March 2017 | bloombergbriefs.com

FAMILY OFFICE 2017 OUTLOOK

Bloomberg Reports Managing Editor Contents Paul Smith

02 Billionaires Editor Darshini Shah 03 Launches Creative Director 04 Q&A: Jennifer Capouya, GenSpring Family Offices Robert Vargas

06 Hedge Funds Art Director Pekka Aalto 07 Q&A: Clark Cheng, Merrimac Contributing Art Directors 08 Venture Capital Ian Maready Chris Yerkes 10 Q&A: John Tsui, Peninsula House Marketing & Partnership Director 12 Wine Courtney Martens [email protected] 13 Art +1-212-617-2447

16 Philanthropy Advertising Lucy Rosen [email protected] +1-212-617-6759

Reprints & Permissions Lori Husted [email protected] +1-717-505-9701 x2204

To contact the editor responsible Darshini Shah [email protected] +44-20-3525-0790

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1 BILLIONAIRES Many of the World’s Wealthiest People Are Getting Older — and Plotting What’s Next By TOM METCALF

LORENZO SERVITJE SENDRA was Nearly Half of the World’s 500 Richest People Are Pensioners the oldest person on the Bloomberg Billionaires Index when he died in February with a $4.2 billion fortune. Thinking ahead, the Mexican billion- aire had already transferred his stake in 60s Grupo Bimbo, the world’s largest bread- 26% maker, to his heirs, enabling them to sidestep what amounts to a $2.1 trillion headache for the wealthy. That’s the total net worth — roughly equal to the gross 50s domestic product of India — controlled 19% by the 218 billionaires over age 70 on the Bloomberg index, a daily ranking of the Over 70 world’s 500 richest people. 40s 44% “By far the biggest handover ever to 8% the next generation is about to happen,” PWC and UBS noted in a 2016 report on billionaires. “Without careful planning, many of today’s fortunes will suffer sub- Under 40 years old stantial erosion.” 3% The problem is most acute in the U.S. and Europe, where about a quarter of Source: Bloomberg Billionaires Index the billionaires on the index are age 80 or older, compared to 20 percent in Asia. In mainland China, where only chemi- media company’s efforts to make deals person and has pledged to give almost cal maker Xu Chuanhua has reached that to stream programs on the internet. all of his $79 billion fortune to charity, a milestone, just 3 percent of the wealth is move that’s been followed by 156 of the in the hands of the elderly, with about 40 Tax-Friendly Structures world’s richest people, including No. 1, percent held by billionaires under age 50. Swedish billionaire Ingvar Kamprad and Bill Gates. Russians have their own version of Germany’s Dieter Schwarz side-stepped the headache, with private wealth con- that risk through elaborate, tax-friendly trolled mostly by a generation of busi- holding structures they created to nessmen who profited from the chaotic control assets when they’re gone. The problem is most post-Soviet economy. For those billion- Italian billionaire Leonardo Del aires, passing the business on isn’t an Vecchio, 81, sold Luxottica Group SpA, acute in the U.S. option when so much of the value is the eyewear business that makes up the and Europe, where tightly woven into personal connections bulk of his $18 billion fortune, to Essilor at the Kremlin. International SA in January. That was about a quarter of In the U.S., Sumner Redstone’s $3.8 to prevent a tug-of-war among his chil- the billionaires on the billion fortune became embroiled in a dren for control of Luxottica as Del bitter and public feud when the 93-year- Vecchio looks to transfer his wealth to index are age 80 or old’s frail health sparked a legal battle the next generation. older, compared to 20 between his daughter Shari Redstone Then there is the Buffett approach. and Viacom Inc.’s former Chief Executive The 86-year-old Berkshire Hathaway Inc. percent in Asia. Officer Philippe Dauman, hobbling the chairman is the world’s second-richest

2 LAUNCHES Former RICHARD FULD IS backing a multifam- at the Marcum MicroCap Conference on Lehman ily office that will help small-business Lehman’s demise, the financial crisis owners manage their personal wealth, and its aftermath. part of a comeback effort by the former “Why has the belly of America been CEO Fuld head of failed investment bank Lehman ripped out?” he said at the time. “The Brothers Holdings Inc. small companies can’t get financing.” Matrix Wealth Partners, in regis- Matrix Wealth Partners provides Emerges tering as an investment adviser in another avenue for Fuld to court small December 2016, disclosed that it’s and mid-sized businesses, many of partly owned by Fuld. The New York- which are closely held. He won’t be as Backer based firm’s other owners are Matthew involved in the day-to-day operations Rubin and Justin Gaines, both of whom of the multifamily office, which shares come from Neuberger Berman, a the same Manhattan address as Matrix of Wealth- former Lehman money-management Advisors. Daily management will be left unit that oversaw about $255 billion at to Rubin, 45, an architect of Neuberger the end of September. Berman’s investment-strategy group, Advisory The multifamily office will comple- and Gaines, 33, who worked closely with ment Matrix Advisors, a consulting Rubin in building the unit. firm that Fuld set up in the aftermath of Money managers only register Firm Lehman’s September 2008 bankruptcy with the U.S. Securities and Exchange to help small and medium-sized compa- Commission if they expect to oversee By MILES WEISS nies raise cash, according to the filing. at least $150 million of assets within 120 Fuld’s clients could hire days of filing their application, so the Matrix Advisors to help multifamily office may already have them sell their closely held clients lined up. businesses, then turn to Rubin declined to comment on Matrix Wealth Partners for whether he had managed money on advice on how to invest behalf of Fuld while at Neuberger the proceeds. Investment Berman, though both he and Gaines banks such as Morgan confirmed that they had known the Stanley, Goldman Sachs former chief executive officer while he Group Inc. and the former was running Lehman. Fuld was travel- Lehman have employed ing and wasn’t available for comment, similar strategies. according to a spokeswoman. Alexander “It’s a tried-and-true Samuelson, a Neuberger Berman spokes- approach,” said Guy man, declined to comment. Moszkowski, an analyst at Autonomous Research. “If ‘New Initiative’ Richard Fuld you are Goldman and you Like other multifamily offices, Matrix help a company go public,” Wealth will help clients allocate their he said, “you are going to try very hard money among asset classes, assist in to be” the private wealth manager for selecting hedge funds and other invest- the entrepreneur who cashed out. ments, and provide services such as cash flow analysis, estate planning and Matrix’s Roots tax management. The new firm also will Fuld, 70, formed Matrix Advisors in early incorporate the closely held businesses 2009, months after the collapse of the owned by their customers into their firm that he had built into the nation’s investment plans, Rubin said in a tele- fourth-largest investment bank. He phone interview. otherwise has kept a low profile after “This is a new initiative to really Lehman’s bankruptcy, a seminal point in broaden out some of the activity that has the global financial crisis. been done historically,” Rubin said. In 2015, Matrix Advisors consulted on Matrix Wealth will charge an annual the sale of the National Stock Exchange fee of 90 basis points, or 0.9 percent, and, according to a Reuters report, for the first $10 million under manage- Fuld also set up a New York real estate ment, according to the registration. firm called Matrix RE Brokerage. Fuld Its fees decline after assets exceed

PHOTO: BRENDAN SMIALOWSKI/BLOOMBERG BRENDAN PHOTO: broke his silence that year by speaking that amount.

