasts.
“Space technologies are delivering greater value to a more diverse set of stakeholders than ever before,” said Sebastian Buckup, a member of the executive committee of the World Economic Forum. “As costs reduce and accessibility rises, these technologies could reshape whole industries and have as much impact on business and society as smartphones or cloud computing.”
Family offices are attracted to the sector because they’re more willing to take risks and to have the patience for the developing ecosystem to expand and mature, say analysts and investment advisers.
They also have to be intellectually curious and have a passion for space.
“In my experience, the family offices that want to invest in aerospace are those that have an intrinsic interest in technology,” said Stephanie Bruckner, managing director of family office solutions at Wellesley, Massachusetts-based FL Putnam. One of her principals invests in satellite technology, “his passion since he was a teenager. He’s a really unique individual.”
The sector also rewards the patient, since some of the technologies — such as habitations on Mars — are decadeslong projects. “And long-term investment horizons can deliver for family offices,” said Jake Miller, co-founder of the New York-based private markets platform Opto Investments.
It’s not just rocket science, Miller said. The sector has expanded in many directions in the past decade, especially with the advance of artificial intelligence.
Miller breaks it out into six areas:
- Launch providers, such as Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin, often make the headlines.
- Satellite operators, such as StarLink, deal with navigation communications.
- Data analysis and cybersecurity in space is becoming increasingly relevant, especially with the arrival of AI.
- Space manufacturing: “It’s really expensive to get things to space,” Miller said. “What if we could build them in space. You could 3D-print a rocket in space rather than send delicate components up there.” Miller also noted the appeal of technologies that could be manufactured at scale in space, such as semiconductor components.
- In-space infrastructure, such as logistics, junk removal, solar arrays and habitats. “Who’s going to build the roads and bridges of space?” Miller said.
- Space tourism, available now to millionaires, will get more popular as prices drop.
Much overlap exists between these areas, especially manufacturing and infrastructure. “How will you get food and water on the moon?” Miller said, describing the confluence of those sectors.
There is also a convergence between space tech and climate tech, Miller said, pointing to the growing interest in solar arrays and desalination projects in space, which are key to addressing the impact of climate change.
That type of intellectual challenge is a cross-generational unifier, said Miller. He sees both founders and nex-gen members of family offices sharing an excitement for the sector.
So far this year, investment in the sector has slowed a bit. Some of that may be attributable to its inherent risk — which is not dissimilar to that seen in biotech, said FL Putnam’s Bruckner.
“This type of investing can have serious binary outcomes — either be a zero or a huge win,” she said. And less adventurous investors, she said, see the sector as a “giant money pit — all those stories about waste at NASA.”
Investors also need to carefully consider “zombie companies,” which are subsidized by government contracts and may have “terminal velocity, in that whatever they’re doing is unlikely to be commercialized,” Bruckner said.
The flip side of that is companies getting consistent government revenue and the potential for mass commercialization.
Biden’s tax plan sparks debate amid generational wealth transfer
By ANDREW COHEN
Money managers speaking at last week’s Bloomberg Invest New York conference echoed concerns about the impact of President Biden’s wealth and estate tax proposals on the $84 trillion in generational wealth that’s estimated to be passed down by U.S. families through 2045.
“Of the $84 trillion that's being transferred over the next 20 years, $36 trillion is coming from the top 1%,” said Clark Cheng, CEO and chief investment officer of the single-family office Merrimac. “Taxes are the most important part of that, because Biden is trying to do a 25% wealth tax.
"I don't know how he’s going to do it; they're trying to tax unrealized gains. How do you pay that tax if you’re illiquid and private? It doesn’t make sense.”
Biden’s proposal includes a 25% annual minimum tax on unrealized capital gains for individuals with incomes and assets exceeding $100 million. Cheng — whose family office invests in hedge funds, private equity, venture capital and real estate — spoke on a panel at Bloomberg Invest New York alongside Stephanie Birrell Luedke, head of private wealth at Neuberger Berman; and Aron Kershner, co-head of portfolio management quantitative equity solutions at Goldman Sachs.
“I think many of [Biden’s] potential taxes on the table are not implementable — like taxing on unrealized gains, that seems to me completely too far-fetched,” Luedke said. “But if we go to something like in the Biden proposals, ordinary income tax rates, which will also go up on capital gains, then the tax-loss harvesting strategies, the tax-efficient custom direct indexing strategies, those are just going to be more and more relevant.”
Former President Donald Trump’s 2017 Tax Cuts and Jobs Act is set to expire at the end of 2025. That means the current estate tax exemption of $13.6 million will be reduced to around $5 million, adjusted for inflation, in 2026, should the Democrats win reelection in November. Conversely, a Trump victory would likely result in the extension of the current estate tax exemption threshold.
“The most important thing, at least for the top 1% — and I think this should apply to everyone who has wealth — is to manage estate planning through trust structures,” said Cheng. “The two largest law firms for family offices are Withers and McDermott. They can help you with managing the different types of trusts, using PPI (payment protection insurance), PPA (purchase price allocation) type structures to basically minimize taxes.”
LOOSE CHANGE
New N.Y. airport lounges offer luxury amenities: No fewer than seven new travel lounges have opened in the past year, with offerings ranging from the practical — like rooms for nursing parents — to luxurious spa treatments and caviar service.
Family to sell Celtics for estate planning purposes: The Grousbeck family plans to sell the NBA champion Boston Celtics, purchased for $360 million in 2002 and now valued at $4.7 billion.
NewEdge Advisors adds Dallas team from JP Morgan: The four founding members of Fortis Wealth Advisors, which previously oversaw $580 million in client assets at JP Morgan, have joined the New Orleans-based registered investment adviser firm.
Help us with a story: We’re working on a story about why nonprofits fail after year five. If you have any comments on the topic, reach out to [email protected].