Sept. 5, 2023: Amid AI hype, family offices take cautiously aggressive approach
With Labor Day in the rearview mirror, we are looking forward to a busy fall filled with family office events, conferences, art fairs and fall gatherings. Our editorial team is poised to hit the road to upcoming events including Future Proof, Art on Paper and exclusive single-family-office summits. We’ll be talking with industry thought leaders to continue to provide you exclusive content and snapshots of industry gatherings on social media.
Our newsletter this week explores the mysterious world of artificial intelligence. Marcus Baram talks with key industry players to ask whether it’s a lasting trend or all hype. Many believe there are tangible benefits to AI and its impact on our society going forward. So likely the proper question to ask is not why but how? Baram explores how interested investors can thoughtfully access long-term AI opportunities.
While looking ahead to fall, we also share a story about German entrepreneur Cris Zimmermann, who is on an ambitious mission: to gather global families to discuss how their great wealth can reinvigorate the arts. He’ll be hosting the inaugural Medici Gathering in Florence, Italy, in November — which promises a mix of thoughtful discussions, learning sessions and interactive experiences including food, wine and art spread throughout the illustrious city.
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: Amid AI hype, family offices take cautiously aggressive approach
By MARCUS BARAM
The dot-com era's investor sentiment in the late 1990s, marked by enthusiasm and subsequent crashes, set the stage for established giants such as Amazon, Google and Salesforce. Drawing parallels, family office investors note similar trends within today's AI bubble.
Their consensus is that, beyond the hype, artificial intelligence holds tangible potential. Just as the internet reshaped society and the economy, AI is expected to have a transformative impact.
"There is some euphoria to it, but there is true substance there," said Tom Raymond, a partner in investment management at the Callan Family Office. “The power is real.”
Even before ChatGPT's emergence in November 2022, family offices demonstrated an interest in AI investment. A spring survey that same year revealed that 48% of family offices had already ventured into the sector. Since then, this interest has swelled.
Notable instances include Stanley Druckenmiller investing in Nvidia Corp., Eric Schmidt backing Mistral AI and Inflection AI, the Goodrich Family Office supporting Birdstop and the Dorilton Capital Family Office entering a partnership with Blackbird.AI.
"The number of AI transactions by family offices since Q4 2022 surpasses the prior year," said Dennis Caulfield, vice president of research at FINTRX.
Seizing the moment amidst economic turmoil, opportunistic investors are capitalizing on the private markets by acquiring discounted shares in companies. Raymond likens this approach to a chance to invest in promising companies before they are overvalued. He sees it as a form of time travel for investments.
“Right now, you can buy early AI movers at a discount, secondaries in the venture space at a massive discount – 30-40% discount to their asset value,” he said. “Startups are looking for liquidity and are willing to sacrifice the longer-term upside of investments for the short-term gain of having cash in hand.”
To navigate the potential volatility of the AI bubble, family offices are rigorously evaluating startups for direct deals and suitable funds.
“As an investor, determining what’s real and what’s not is getting harder and harder,” said Ian Sheridan, a co-founder and managing director of Vestigo Ventures. He likened the process to assessing startups during the early days of the internet.
“Inventors would show up with a whiteboard,” Sheridan said, “but at the end of the day, there was no engine. Right now, the technology allows things to look superhuman really fast, and it’s up to the investor to figure out what’s really underneath, to peel back the layers.”
Key considerations when assessing AI startups:
- Market fit and execution: Gauge potential by market size and demand. Are they solving a crucial problem with demand? “We won't touch anything without those," said Peter Bordes of Trajectory Ventures. Execution is vital; failure to execute invites competition.
- Scalability: AI's elements — algorithms, data, models, infrastructure — must scale seamlessly in size, speed and complexity.
- Creating a moat: Does proprietary intellectual property provide a protective edge as the business grows? Sheridan underscores this importance.
- The Human factor: Talent is as vital as technology. Talent’s absence hinders growth.
- Leveraging expertise: Expertise in industries affected by AI aids growth. Partnerships offer more than just capital — operational expertise accelerates progress.
To be sure, investors are also assessing other startups based on their use of AI.
“There isn’t a portfolio company that we haven’t asked: ‘What is your AI strategy? If you’re not using it, why not?’ ” said Sheridan, whose Vestigo Ventures itself uses big data and machine learning in its research and other operations.
Renaissance revisited: Family office to gather philanthropic families to reinvigorate the arts
By KRISTEN OLIVERI
Cris Zimmermann has always been fascinated by the Renaissance.
As a young man growing up in Frankfurt, Germany, he was drawn to studying both law and theology. As he came of age, he became an entrepreneur, the owner and founder of various property management companies that specialized in residential housing. That eventually allowed him to create his own family office, setting up over 20 companies in five countries.
Even with his various business dealings keeping him busy, Zimmermann remained curious about the Medici family and the Renaissance, art patronage and the intersection of where family philanthropy meets the arts.
“As I delved deeper into the history and read about 70 books and manuscripts on the Medici family, I discovered that no one has taken a look at them through a business and entrepreneurial lens," Zimmermann said. "How did they develop from a merchant family to the richest family in Europe in the 15th century? How did they build their influence to shape a new area called 'Renaissance'? Why did they invest into the art and architecture that we still marvel at today?”
The COVID lockdown in Europe afforded him the time to take his studies further, allowing him to begin a master of arts degree in art history with a focus on the Renaissance and become fluent in Italian.
“The more I studied, the more I became fascinated," he said. "And I decided: I want to become a Renaissance man.”
Eventually, Zimmermann's passion for the Renaissance began to take shape, and the concept for “The Medici Gathering” was born. The Medici family serves as Zimmermann’s inspiration, as they became Europe’s wealthiest family, driving the arts and architectural development that we still see today.
Zimmermann has planned the event for Nov. 8-11, gathering international, influential families who are curious about the arts and philanthropy. The event — which will take place at Villa Cora, a 5-star resort in Florence, Italy — promises a mix of thoughtful discussions, learning sessions and interactive experiences including food, wine and art spread throughout the city.
Said Zimmermann: “I want to discuss how families can set themselves up for success, significance and legacy.”
Billionaire Thomas Tull seeks to boost stake in Steelers: The Pittsburgh-based investor, a longtime fan, has been a co-owner of the team since 2009. He seeks to acquire a small stake from sports investors Josh Harris and David Blitzer, said people with knowledge of the matter.
Goldman selling wealth advisory unit to $240 billion money manager: The bank agreed to sell the business, with $29 billion in assets, that grew out of United Capital, a registered investment adviser it purchased for $750 million, according to a statement.
Art on Paper fair kicks off NYC's fall art season: Returning to Pier 36 from Sept. 7 to 10, this year's fair features over 100 leading galleries, each of which is devoted to paper-based art, and a program that includes special projects, hands-on experiences and installations.
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