3 Q&A Equities and Alternatives Attractive in 2017, De-Emphasize Fixed Income: GenSpring

Darshini Shah interviewed Jennifer Capouya, deputy chief investment officer of GenSpring Family Offices, on Feb. 22. Her comments have been edited and condensed for clarity.

XXExpects traditional stock market investments to return about 7 percent and the bond market returning closer to 2–3 percent in the “long term”

XXLikes long-short strategies to capitalize on falling market correlations, and global macro strategies to capture the trends in rates, currencies and commodities

XXGenSpring’s AUM total $8.6 billion, with AUA of $11.6 billion

“We’re still anchoring portfolios with a tilt toward the U.S. and we like sectors that are more cyclically orientated — energy and financials, for example.”

Q: What is your outlook for traditional Q: What do you expect in the near term? investments over the long term? A: We see an economy and markets — a clear framework with an alignment A: Longer-term, we expect traditional that are at a crossroads. And that is of government. So net-net, we see a low stock market investments to return really the theme of our 2017 outlook. risk of recession. about 7 percent and the bond market We expect all of the longer-term We also expect further stock-mar- returning closer to 2–3 percent. We headwinds to remain, but we see an ket upside in the U.S. Year-to-date, would hope to pick up maybe a little uptick in manufacturing activity. In we’ve already got the big bulk of what bit higher bond return if we go out on fact, 85 percent of the countries in we expect the returns to be already the term structure. But generally, for the MSCI universe are in the green, for this year. We’re expecting high sin- bonds, we are looking for a return in or above 50, in terms of their man- gle-digit returns this year in earnings the 2-point-something range. Net-net ufacturing activity. We see earnings growth, about 8 percent or so for the — that means an emphasis on stocks, rebounding and we see fiscal stimulus year. We’ve already had a very nice start as well as alternatives and private helping to propel those in the U.S. and to the year. investments, and de-emphasizing the global economy. One of the reasons why the U.S. has fixed income. done comparatively better is because Q: So you’re bullish on U.S. equities? risk has been somewhat lower here. So, Q: What do you mean by longer-term? A: When we look at the U.S., we expect we’re still anchoring portfolios with a tilt A: When I say longer-term, I mean five the bulk of improvement in economic toward the U.S. and we like sectors that to 10 years, really focusing on 10 years or growth to come from a somewhat more are more cyclically orientated — energy two cycles out. business-friendly and policy framework and financials, for example.

4 Q&A

Q: What about other developed portfolios in high-quality and shorter- markets? term maturities and are including A: We like Japanese equities. This is a bit opportunistic allocations such as “The biggest risk to more of a contrarian opportunity. floating-rate debt also referred to as leveraged loans that can take advantage our outlook right now Q: Why do you like Japanese equities? of that rising rate outlook. is political uncertainty. A: Cash on balance sheets is at a high. That’s good for stock buybacks and div- Q: So you expect the Fed to move this … And it’s not just idends. It’s one of the cheapest markets year? political uncertainty out there. We also have monetary and A: Yes, we expect the Fed to move a fiscal policy tailwinds. We expect earn- couple of times this year. in the U.S. It’s a global ings to be better there as well. issue as well.” Q: What do you like on the alternatives Q: What are your thoughts on side? European equities? A: We use alternatives as a diversifier, A: We’ve been underweighting primarily for the equity risk, but also We also like managers that are European equities. European equi- for the risk that rising rates may pose on market neutral, managers who are not ties have been out of favor and senti- the bond side. We use strategies that are wholly dependent on the direction of ment has been negative. It’s an area we less dependent on the direction of the the stock market. are looking more closely at. We have markets — long-short strategies, which opportunistic positions in small-cap will capitalize on falling market correla- Q: Why do you like global macro? companies and names that are tied to tions, and global macro strategies to A: There is a disequilibrium at the domestic demand and domestic condi- capture the trends in rates, currencies macro level — look at what’s going on tions — interest rates and currencies. and commodities. with interest rates in the U.S. versus Europe versus Japan. Commodity trend Q: And emerging-market equities? Q: What is driving the preference for is another big part of it. We consider A: We’ve been underweight emerging long-short? managed futures or commodity trading markets over the last several years, but A: As returns to the traditional markets advisers in that category as well. We we really do see things turning around moderate, and inter-market correla- don’t view long commodities as an there. The growth gap between emerg- tions fall, it becomes a more fertile attractive investment, but we like ing markets and developed markets is ground for stock pickers, both on the managers who can take advantage of widening. That’s typically been very long side and the short side. We also trends in commodities on the long good for emerging-market equities would note that as interest rates rise, and short side. The same would be relative with developed. Valuations an important component of returns for true of interest rates differentials and are attractive too, and profit trends long-short managers is the short inter- currency movements — we’re looking are improving. est rebate and we expect that there for global macro managers to really could be a lift there to returns. capitalize on that. Q: Is there a risk to your bullish outlook on equities? A: The biggest risk to our outlook right now is political uncertainty. Our theme At a Glance on equity markets right now is lean bullish, but acknowledge that the range Age: 43 of outcomes has widened. And it’s not Professional background: Worked for GenSpring and its affiliate organizations for over just political uncertainty in the U.S. It’s a 20 years in the areas of investment strategy, portfolio man- global issue as well. agement, credit analysis, risk management, client service and Specifically in the U.S., when we look business development. at President Donald Trump’s agenda, the Education: MBA with honors from Emory University’s Goizueta Business broad strokes are largely business friendly School, Bachelor of Arts in Finance/Economics with honors in terms of regulation and tax policy, but from University of South Florida protectionism is a huge wild card. Hobbies: Outdoor exercise, travel, baking and spending time with her baby daughter Q: Moving to bonds — you’re under- Favorite book: Pride and Prejudice weight bonds? Best investment advice: Stay invested, diversify and focus on your goals. A: Yes, but we are anchoring

