Michael Sonnenfeldt — the founder of TIGER 21, a peer network of ultra-high-net-worth investors — discusses how members of his organization are positioning their portfolios in response to tariffs and market volatility.
In light of President Trump’s recent imposition of 25% tariffs on steel and aluminum imports, what should family offices and high-net-worth investors in general be doing with their portfolios?
You have to look at the family office market as mostly passive investment themes, and the ultimate passive investment theme would be just owning the S&P. So tariffs would have a relatively minimal impact, the more diversified your portfolio is.
But many family offices find the key to long-term superior performance is where they hold direct investments, either because they own a company or they own a piece of a small or big private company. And obviously, the more specific your investments are targeted, the more or less liable you are to be affected by tariffs. If you're part of the fantastic seven that are mostly domestic tech companies — whether it's Facebook or Amazon or Google — which have been driving the economy for a long time, they probably are quite immune to tariffs.
But If you're a Walmart, you're getting a lot of your merchandise from China. And if you're a builder and you're getting steel, that could become much more expensive as well. The most important thing is that the more diversified your portfolio is — and family offices tend to have diversified — the less susceptible you are.
What are you hearing from your 1,600 members?
When we recently polled them, half suggested that there were minimal or no impacts, while half focused on the businesses individually that would be impacted. That means the majority of our members are already past owning a business, so they feel less liable to tariff changes. And the minority of our members that still have direct investments or own businesses completely could feel quite exposed or not at all.
Obviously, steel tariffs and aluminum tariffs have ripple effects throughout the economy, including real estate and other areas you wouldn't naturally think of. Are there sectors that it might be worth cutting your exposure or reducing your exposure?
In terms of sectors — obviously within construction, it’s key to look at where the materials in construction are coming from. When you're a retailer or a reseller of any sort — a Mercedes dealer is probably going to be a lot more concerned than a Ford dealer. Certainly, some Mercedes are domestically produced, and some Fords are produced outside of the U.S., so you actually have to look under the hood with each one. But at the margins, if you were thinking of buying a Porsche, and it is coming from Europe, you're more likely to encounter a headwind than if you're looking to buy a Mustang.
So literally any retailer selling products and services has to kind of look at the mix of their products and services to see where they're coming from.
Beyond diversifying, are there other ways to anticipate the uncertainty of what’s possible in markets in regulatory change over the coming months?
Let’s say you're involved either as an investor or a seller or manufacturer of a product that has a foreign component and a domestic component. If you're investing in the domestic component, at the margin you're gonna get a lift because the foreign component will be more expensive, and you'll get a competitive advantage. That's obviously the whole point of tariffs is to try to level the playing field. But markets historically are as concerned about stability as they are about the substance, and you'd have to question whether this is a stable market environment or not.
We have some numbers that are quite extraordinary. We have what's called an asset allocation, where we track where our members are invested, and we've been doing it since 2006. And today we have $200 billion in assets spread among our 1,600 members. They have an average net worth of about $137 million, which is up from $117 million a year ago. So we know where the members are investing, and the amazing thing is that our members are 79% invested in long-only assets — public and private equity and real estate — and that's a very, very high number.
Some would call it exuberant, and some would call it irrational exuberant. But it shows that over the last six months, members have both liked the U.S. economy and, as Trump was elected, believe that there'll be a positive impact on the economy.
The more revealing number is that for 17 years, the single most constant number in our portfolio was cash. Our members have been holding 12% cash in probably 95% of the quarters where we do the quarterly asset allocation. And last year that number drifted down to 11%. And we had to ask, is that a statistical blip, or is there some meaning to it?
But then in the fourth quarter, the number dipped to 9%. That's the first time I had remembered it being under 10%. I thought it was very meaningful, and when we did the research, we went back and found out that the only other time that the cash was this low was in 2007 right before the financial crisis.
Some would interpret that with confidence, that with the new Trump administration, this is a time to be investing and in fact to reduce your cash security reserves and go all in; and others would be reminded that often is what precedes great market fails.
Warren Buffett just raised an extraordinary amount of cash by selling a lot of stock, and I wouldn't bet against Warren Buffett, although his returns haven't been great over the last years. He has a wisdom that few people have. So you can either think of this as a bullish sign, or you can look in history and realize that sometimes bullish signs actually are harbingers of great market falls.
Are you hearing from your members any insights or concerns about proposals to close the carried interest tax loophole?
