June 29, 2023: What it's like to manage assets for celebrities

Bob.Allen
Jun 27, 2023
10 months ago
Lorenzo_Esparza
Credit: KRISTINA RUOTOLO
Lorenzo Esparza

Lorenzo Esparza, CEO of Manhattan West, is behind the growing wealth of many of our favorite musicians, athletes and celebrities. He won’t tell you who, however. That’s because Esparza — a son of Mexican immigrants who spent seven years working in film production at Paramount Pictures — is a class act. His firm is different from traditional wealth managers in many ways. Manhattan West provides clients access to exclusive alternative investments — including private equity, venture capital, real estate, private credit and private debt, in addition to equities and fixed income. Esparza talked about his white-glove-service approach to clients and his unique position in this fascinating world.Lorenzo Esparza

Describe your Hollywood clientele. Are we talking about famous actors?

We always want to be respectful of our clients' privacy, so we don’t name-drop clients.  Having said that, we work with notable names in music that are globally recognized. We have clients from the world of sports, notable names in the NBA and NFL, to give you a couple of examples. Since we are based in Los Angeles, we work with actors and profit participants in the entertainment space. I think we have a good understanding of the industry, so we are well-suited to handle clients in that sector. Our tax and business management teams have been recognized by The Hollywood Reporter and Daily Variety.

How is wealth management for a celebrity different from a "regular" wealthy person?

I think there are more similarities than there are differences, but there are certainly nuances. In most cases, it’s related to the manner in which the talent receives their income. Profit participations have changed as new distribution channels have proliferated. Production has dispersed. A lot of what used to happen exclusively in Hollywood is now being done in other parts of the country, like Nashville and Atlanta. And in some cases, it’s gone international to Canada.

I would say the difference is that you need to think about multistate tax filings. In sports and music, you have artists and athletes performing all over the country, so you have to account for that. In music, we’re seeing catalogs get sold. Musicians are selling their publishing, which was unheard of 20 years ago. You have liquidity events that occur now, and artists need planning around how they invest that capital. 

What are some of the unique needs you've had to work through with clients — any crazy stories?

I hate to be boring on this answer, but we are fairly corporate in how we deal with clients. I would say that we have spent time at the film and music festivals, and those can be very different from a day at the office. We do what we need to do. In terms of the needs, we have some athletes with interesting requests. We have some music clients who have interesting handlers around them that can create challenges.

What are your predictions for the future of family office investments?

I think you’re going to see more family offices emerge. It’s become in vogue for families of means to have their own family office. Years ago, you just didn’t see it as much. Now with tech and platforms, families are wanting to take more control of their financial affairs. I also think you’re going to see more proprietary investments. We look at a number of investments every year. We are seeing family offices back and lead deals more than ever before. I am not sure that is a good or bad thing, but it’s certainly happening. 

Lightning round: Why do you love this job? How did you end up here? And what are the best and most challenging parts of it?

For as long as I can remember, I was always fascinated by the capital markets. I started watching CNBC as a kid, and I always felt attracted to it. I was raised in a modest-income household, which is code for saying we were poor. I imagined a different life, and through the markets, I saw a means of earning a living. My parents encouraged my brother and I to go to law school or medical school. That was their concept of upward economic mobility.

Today, my brother is a physician, and I went to law school. I knew right away I didn’t want to practice law, so I pivoted to financial services and joined Bernstein here in Los Angeles. I was at JPMorgan when I decided to launch Manhattan West, and I’ve never looked back.

I worked through the financial crisis and the failure of Lehman [Bros.], Bear [Stearns] and Countrywide. And of course the COVID crisis. Those were challenging times. In those moments, frankly, I was worried about everything. We went through COVID while here at Manhattan West, and that was probably the hardest period of my professional career. We survived it and have had our best years since, but I remember the anxiety and fear in those days.

The guy staring back in the mirror has more gray hair today as a result. But I firmly believe those challenges are what make you better. In the strangest way, I am glad we went through it.

Interview conducted by Alyssa Shelasky

MORE INSIGHTS: 5 reasons that wealthy families should start a foundation now

BY PETER J. KLEIN

When times are tough economically, Americans are used to tightening our belts to make ends meet. As a kid growing up in the 1970s, I remember how my parents would replace products like Jif Peanut Butter and Crest toothpaste with their off-brand competitors to help stretch the household budget.

While finding ways to cut back and save in a recessionary environment is important, households with committed and established philanthropic goals should make concerted efforts to follow through with their planned giving. Why? When the average American is stretched thin, times are even tougher for those at the lowest rung of the economic ladder. Meanwhile, many noncommitted givers — people who write checks a couple of times per year — also drop off, which creates a dire situation for both those in need and the nonprofits struggling to serve them.Peter_J_Klein

We saw a version of this situation play out during COVID-19, as many nonprofits had to scramble to provide food and other household necessities to newly laid-off workers. At the behest of charitable partners, corporate and longtime donors converted planned giving to general operating support to allow nonprofits greater flexibility to respond to the crisis.

More recently, rising inflation has further strained many nonprofits, and the situation will likely worsen as the country enters what many economists expect will be a low-growth or recessionary environment.

In times of economic uncertainty, family foundations serve as an engine for philanthropy, providing a reliable source of income when others are retrenching. Foundations also help families preserve wealth by providing tax advantages.

Here are five reasons that wealthy individuals and families should start a foundation as a vehicle for their philanthropy and to help mitigate the effects of a recession:

  1. Creates a legacy. Unlike one-off gifts, family foundations are designed to last in perpetuity. As a result, families can build their legacies around shared values, which not only strengthens intergenerational bonds but also ensures that a family’s commitment to a cause will endure. Many famous family names are synonymous with cause-related giving, such as the Rockefeller Foundation’s support of the arts or the Lucile Packard Foundation’s longtime commitment to funding medical care and research for children.
  2. Provides optimum flexibility. Though family foundations often support public charities, they are set up to allow the donor to give more broadly to organizations and even individuals. Family foundations can write checks — or grants — to those in need of emergency assistance and make gifts to overseas charities, even when there is no IRS-recognized 501(c)(3) to serve as an intermediary. Foundations can even provide scholarships and offer other types of award programs.
  3. Tax savings. While individuals typically take a standard charitable deduction in any calendar year, foundations can be more considered in their approach, taking an upfront deduction when the foundation is formed and then making charitable gifts over time. Since a foundation is only required to make qualifying donations of at least 5% of the previous year’s assets, founders can slowly build up funding for their foundations. Families can also gift appreciated assets to the foundation to avoid potentially paying capital gains. And, of course, foundations also play a key role in estate planning.  
  4. Offer loans and make investments. In addition to providing gifts and grants, foundations can make low- or no-interest loans to charitable organizations and use the proceeds from the loan to fund other programmatic initiatives. These initiatives count toward the foundation’s required 5% minimum payout. Foundations can also make equity investments in for-profit commercial ventures for charitable purposes, such as funding research for vaccines or supporting a business that employs formerly incarcerated individuals.
  5. Pay programmatic expenses. When you form a foundation, you can earmark all legitimate expenses — such as research, conferences and travel-related spending — to your minimum-distribution requirements. You can further pay qualified staff, including family members, reasonable compensation for their work.

Starting a foundation is not for the casual donor. But for wealthy individuals and families committed to philanthropy and building a legacy, starting a foundation is a great way to contribute to a cause bigger than yourself while providing charities a reliable stream of income that is highly important, especially in times of low economic growth.

For charities, family foundations create consistency, while donors enjoy both tax advantages and the intangible rewards that come from bringing family members together — teaching future generations about the importance of giving back and creating a legacy that will live on through their good works.