5 HEDGE FUNDS Asia’s Richest Families Are Abandoning ‘Complacent’ Hedge Funds By KLAUS WILLE

FOR MICHAEL PREISS, whose firm Capital, in December said he’s shunning Chua said her clients are particularly oversees $1.9 billion mainly for wealthy Asian hedge funds because of mounting interested in closely-held U.S. firms focus- Asian families, adding hedge funds to his risks in China’s debt markets. SkyBridge ing on disruptive technologies such as clients’ portfolios was an easy sell some has less than 5 percent of its assets in car-hailing firm Uber Technologies Inc. or years ago. Not anymore. Asian hedge funds, Nolte said. That com- Magic Leap Inc., a U.S. startup working The executive director at the pares with 85 percent in the U.S. and 10 on a device that simulates reality. Singapore-based Taurus Wealth Advisors percent in Europe. “There is great interest in the uni- Ptemulti-family office said his clients Hedge funds investing in Asia suf- corns,” said Chua, who before setting up are disappointed with mediocre hedge fered $1.6 billion of withdrawals through Golden Equator assisted high-net-worth fund returns and are balking at high fees, November, on track for the biggest out- individuals from Asia and Europe as a prompting them to shift to private equity. flows in four years, as their returns director at Citigroup Inc. “Our clients want With redemptions already at a four- trailed the industry globally, accord- to participate in the new economy.” year high, Asia’s richest people comprise ing to the latest estimates from data pro- an investor group regional hedge funds vider Eurekahedge Pte. Startups Struggle can ill afford to lose. Family offices repre- “The big hedge funds have become Taurus and Golden Equator are part senting billionaires and multi-millionaires complacent, meaning they put more of a wider shift that’s undermining are a key source of capital in Asia, where emphasis on the management fee than hedge funds. global pension funds and university performance fee,” Taurus’s Preiss said. The average share of alternative endowments haven’t made large inroads. “For instance, a $1 billion fund tends to assets, mostly real estate and private Managers seeking money for new hedge focus on capital preservation and getting equity, in Asian family office portfolios funds are likely to be the hardest hit. the management fee instead of working increased by 3 percentage points to 44 “Asia’s hedge funds are smaller than on a decent performance.” percent in the two years through May their global peers, meaning they are The ultra-rich families backing 2016, according to UBS data. The propor- more dependent on money from high- Taurus instead want to put their money tion allocated to hedge funds fell 1 per- net-worth individuals and family offices,” directly into technology companies, centage point to 5 percent. said Melvyn Teo, professor of finance according to Preiss. Taurus has about New hedge funds in Asia are particu- at Singapore Management University. 10 percent of client assets allocated to larly affected by the reluctance of family “If family offices withdraw money, the alternative assets. offices to invest, according to Singapore region’s hedge fund industry will clearly Management University’s Teo. feel the pinch.” Drastic Shift “Especially for hedge fund start- UBS Group AG in November said At $500 million multi-family office ups, the bar has been raised because of family offices worldwide have turned Golden Equator Capital Pte, the shift this,” he said. “A lot of them depend not away from hedge funds after they trailed has been even more drastic. Over the on institutional investor capital, but on stock markets in the wake of the 2008 past two years, the share of assets allo- capital from high net worth individuals financial crisis. The trend is even more cated to hedge funds has more than and family offices so that they can get up pronounced in Asia, where family offices halved to less than 10 percent, while to critical mass. It becomes a problem if set more aggressive performance goals, private-equity investments have doubled family offices start to shy away from this.” according to Eric Landolt, UBS’s head of to 20 percent, according to founder and Shiraz Poonevala, director of invest- family advisory for Asia Pacific. Chief Executive Officer Shirley Chua. ments at Bangkok-based family office GP Group, which only invests its estimated Growth Engine $500 million of assets directly, say it’s “Family offices are usually here to add also a matter of Asia’s richest families wealth to the family,” said Landolt. “It is “A hedge fund is wanting more control of their assets. a growth engine for the family, whereas “I look my boss in the eye every day, in Europe or the U.S. there is a much like writing a check and I have to answer to him,” he said. stronger wealth-preservation angle.” and then hoping “Maybe I don’t get super returns, but Managers seeking capital from outside at the same time I don’t do super silly Asia may find few takers. Ray Nolte, for the best.” things because I have to see him every — Shiraz Poonevala, director of chief investment officer of $8 billion U.S.- investments at GP Group day. A hedge fund is like writing a check based fund of hedge funds SkyBridge and then hoping for the best.”

6 Q&A Merrimac’s Cheng on Why Quant Funds Have the Right Level of Risk

Hema Parmar interviewed Clark Cheng, chief investment officer of Merrimac Corp., on Dec. 16. His comments have been edited and condensed for clarity.

XXLooking for more quant funds since the strategy is very liquid, diversified and doesn’t have net directional exposure XXSees direct lending as a liquidity and asset liability problem in a hedge fund structure XXThe single family office invests in more than 100 hedge funds, as well as long-only, private equity and real estate

Q: What does a liquid, diversified and doesn’t have with phenomenal track records that are Donald Trump any net directional exposure. So, with closed to investors called me, I’d invest administration quants, the only risk you have is lever- on the spot. That’s because I’ve already mean for hedge age, which can kill you if you don’t have done the work and have been follow- funds? enough liquidity. But in a very liquid ing them. With new launches, you have A: There will be quant book you can de-risk quickly to to take a bet. Most are not good. Those less of a status take down your leverage. So, quants that are good, you’ll need to invest in quo. In the past have a level of risk that I’m willing to early. If you don’t, then you’ll be left few years, because live with in this uncertain environment. out when they close to new capital. of QE, fund man- There are some very good quant Some people, like Chris Rokos, if you agers had the funds, but also a lot of bad ones. I’ve didn’t commit early, you may never exact same views seen bad quant funds trying to soak up get in. Castle Hook Partners, which on markets. some of the demand and appetite for launched with $900 million, has done There’s nothing quants right now, as the best are still well. Particularly with quants, people to trade if every- closed to investors and are difficult to know who the good launches are and one thinks the same way. Going forward, find and get into. they are already filled up before they there’s a lot of uncertainty. But now that hit the market, like Credit Suisse’s everyone has different views, it allows Q: You mentioned things being more Qube and QT funds and PDT Partners. people to make money. passive — what’s your take on the They’re phenomenal. Manager selection is more import- shift from active to passive investing? ant, now. Before, it wasn’t as meaning- A: I think people are wrong in shift- Q: Have any sectors become more ful since dispersion was tight. And if all ing. I don’t know if they think about the interesting post-election? managers are doing the same thing and risk side. When people shift from active A: I think more about equities because returns are very tight, it’s hard to differ- hedge funds to ETFs, they’re taking a I like to be more liquid. There’s a lot of entiate between the best and worst. But directional risk. People who moved to interest in financials and health care that dispersion has been increasing, so passive think it’s cheaper and they get a because of the election. We’re constantly it’s more important now to pick the best higher return, so they’re a winner. You changing themes on the edge, but we’re managers and avoid the worst ones. may have performed better, but you took not making big decisions. Cyclicals have more risk to do it. been very cheap and could do well, and Q: What kind of manager turnover do distressed retail could be interesting. I you see each year? Q: So what do you look for in a love technology and biotech — there’s A: Probably a 10 percent turnover. manager for allocations? a lot of advancements and value being A: If some funds that are big names created in those areas. Q: What strategies may do well in 2017? A: Just the fact that there could be more dispersion and volatility means you At a Glance could be better off with a long-short equity fund that trades more often or Career: Previously a senior analyst at Morgan Stanley and Guggenheim a quant fund because they can take Partners; was HSBC’s head of alternative investment research for 9 advantage of that volatility and dis- years before joining Merrimac. persion. We have moved out of some Hobbies: Golf, photography, skiing, kickboxing less liquid credit stuff. Things are more New Year’s resolution: Besides losing weight, spend more time with my girls. passive and quantitatively-driven now. Best investment advice: Any Sharpe ratio over 1 is good, any Sharpe over 1.5 is too good There is more data out there, and we to be true and probably a fraud or short volatility, liquidity or some are looking for more quantitative funds. other huge risk you just haven’t figured out. Go figure it out. The strategy is nice because it’s very