Different people have different views about equity. Why would a private equity billionaire pay less on interest than his secretary does on the salary that she earns? That doesn't seem very fair. There are lots of anomalies that pop up in our tax law over the years that favor one group or another, and then those get sort of baked into the background.
And when you go to change them, it takes it out of context. Companies have been getting a benefit, and it's reduced the equity of our society. But I can tell you, if you're a private equity or private real estate general partner, you have lots of good reasons to believe that those are incentives that help you be successful. The economy benefits from that, and there's probably some truth to that, but how much that justifies the extraordinary tax treatment for those earnings is really in the eyes of the beholder.
Part 2: Join the movement of health, wealth and legacy
By JOHN M. SAMUELS, LINDSEY SICHEL RUBINSTEIN and MARISA MESSANA
> PART 1| Join the movement of health, wealth and legacy
Over time, relationships that are built on transparent communication, trust, ongoing education and interaction tend to outlast any given stock or bond market anomaly. Building your network is important, for mental well-being and business purposes.
One way to focus on an entity’s investments while doing so is smart targeting of relevant investment conferences that focus on one’s balance of health, wealth and legacy needs. Apex Invest — whose events are led by Lana Callahan, managing director of investor relations; and Patrick Clark, managing director of asset managers and sponsorships — has taken a proactive and pioneering approach to embracing this movement, having worked with Lindsey to curate an inaugural event focusing not on manager or vendor promotion but on the movement itself.
The reception was so positive that it has become a requested and ongoing series where great LP connections have been made with Dr. Greg Bailey in Abu Dhabi and with Dr. Kyle Daigle speaking in February in Riyadh, Saudi Arabia. The power of the currency of relationships prescribes the need of the industry, and there is a strong and growing cry for a combined focus on health, wealth and legacy.
Investors (LPs) want to connect with other LPs about what matters, including increasingly forming a view on what the core tenets of legacy are and the investment pillars to achieve one’s version of legacy.
Individual: Institutional and family office communications | Jane Hanson, former NBC anchor, on media and presentations
The resulting conversations from such paradigm shifts can lead to some intense boardroom conversations and messy family dinners. How to communicate around such thorny topics?
“Communication is verbal but also, importantly, nonverbal. I have found in my experience for this to be especially true around complicated and emotional topics at the intersection of health and wealth: aging parents, wealth transfer, illness, divorce, mental health concerns. Whether you are the CEO of a trillion-dollar unicorn or the failure-to-launch next gen, sometimes a combination of what you say and what you convey through eye contact, even body positioning, makes the difference between a yes or no in a big board meeting or family conversation.”
—Jane Hanson, Former NBC anchor; media and presentation coach
Jane Hanson, a communications coach who has worked with multiple high-net-worth individuals (HNWIs), institutions and their advisers, says it does not have to be so complicated or messy. She notes that unfortunately for most families, such multilayered and complicated conversations are not only tough but avoided. And in many cases, Jane finds that it is almost a generational response.
In her work as a communication coach with many HNWIs and their advisers as clients, she finds certain older family members, the ones who still control the wealth — baby boomers — are often averse to contemplating what can happen. Sometimes, the next generation might bring up generational changes to wealth management and health and legacy. But it turns into a misguided conversation, with fears that power might be taken away from the parents.
Jane notes, half jesting, “Add millennials and Gen Z … and the conversations get ugly.” Fear can reign.
For Jane and her successful practice, here are some tips into the secret sauce of what has worked:
- First it starts with respect: Respect is an optimal, practical solution to protect the legacy and solvency of a business or family.
Respect for the family legacy. Everyone — member and employee — deserves respect, even the failures to launch.
Regarding the all-important dilemma of "failure to launch," Jane notes that accountability is key on all sides of the relationship. “Is it failure to launch or failure to let them launch?” she asks.
- Next is counseling: First talking individually with key members, understanding concerns, asking them what really matters. Also relaying stories of situations that played out poorly and successfully — a chance to set aside individual biases and look at the institutional long-term situation as a whole.
- Finally, role playing (not that kind): Here, Jane sets up practical scenarios and tackles key questions and body language. How can the situation be handled? What could be possible? And truly getting to an understanding of why failing to do this could leave them vulnerable.
Part of this is not only the words we use but our nonverbal communication. Are we truly listening? How’s our eye contact? Crossed arms means we are barricaded from accepting the conversation. Do we make it a real conversation or simple lip service? Get engaged.