7 VENTURE CAPITAL Rich Gen-Y Asian Kids Pool Family Fortunes to Build Venture Fund By YOOLIM LEE

ONE OF RACHEL Lau’s strongest child- up RHL using the wealth of their fami- “RHL guys are really smart inves- hood memories is the smell of newspa- lies with a plan to attract outside capital tors who are taking their family offices per. Her father, driving her to school and build the firm into Southeast Asia’s to a new play,’’ said Trevor Thomas each day in Kuala Lumpur, would leading independent investment group. who co-founded Cross Culture Ventures make his sleepy daughter open the “We look at Southeast Asia and there — a backer of Sidestep, together with paper, go through stock quotes and do is no brand that stands out — there is former Lady Gaga manager Troy Carter. mental math. no KKR, there is no Fidelity,’’ Lau said. “What attracted the founders of Sidestep “He would be, like, ‘How did KLK do “Eventually we want to be a fund house to RHL was their deep network in today? OK, if it’s up 4 sen and I’ve got with multiple products. Venture capital Southeast Asia.’’ 89,000 shares, how much did I make?’’’ is going to be our first step.’’ A lot of startup founders in the U.S. Lau recalled. The daily ritual contin- RHL has backed two startups since its want to access the Asian market, said ued through her teenage years. Her debut in 2016. One is Singapore-based Thomas, but they often overlook the father Lau Boon Ann built his fortune in Perx, which has morphed from a retail huge Southeast Asian markets and only real estate and by investing in compa- rewards app to provide corporate clients focus on China. “Rachel and the team nies like Top Glove Corp., which became with data and analysis on consumer did a great job of explaining the value the world’s biggest rubber-glove maker. behavior. Lau is a member of Perx’s of that vision and providing really great Some days, he would stand in front of board, whose chairman is Facebook Inc. access to early-stage U.S. companies,’’ an empty lot with his young daughter co-founder Eduardo Saverin. he said. and challenge her to imagine a building In Southeast Asia, RHL has positioned there rather than watching the chickens Sidestep Startup itself between early-stage venture cap- running around. In January, the firm invested an undis- italists and large institutional investors Lau, now 31, is one of the three mil- closed amount in Sidestep, a Los Angeles- such as Temasek Holdings Pte. Hamzah lennial co-founders of RHL Ventures, based startup that’s also backed by said they want to fill a gap in the region along with Raja Hamzah Abidin, 29, son pop-music artists Beyonce and Adele. for the subsequent rounds of funding of prominent Malaysian politician and Sidestep is an app that allows fans to buy — series B, C and D. “We want to play businessman Utama Raja Nong Chik, and concert memorabilia online and either in that space because you get to cherry Lionel Leong, also 29, the son of prop- have it shipped to their home or collect it pick,” he said. erty tycoon Leong Hoy Kum. They set at the show without having to wait in line. RHL’s strategy is to take a chunk of equity and a board seat in a startup that has earned its stripes operationally for at least a year, and see the company through to an initial public offering.

Summer Camp RHL’s partners represent a new gener- ation of wealthy Asians who are break- ing away from the traditional family business to make their own mark. They include billionaire palm-oil tycoon Kuok Khoon Hong’s son Kuok Meng Ru, whose BandLab Technologies is building a music business. RHL’s story begins in 2003 at a summer camp in Melbourne. During a month of activities such as horse riding and playing the stock market, Lau struck up a friendship with Hamzah, unaware that their parents knew each other well. Their paths crossed again in London, Sydney, New York and Hong Kong as they went to college and forged careers Lionel Leong, from left, Raja Hamzah, Rachel Lau and John Ng Pangilinan.

in finance — Lau at NN Investment SIT/BLOOMBERG CALVIN PHOTOS:

8 VENTURE CAPITAL

Partners and Heitman Investment Management, where she currently helps manage a $4 billion equity fund; and Hamzah at Goldman Sachs Asset Management and Guoco Management Co. Together with their mutual child- hood friend Leong, the trio would joke about all returning to Malaysia one day to start a business together. That day came in 2015 when Hamzah called up Lau in Hong Kong and said: “Yo! I’ve moved back. When are you coming back? You haven’t lied to me for 15 years, have you?” They decided their common trait was investing. Lionel Leong John Ng Pangilinan Hamzah shares Lau’s passion for spot- ting mispriced assets by analyzing val- uations. Lau says she trawls through property developer. Hamzah’s father, upbringings in dynasties that valued 100-page prospectuses for fun and chairman of mechanical and electrical hard work, tradition and dedication. values strong free cash flow — the cash a business Rasma Corp., is a former minis- company generates from its operations ter of federal territories and urban well- Night Vision after capital expenditures. Leong helped being. Top Glove Chairman Lim Wee Chai Ng recalls his grandfather, Singapore’s structure debt products at Hong Leong is also an adviser, in place of Lau’s father, richest man when he died in 2010, would Investment Bank before joining his fam- who died in 2008. always visit a property he was interested ily’s real-estate business to learn about The other two advisers are Marlon in buying with his wife. After driving allocating capital to strategic projects. Sanchez, Deutsche Bank’s head of around the area, they would sit on a global prime finance distribution in bench and observe it from a distance. Outside Investors Asia Pacific, and Francesco Barrai, Then they would return to the same spot In February 2016, they started RHL senior vice president at DE Shaw, a after dark. Ventures — an acronym for Rachel, hedge fund with more than $40 billion “He said to us, ‘What you see during Hamzah, Lionel — with their own money. in investment capital. the day can look very different at night,’” When their families found out about the RHL added a fourth partner in Ng said. plan, they were eager to jump in, said February, John Ng Pangilinan, a grand- Hamzah, whose great-grandfather Lau. Now they aim to raise $100 million son of billionaire property tycoon Mustapha Albakri was the first chair- more from outside investors. Ng Teng Fong, who built Far East man of Malaysia’s Election Commission, The partners have roped in their Organisation Pte and Sino Group. Ng, remembers his father’s lessons in fru- family and hedge-fund experts as advis- 37, has founded some 10 ventures, gality — one time in London he refused ers. “We recognize that we are young including Makan Bus, a service that to buy a 2 pound ($2.50) umbrella when and still learning,’’ Lau said. “There is no allows tourists to explore off-the-beat- it started raining as they had plenty of point pretending otherwise.’’ en-track eateries in Singapore. umbrellas at home. Leong’s father runs Mah Sing Group, As well as their family fortunes, Leong, scion of property developer Malaysia’s largest non-government-linked the four partners bring experience of Mah Sing Group, grew up listening to tales of how his family business over- came tough times by consolidating and reinventing itself from its roots as a plastic trader. “It made me realize that we have to be focused,’’ he said. “So with every deal we do, we have to put in that same energy and tenacity.’’ Lau was a competitive gymnast as a child but quit the sport when she failed to win gold at a championship event. “It’s one thing I regret. In hindsight, I don’t think I should have given up,’’ said Lau. “The ultimate champion is the person who doesn’t give up.’’ One old habit however remains. When Lau picks up a newspaper, she goes straight to the business section. Rachel Lau Raja Hamzah “It’s still the only thing I read,’’ she said.

9 Q&A U.S. Assets ‘Attractive,’ China NPLs ‘Overdue’: Peninsula House’s Tsui

Darshini Shah interviewed John Tsui, managing principal of Peninsula House, LLC, on Feb. 20. His comments have been edited and condensed for clarity.

XXStock markets are at “nose bleed” levels XXU.S. assets are attractive because of the safety and strength of the currency XXFamily offices are “severely” under-invested in infrastructure

Q: Tell me about Peninsula House. alternative market across the different are moving is down. Locking into fixed A: Peninsula House, LLC is engaged as verticals. As we enter the “nose bleed” contractual income assets with predict- a single family office investing in funds, level of the stock market and private val- able cash flow — like a portfolio of con- separate accounts and direct co-invest- uation, we are leaning towards more venience stores, sale and leaseback, ment across alternative assets — private niche and tactical strategies, as well as hydro plants, parking garages, corporate credit, real estate, infrastructure, renew- higher security in the capital stack. private lending and infrastructure debt — ables, private corporate and distressed. Augmenting our investment in the factoring may be a timely strategy. Your Our investments vary in deal size ranging U.S., through our fixed income private choice is limited — either invest in Bengal from $1 million to $300 million. From time assets, we co-invest with Asian insti- paintings and classic cars, or load up on to time, we co-invest with institutional tutional investors, as well as private fixed-income alternatives. and private investors when the check size wealth retail channels in the Far East. is outside our capacity. We target two to Due to the pent up interest to seek Q: What do you mean by fixed-income four investments per year irrespective of higher fixed income-like returns, Asian alternatives? asset class — liquid or private markets. capital is increasingly turning to euro- A: In fixed-income alternatives, there are and U.S. dollar-based asset investment. three or four major silos. The anchors Q: What are you currently investing in? From Korean pension funds to Japanese are private equity and real estate. The A: Our strategy is segmented into two regional banks to Chinese life insurance other two that are growing in leaps and segments. First is the outsized alpha rel- companies ­­­­­­­­— these investment groups bounds are private credit and real assets. ative to risk, and secondly, the fixed-in- provide a major source of long-term, Due to increasing pressure to generate come surrogate in the private or inexpensive capital for funds and sepa- sustainable yields, global and local inves- rate accounts for co-investment. tors alike are augmenting their tradi- tional fixed income into the surrogate. Q: Why the fixed-income surrogate in alternatives? Q: What do you mean by real assets? A: The traditional fixed income — bonds, A: Real assets encompass infrastruc- corporates, Treasuries — those yields ture, oil and gas, natural resources and are so low that they are not meeting the renewables. It could be energy-related, aggregations for the pension funds and e.g. services, midstream, upstream and endowments. As institutional inves- exploration and production. It could tors and wealthy investors rotate and be infrastructure — hydroplants, solar, churn out of the traditional investments, wind, a portfolio of convenience stores private markets are the big beneficiary of or gas stations, airport concessions, this tsunami flood of capital. Pricing and parking lots, parks, transportation chan- valuation of private market assets are nels. Then there is agriculture to timber. somewhat inefficient in the U.S. Renewables includes waste to energy, The opportunity to capture excess desalinization plants, solar and wind, alpha from the inefficiencies lies in large ethanol plants and many others. emerging markets like China, the Asean region, Nigeria, Latin America, India and Q: Let’s delve into your portfolio. How other burgeoning markets. With some is it broken down across regions and 40 percent of the world’s countries in, across the different asset classes? or moving into, negative interest rates, A: We’re doing Freddie Mac K- the only direction to which the returns and KJ-series loans. Freddie Mac is