How legacies happen | A case study of Lavinia Errico, co-founder of Equinox Gyms
“Having co-founded Equinox Gyms and then sold it, I am often asked about both health and wealth. So often we look for external answers for our problems, when the real search starts internally. Health and well-being lead to longevity and enjoyment of not only the journey of wealth creation but of creating the legacy and the philanthropy — the aspect of not just accruing wealth but having the health to enjoy managing wealth for the future.”
— Lavinia Errico, co-founder, Equinox Gyms; founder, MoveJoy
Being the co-founder of a gym nearly everyone belongs to or knows someone who belongs to, health and wellness was always a part of Lavinia Errico’s story, having danced at a young age, embarked on a journey of personal growth and development in her teens, started her first fitness group at USC and become a Rockette in New York City. Lavinia left no stone unturned when it came to having a healthy mind, body and spirit.
As a young entrepreneur, she and her two brothers became early disrupters in the fitness industry, founding Equinox Gyms. Much of its success was built on a series of firsts in one-of-a-kind offerings in holistic healing modalities, amenities, an accredited personal training institute and program, and understanding customers’ needs unlike anyone else.
Upon a successful exit, Lavinia created a series of programs under her brand, The Inside/Out Movement, curating conversations focused on women and the challenges they faced as professionals, spouses, parents and caregivers. She avidly works to help scale and build brands to launch under her investment company, First Point Partners, and continues to mentor young entrepreneurs.
Lavinia’s latest and exciting new venture — MoveJoy, an empowering online movement and wellness platform for women 45-plus — is quickly gaining traction. MoveJoy is on a mission to change how women age — helping them feel strong, vibrant and dignified in every stage of life, embracing the power of movement as a tool to heal the mind, body and spirit through a combination of movement classes, meditation and breath work, community engagement and workshops. Shocking statistics show that nearly 45% of the adult population is deconditioned and overweight, leading to a nearly 30% risk of heart disease and stroke, a more than 50% risk of dementia and a more than 60% risk of mature death — all which can dramatically be decreased with movement. MoveJoy is inspiring and empowering women to take their health back together.
How can you get involved at the institutional, investment and individual levels?
Entities need to cross-pollinate and share information. Advisers, pensions and family offices alike need to share best practices and hear grievances of what is not working and alert one another of new and upcoming issues so that one can rely on the proper services provided for the needed expertise as they change. By democratizing such information previously held close to the vest, we have an opportunity to improve our industry by sharing best ideas, practices and a cooperative opportunity for innovation.
Ensuring a lasting legacy should now include building a strong health care foundation: the right doctors, comprehensive health insurance, an emergency plan and long-term medical care. It also requires a well-mapped strategy that accounts for associated costs and aligns seamlessly with other advisers.
Sichel Rubinstein has some practical go-tos she adheres to that help promote engagement on all levels.
- Make a meeting/take a meeting: Expand your network in a diverse manner, and if you are reached out to as a mentor or for feedback, take the meeting and share your view. Both sides have only upside in communication and connection.
- Don’t be afraid to expand the known boundaries: Challenge the status quo. An example is when we saw some backlash on current movements in the press and from large institutions and allocators — that means, the movement exists and is causing clamor and change. Not all change is good and comfortable, especially if ill-planned, shortsighted or narrowly focused. Health, wealth and legacy has received the opposite — well-defined (and not an acronym), it resonates with a realness the industry has not realized it has needed for connecting the dots between the dynamic shift from reactivity to proactivity and innovation in health and wealth to create and maintain a legacy. AI will only augment and improve the speed of change.
- Use your voice — or the equivalent of what that is for you/your role within your company: Use your strengths to catalyze change. If it's statistics, use statistics; if it is your leadership ability, lead in a way that embraces your strength. Some of the newest and greatest ideas have come from timid voices needing encouragement. The health, wealth and legacy movement benefits from this type of novelty.
In summary, the health, wealth and legacy movement represents a comprehensive, customizable, proactive and holistic approach to longevity. These overarching themes are integral for institutional investors, who stand to benefit from the tailwinds of wealth transition, wealth creation and the growing demand for advisers or internal teams to guide investments — both in health and wealth — to build a lasting legacy.
Going back to Sichel Rubinstein and Samuel’s lunch, much enlightenment came from that dull March day when leaders in adjacent industries not only realized but actualized upon synergies to innovate a more comprehensive solution. Transforming accumulated wealth to meet evolving family and corporate wellness needs requires a forward-looking, integrative wealthspan. This approach ensures institutional longevity, supports familial generations, and addresses health and well-being while preserving wealth and building for the future.
Health, wealth and legacy: Join the Movement.
> PART 1| Join the movement of health, wealth and legacy