10 Q&A aggressively looking to shrink its book, that are in the Permian or Eagle flows. With respect to the Andean region especially those loan securities that are Ford — the shale plays — those have a or the Silk Road, I mean, why do you not senior liens. For a second mort- good foundation. think China is building miles and miles gage whose multi-family mortgage loan Then there are some in solar, like of railway and Andean countries are stacked in the 50 to 60 percent loan to SolarCity and others. The commercial or upgrading the canal and ports? These value — those are the KJ series — they residential areas are using solar to heat are the new trading routes to get goods are yielding 12-14 percent. Apartment up the homes and business facilities. I’m to markets that were either landlocked value must decline by more than 25 not sure if the economics makes sense or there was no infrastructure. So you percent before our second-lien position from a payback point of view. A lot of the can look at the bigger emerging markets is primed. SolarCity-type stocks had plummeted or that have huge liquidity problems right We are in hard-money loans of small filed for bankruptcy because they were now — like Brazil, Nigeria, Turkey or to mid-sized buildings. These are senior, too early. India. Private debt investments make first-mortgage liens, whether it’s a hotel a lot of sense especially in hard money or an apartment under construction. We Q: Do you invest in hedge funds? loans to businesses and property. When think these are safe as they yield some- A: In traditional long-short equity, who hedged, dollar risk-adjusted yields are where between 9-10 percent net. would pay 2-and-20 to capture 100-150 very attractive. Construction lending and bridge loans basis points above the index? You could Thirdly, a pocket that is long over- is another niche sector with potential just as easily go to the ETFs. I think hedge due is non-performing loans, or sub-per- outsized alpha returns. funds’ mottos have to change, their fees forming loans, in China. In the 2000s, We’re now looking at limited serviced have to change, and that takes time. when China was growing at high-sin- hotels that have gone sideways in being The GP alignment is broken with the gle digits, that was all fueled by credit. converted to assisted-living facilities. investor. Hedge fund as an asset class That’s why you now see a lot of empty There are now too many hotel rooms, made a lot of sense 20 years ago. But as cities, with buildings and highways that much like retail. Many of these assets trading and liquid markets became more nobody uses. This has to re-balance itself have to be re-used for other purposes. transparent and technology flattened the because you can’t just build this infra- For secondaries, we believe that marketplace, finding excess returns is structure and real estate without people. volume in corporate private equity sky- becoming more difficult. And that is spinning out from the banks rocketed around 2007 with exponential and other groups so that they can get growth. In 2017, real estate secondar- Q: What are you thinking of investing liquidity into the banking system. ies will commence the same trajectory, in for the remainder of the year? especially for end-of-life zombie funds. A: We should start to think about U.S. Q: What particular areas of philan- As the fund approaches its 10th or 11th dollar assets that have fixed income char- thropy are you engaged in? year, the GP already siphoned all the acteristics without the volatility. U.S. A: I am in the midst of forming a non- management fees out and now must assets are attractive because of the safety profit association whose purpose is to recapitalize and reset the NAV. and strength of the currency. Looking at assist young minority students in uni- For bigger return investments, one Europe — Sweden, Switzerland — the rates versity seeking internships and full-time may start to look at the bad loan market are all in negative territories. We all know employment within asset manage- in China. Fueled by corporate and real where yields are going — in one direction. ment companies, as well as institutional estate credit, consumer loans and loans Secondly, I would start to look at investment firms. Blacks, Hispanics, to state owned enterprises, China must the trade flows among countries. Take Asians and Indians make up over 60 now delever the banks and non-bank Brazil. Trading between Brazil and China percent of the population in California. trust companies. In addition to China’s is greater than Brazil-U.S. If you look at Yet, these ethnic groups manage less five asset management companies, 20 the Asean region, that whole region is than 1 percent of the assets for pensions provincial government servicing compa- going to be the new dynamo in the block. like Calpers. The mission is to push for nies were created in order to meet the From Indonesia to Thailand to Burma to greater diversity so that the minorities growing non-performing loan market. Vietnam — intra-trade is spiking. Finance can be trained and gain experience in and investment typically follows trade the asset management business. Q: What about infrastructure? A: Misunderstood as an asset class, family offices are severely under-in- At a Glance vested in the sector. There are a lot of sub-categories to infra. We looked at an ethanol plant in Brazil that converts corn Professional background: Prior experience with Bankers Trust, Landauer Associates, to ethanol. Brazil doesn’t use gas, it uses Sheraton Hotels and Marriott Corporation corn-based ethanol. So, we like growth Education: Michigan State University BS, Columbia University MS, Harvard in waste energy. Business School OPM We like hydroplants — not greenfield, Hobbies: Claming, crabbing, old architecture but brownfield. Favorite book: Gone With the Wind We’re starting to look at the oil and Best investment advice: With more social media and greater communication, face-to-face gas sector. You could be in mid-stream meetings and personal relationships are even more important or upstream services. I think the ones

11 WINE Wine Glimmers Like Gold as Investors See End to Stocks Rally By COLIN MCCLELLAND

A GLOBAL RALLY in stocks is driving are targeted at experienced investors, Benchmark Wine Index Rebounds some investors to drink, but not in the he said. From Five Years of Losses way you might think. “A lot of the wine funds are small Prices for fine wines have climbed to and you may run into liquidity issues,” their highest levels since October 2011 Boulton said. “The time horizon for 350 on speculation that equities near record suitable returns on these investments highs are poised to drop. Wines and the is relatively long and it can be a volatile Jan. 31, 2017 funds that buy them are being viewed asset class.” 301.08 much like gold — as a store of value in They are not without their risks uncertain times — after the U.K. voted to either. The Cayman Islands-based 300 leave the European Union and the U.S. Vintage Wine Fund, which in 2008 held elected Donald Trump as president. 110 million euros ($117 million) of assets, “Favorable macroeconomic condi- closed in 2013 after a poor performance tions, constrained supply and robust prompted investors to pull their invest- demand will continue to drive the ments. A year later, Luxembourg-based 250 market,” said Chris Smith, an investment Noble Crus Wine Fund was shut down. manager at the London-based Wine So was Bordeaux Fine Wines Ltd., which Investment Fund Ltd. The fund returned had one of its directors banned by the Liv-ex 100 17 percent in 2016, boosting its net British government from running a Benchmark asset value to 248 million pounds ($310 company after money meant to buy wine Fine Wine 200 Index million). “Prices to most buyers still look was spent on race horses, sports cars 2009 2017 cheap in historical terms.” and private jets. Source: Bloomberg A weaker pound is helping to make sterling-based wine contracts cheaper China Demand warehouses to age in optimal condi- for overseas investors and boosting the Demand from China is rising after a tions, he said, adding that it trades value of indexes, which are denomi- crackdown on excess and bribery dis- about one third of its portfolio a year to nated in the British currency and track suaded investors in the world’s sec- ensure it remains liquid and meets all the value of the most sought-after wines. ond-largest economy from making its redemptions. Chinese investors have also returned purchases. Bottled wine imports to to the market after overstocking when China jumped 21 percent to $1.66 billion If Not for Wine prices were rallying in 2010, only to be in the first nine months of 2016, accord- Wine Owners Ltd., a London-based followed by five years of losses. ing to the China Association for Imports company that builds individual wine The Live-ex 100 Benchmark Fine Wine & Export of Wines & Spirits. portfolios for investors as opposed to Index has gained in each of the past The 10 million-euro Malta-based WSF a wine fund, saw trading increase to 14 months, its longest winning streak Sicav Plc’s Wine Source Fund, which 662,000 pounds in the fourth quarter since June 2010. The gauge returned 25 also invests in whiskey, has gained 32 of 2016, from 263,000 pounds a year percent in 2016, beating the 19 percent percent in net asset value since it started earlier, manager James Sowden said. made on the FTSE 100 Index of the in 2012, according to Chief Executive Kim Carter, 63, wants to increase his largest companies on the London Stock Officer Philippe Kalmbach. He is also the allocation to the Wine Investment Fund Exchange. The wine index has room to founder of Wine Source Group, which to about 5 percent of a portfolio he owns, rally another 18 percent before hitting its buys wines from among the top pro- declining to give details on his current mid-2011 peak, according to Smith. ducers in the world for distribution to holdings. He started his investment pool restaurants and hotels. by selling a brass-fittings manufacturer Experienced Investors The fund attracts investors with to Hanson Plc in 1989 and also invests in To be sure, wine funds aren’t for every- a service that offers reservations on private equity in the U.K. and Canada and one and not typically the type of prod- private jets and yachts, sommeliers co-founded Wishing Step Pictures Ltd., a ucts generally open to retail investors on demand for your dinner party and documentary film company in Toronto because of the risks associated with last-minute seats at more than 500 of and Hamilton, Bermuda. them, said Charles Boulton, U.K. the world’s best restaurants. It buys “I like wine, but I’m in it for the invest- market head of HSBC Holdings Plc’s pri- 60 percent of its wines on the open ing,” he said by phone from Contadora vate-bank unit, which has about $315 market and the rest directly from pro- Island in the Gulf of Panama. “It’s always billion under management. The funds ducers, then stores them in bonded done incredibly well for me.”

12 ART Why Silicon Valley’s Young Elite Won’t Invest in Art By JAMES TARMY

WALKING THROUGH THE frigid ware- house that housed the inaugural San Francisco edition of the Untitled Art Fair in January, 23-year-old entrepre- neur Connor Zwick took in the fair’s 55 contemporary art galleries and was unimpressed. “I look at art all the time and see a lot of art I like,” he said. “But it’s not cor- related with price at all.” As he went from booth to booth and was quoted prices ranging from $7,000 for five photographs by the artist Buck Ellison to $42,000 in a different booth for a single, larger photograph by the artist Ori Gersht, his perplexity deepened. “When a $1,000 piece brings me just as much enjoyment as a $30,000 work, I don’t see why I would ever spend $30,000,” he said. “And no, I’m not on a quest to discover why I should spend $30,000 on art.” It would be one thing if he were a casual observer, but Zwick was a poten- tial collector. He’d developed a lucra- tive flash-card app in high school, which was downloaded more than a million times; once he sold it to online text- book company Chegg, he had finan- cial freedom “for the rest of his life,” he “Untitled, Art” launched in San Francisco in January at Pier 70. said. Next, Zwick left Harvard at the age of 19 after winning the prestigious Thiel Fellowship, a $100,000 award founded to induce recipients to drop out of said, was to meet new ones. “We try to by the tech billionaire Peter Thiel, meant college in favor of entrepreneurship. be really friendly, and hopefully we’ll Zwick, in other words, was young, meet one or two,” he said. “But yester- interested, educated, and flush with day there was no one.” disposable income — precisely the As the fair wore on, other dealers “When a $1,000 piece type of person dealers had come to began to express the same sentiment: Untitled to meet. The fabled tech mavericks, reputedly brings me just as “I was hoping, and still am hoping, bursting with cash and barely out of high much enjoyment as a to meet a few tech collectors,” said school, were not buying art. Toby Clarke, the director of London’s “Doing this younger fair, we were $30,000 work, I don’t Vigo Gallery, a few days after Zwick’s hoping to meet more people of our gen- see why I would ever visit. “I thought there would be tech eration,” said Hannah Hoffman, the squillionaires who would need a bit of owner of an L.A. gallery whose booth’s spend $30,000. And guidance, which we’re very good at pro- prices ranged from $4,000 to $90,000. no, I’m not on a quest to viding.” Clarke said he’d sold out most “We brought a number of works that we of his booth — paintings by the highly presold, but I feel like we’re not even discover why I should sought-after artist Daniel Crews-Chubb talking to people [at the fair] who have spend $30,000 on art.” that ranged from $14,500 to $32,000 — the potential to buy.” — 23-year old entrepreneur Connor Zwick but the sales, he said, were to his exist- One such person who ultimately

PHOTOS: CASEY KELBAUGH CASEY PHOTOS: ing clients. The point of an art fair, he stayed away was Ruchi Sanghvi,

13 The scene inside Untitled. A scene in the Untitled Art Fair.

who was the first female engineer at then donated, hundreds of millions, know if that’s happened in Silicon Facebook (as a product manager there, if not billions, of dollars worth of art. Valley yet.” she came up with the site’s News Feed) (The new wing at the city’s Museum of The Fog Design + Art fair, which and who, after her and her husband’s Modern Art is filled with works donated attracted a well-heeled crowd for its startup Cove was acquired by Dropbox, by the Fisher family.) But the highest opening-night gala and included a joined the company as vice presi- echelons of the tech world — the new massive installation made from flowers. dent of operations. (She’s since left the elite of San Francisco — have been slow Sabrina Buell, an art advisor who, position, though her husband, Aditya to join them. with her business partner Mary Zlot, has Agarwal, was recently promoted as The difference between the tech emerged as the go-to consultant for the Dropbox’s chief technology officer.) industry and other sectors, dealers said, city’s nascent class of billionaire techno- “Even though I am very interested was that — while billionaire tech chief crats, echoed that sentiment. in art, I find investing in the art market executive officers have begun to buy art CEOs of tech companies “definitely intimidating,” she said. “I don’t know along with the houses, planes, cars, and buy, but they do it discreetly — they’re where to start, and I don’t know how other objects that cement their status not doing it the way that oftentimes to educate myself.” Sangvhi said she as members of the global rich — there New Yorkers do,” she said, pointing to buys art — just not the art that dealers has been little to no emulation from the Instagram co-founder Mike Krieger at Untitled were selling. “I like the way lower, merely wealthy ranks. and his wife Kaitlyn as examples I’m purchasing art right now,” she said. “Very often it takes a single figure of under-the-radar collectors. “It’s “I support local artists.” Still, she didn’t in a community to become a mentor,” different even from the L.A. collecting rule out a more robust approach to col- said John Berggruen, whose epony- community, which can be more lecting in the future. mous gallery sells works by such artists trend-based, and a little bit more showy.” “I would say that I don’t have a reason as Ellsworth Kelly and Henri Matisse. He The Krieger collection, for example, to [collect] at this moment in time,” pointed to Thomas Weisel, a prominent primarily comprises conceptual Sanghvi said. “I would possibly do it San Francisco banker, as an example. and process-based works and includes down the road.” “He collected [art], and then a number photography by contemporary of his employees became collectors, artists such as Wolfgang Tillmans and Trickle Down too,” he said. Sara VanDerBeek. San Francisco’s collectors come from Berggruen said he has seen the same Indeed, at the more upscale Fog virtually every sector: finance, real thing happen in other industries. “One Design + Art fair, which ran the same estate, venture capital, even retail. The or two people are friends, they become week as Untitled, dealers reported robust city has an established arts culture, and more comfortable buying and more sales to local collectors from a broad its older families — the Schwabs, the familiar with it, it’s an experience, range of industries, though many were

Fishers, the Haases — have bought, and and they bond,” he said. “I don’t hard-pressed to say where, precisely, the KELBAUGH CASEY PHOTOS:

14 The booth of the Wexler gallery at the Fog Design + Art fair.*

buyers’ money came from. “It’s blown home or car or owning things,” she art, or at least, there isn’t in the subcul- our minds this year,” said Kristine Bell, said. “And there have been markets ture I’m in,” he said. “I think if I were in a senior partner at New York’s David that have been developed to facilitate New York, it would be very different. I’d Zwirner Gallery, whose booth offered things that are communal — like Uber hang out with people who appreciate art work ranging from $10,000 to about or Airbnb.” If you don’t own your more, and go to more galleries, and over $600,000. “We just expected to see the house, in other words, you probably time develop a finer appreciation of it.” same people we saw [in 2016], but we’ve won’t spend tons of money to decorate As it stands, he said, “I would be open had a host of sales to brand new clients.” it. “Most of the material things that to spending money on art, but it’s never Bell hadn’t “done the post-mortem yet,” we’ve traditionally invested in are no really been a big enough priority in my she said, but noted that buyers were longer relevant for this generation,” life to think about what the next step “definitely from finance, maybe some she said. should be.” from tech.” Zwick, for his part, at least And then it was time to leave; he’d partially agreed. allotted less than an hour for his time at Culture Shift “I just don’t think there’s a culture Untitled, and he needed to get back to Buell, the adviser, speculates that here of spending that much money on the office. the rising ranks of tech managers will eventually get around to buying art, but “I think it’s going to take a little bit more time, I’ll be totally honest,” The difference between the tech industry she said. “People in the art world are like ‘hurry up and spend money,’ but and other sectors, dealers said, was that many of these guys are working their — while billionaire tech chief executive tails off,” she continued. “They’re just having their children and buying their officers have begun to buy art along first houses. I think the trickle-down with the houses, planes, cars, and other will happen, but further down the line.” objects that cement their status as Sanghvi, the engineer, said members of the global rich — there has outsiders need to remember that the tech sector continuously deemphasizes been little to no emulation from the lower, ownership of anything, let alone mil- merely wealthy ranks. lion-dollar artworks. “Today, people

*PHOTOGRAPHER: JOHANNA ARNOLD, COURTESY OF FOG DESIGN + ART + DESIGN FOG OF COURTESY ARNOLD, JOHANNA *PHOTOGRAPHER: aren’t inclined toward buying a

15 PHILANTHROPY Vinik Charity’s Market-Beating Trades Recall Hedge-Fund Heyday By MILES WEISS

JEFF VINIK’S INVESTING skills have forward to maintaining our support of bottom-up stock research and top-down faded from view since he unwound his deserving charities and nonprofits.” macro analysis when he was running his hedge fund in 2013, but they are still Instead of trading directly, wealthy hedge fund.” getting lots of use. managers such as John Paulson, Seth In general, family offices also oversee The real estate developer and owner Klarman and Steven Cohen tend to their founders’ private foundations, of the Tampa Bay Lightning hockey team invest the assets of their family founda- which are used by wealthy individuals revealed billions of dollars of trading in tions in either their own funds or those such as hedge-fund managers to make the stock market — only now it’s being run by third parties, the most recently charitable gifts. A donor gets an imme- done through a family philanthropy available tax documents show. diate tax deduction for contributing to that is scoring the same kind of robust Vinik has taken a similar approach a foundation, which is free to invest the returns his hedge fund once did. for part of his foundation’s portfolio: at contributions as long as it uses at least 5 Vinik’s active trading is unusual in the the end of 2015, it had $189.5 million of percent of net assets for nonprofit pur- staid world of charitable foundations. assets, two-thirds of which was invested poses, such as gifts to charities. Using just a sliver of its capital, the Vinik in roughly 25 funds run by outside man- Family Foundation traded $1.9 billion agers including Bill Gross, Andy Hall Safe Approach of public securities during 2015, realiz- and Jason Karp. More than half of the Private foundations are subject to height- ing $6.7 million in gains, according to the 25 investments were valued below cost, ened IRS scrutiny if they engage in latest available federal tax documents according to its filing. so-called jeopardizing transactions, such requested from the IRS by Bloomberg Separately, the foundation had a as short sales or investing on margin, and posted last month. The profits were portfolio of publicly traded securities that could present undue risk to their enough to cover most of the foundation’s that employed about $30 million to $50 charitable goals. While the agency donations that year and enabled it to million of capital, according to an esti- rarely deems such transactions exces- beat the broad stock market. mate by from Arthur Brown, a hedge- sively risky, its authority to impose hefty “They are buying a whole bunch fund accounting expert at Marcum LLP excise taxes on those who trip the rule during the year and they are turning it who reviewed the tax documents on encourages a conservative approach, over a bunch,” Brian McAllister, an asso- behalf of Bloomberg News. This public said Marcus Owens, a partner at law firm ciate professor of accounting at the portfolio did $1.2 billion of trading in Loeb & Loeb LLP and former director of University of Colorado’s graduate school 2014 and $1.9 billion the following year. the IRS’s exempt-organizations division. of business administration, said after “The excise tax tends to push foun- reviewing the tax documents. “It could be Macro Calls dation managers towards relatively safe one indication of high-velocity trading.” Vinik, 57, may also still be making the investments,” Owens said. “Not across After announcing in May 2013 that he macro calls that defined his earlier the board, but generally speaking.” would return outside capital, Vinik con- career, first at the Fidelity Magellan Fund When the Vinik foundation’s paper verted his fund company into a family and then his own hedge-fund firm. gains are added to its realized profits, office and began focusing on projects The foundation’s publicly traded port- its 2015 trades generated $7.7 million, tied to his home base in Tampa, Florida, folio consisted of only about $5.4 million according to Marcum’s Brown. That ranging from gifts to local charities to a $3 of stocks at the end of 2015, compared means an estimated return of 15 percent billion development project in partner- with $30 million in a cash-like instru- to 26 percent, depending on the amount ship with Bill Gates’s Cascade Investment. ment and $15 million in a fund dedicated of capital allocated to trading public But Vinik told the Boston Globe two years to long-term U.S. Treasuries. It also had securities. The S&P 500, including divi- ago that giving up his money-manage- $36 million of bets that benchmarks such dends, returned 1.4 percent that year. ment career “was a very hard decision,” as the S&P 500 Index would decline, The performance echoes Vinik’s adding, “I really do miss the markets.” leaving it well-positioned for the selloff record as a manager for more than that caught many hedge-fund managers two decades. He initially ran Fidelity Outside Managers off-guard in January 2016. Magellan, the world’s largest stock mutual The Vinik Family Foundation doesn’t “The trading levels disclosed by fund at the time, only to step down in comment on its investment activities and the foundation could result from 1996 after a costly bet on Treasuries. He strategies, spokesman Bill Wickett said using exchange-traded funds to make then founded Vinik Asset Management, in an emailed statement. The founda- macro bets on the economy,” said Iggy once one of the biggest equity hedge tion is “proud to publicly support several Ioppe, a former analyst at Vinik Asset funds, which averaged 17 percent returns community initiatives inside and outside Management who now runs his own over the next 17 years — more than double of Tampa Bay,” Wickett said. “We look investment firm. “Vinik excelled at both the gains of the S&P 500.

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