Paul Karger on How Centimillionaires Manage Wealth and Risk

0:03 Paul Carer is 48 years old but manages $12 billion. He's brought in over $2 billion of AUM in the last one year alone to Twin Focus Capital where he's a partner um with his twin brother. Um they started the firm 20 years ago as of next month I think it is coming up very soon. Um he is a CFA. He actively trains and competes in Mai, Giitsu and Gundu. Um, and Twin Focus Capital essentially helps Centaillionaires with putting together um, their family office strategy. And we're going to do an interview on how we scaled the firm. And, um, let's welcome Paul up to the stage. Thank you, everybody. >> Thanks, Richard. Great to be here. >> What else would you add to your bio before we start out?

0:50 >> Like Grant, I have I have three amazing kids, which I'm most proud of. So I do it all for them. >> Awesome. It's great. Um, so wealth management at its core is pretty commoditized these days, right? Like just traditional plain vanilla wealth management. So a lot of people struggle to scale such firms while you guys have scaled to 12 billion. So what are the what are the three reasons why you've been able to scale while others struggle? Um, 20 years is forgiving. You know, you can make a lot of mistakes and recover. Um, I would say it's, you know, it's a I think it's a combination of just, you know, relentless preparation, just constant preparation, very much like martial arts or playing the guitar or whatever it is. It's it's like all the prep that goes on behind the scenes and not when you're sitting on stage. Um, I think it's having, you know, really kind of deep technical expertise. Uh, and that, you know, like martial arts, it just takes time to get there. Uh, and then I think lastly, it's the ability to just really build strong relationships so that your clients don't feel like you're selling them something. It's they they really feel like you have your, you know, their best interest in mind.

2:02 >> Great. Um, when you're working with a client that's worth, you know, 50 or a couple hundred million, does that take three years to bring them in as a relationship? Does it take three months or somewhere in between? >> Somewhere in between. Um, it's definitely changed over time. you know, the sales cycle has shrunk. Um, it's not that you, you know, as they say, it's not that the game gets easier, you just get better at it. And, um, you know, I think I've been doing it so long, you know, there, there was a day 25 years ago when I was a young stock broker in the late '9s that my friends used to joke that I carried an account application in my back pocket. Um, that's changed. you know, today we're not trying to be all things to all people and it's about, you know, just investing in relationships and realizing that it's, you know, it's it's a journey and some people aren't ready. You know, it's like it's like being a taxi cab driver. You don't know if you're going to, you know, take somebody down the street or if you're going to get the ride to the airport, but you just always got to be kind of on and and thinking about it.

3:00 >> Got it. And besides what you've already mentioned, uh, what do you think's at the core of your firm success or your success that most people overlook or kind of write off or undervalue, but you know, it's like right there at the core? I >> I think I think it's just being prepared. You know, being prepared and um, you know, showing up every day. It's, you know, it's a final exam every day and it's 100% is a passing grade. So, you know, clients hire us to to get it right the first time. and um you know analogous to a Picasso that's can whip up a painting in in 30 seconds, but it took him a lifetime to get there. It's it's the same thing, >> right? We've helped um put together a couple hundred family offices and referred uh many of them to Paul and his firm. And what I keep finding is that people try to do this and they either become the largest client of their small CPA who fumbles the ball or they hire a very large firm with a roster of 8,000 clients and they get lost in the sea of clients and don't get helped. So over and over again, people have frustrations while getting their family offices put together. What are the top three trends that you see impacting multif family offices like the one you run um that you see developing? Cuz you run one of the top ones that maybe other people here in the audience don't know about.

4:10 >> Uh there was an article actually in the Wall Street Journal this morning that talks about um the billionaires, the rising rising billionaires. And I think it I think there's something like 2700 2900 billionaires in the world controlling 16 trillion dollars of wealth. Uh the game's changed. You know, not just guys like Elon and and Jeff have hundreds of billions, but you know, when I started my career 25 years ago, like if you had 50 or hundred million dollars, you were like one of the richest guys gals in town. And uh and now, you know, 100 million is kind of table stakes. Um, and you know, these families, these individuals have institutional type complexities. Um, and I think there's a lot of billionaires out there today that don't want to run their own family offices or maybe have like some variation of having maybe an in-house assistant or an executive director of their foundation.

5:03 But, um, you know, there's pluses and minuses to running your own family office. You know that, you know, one of the pluses you can kind of control everything. One of the minuses is you got to control everything. And it's it it comes down to like you know how you want to spend your time. Um and so I think one of the big trends is this kind of emerging CEO founder CEO is their own asset class. I think that's a big one. I work with a lot of founder CEOs that you know on paper are worth a billion, two billion, three billion. Um you know Ray Dalio talks about all the time about the difference between money and and wealth. You know a lot of these guys have wealth but they they don't yet have the money. Uh but that's a big one. Um I think another big one is the deemphasis of investing at the center of the solution. Uh and it's why I think a lot of the banks are flatfooted today.

5:53 You know the banks and the brokers are were you know built around providing investment solutions. And while you know they'll show up and and tell their clients that they can solve all the other problems it's it's a bunch of they can't, you know, they they're they're focused on scale and from a compliance perspective, they can't do it. So, um, often times, you know, when folks come into money, we work with mostly first generation wealth first folks come into money, there's this journey of having to figure out, you know, what what works for you, what doesn't work for you. This kind of journey of realizing that the JPMs and the Goldman's of the world, you know, there's a lot of allure going in and then, you know, you're just one of a number. Um, so, so I think that's a big one. I think the last one is today families are just more global and global families need global solutions and there's just not a lot of firms out there that can deal with the global complexities. Um I was meeting with somebody earlier talking about global global challenges, global complexities and you're you know because of the various you know tax and legal jurisdictions around the world and you've got kind of competing laws, rules, regulations, you're you're constantly having to kind of juggle, you know, prioritizing those those objectives. Um and so you want to you want to remain flexible because things change. Your your life changes over time. Your wealth changes over time.

7:10 >> Got it. Most people that run a multif family office are proud to say their average client's net worth is, you know, 12 million or $ 38 million and they have, you know, 400 clients and that's how they manage 8 billion or 12 billion. In your case, I think your average client's net worth is somewhere between 150 and 200 million. I'm thinking last time we talked about it. So, what makes the difference to people that get stuck at 10 million net worth, which is still a lot, um, and those who make it to 100 million plus and are your average client? Like what is so different about the sent to millionaires but common among them and very different from people that get stuck down at still ultra wealthy but like a lower much lower rung on the ladder. >> Yeah. First first let me say you know a lot of wealth management firms out there you know everybody wants to work with big clients you know bigger and bigger clients. Um but I have some very successful friends that run very successful wealth management practices and are focused on kind of a sub$und00 million client. Uh, and you can you can build a hell of a business working with those, you know, the clients at that end of the range. Um, and for us, you know, we're not trying to be all things to all people. And, you know, the truth is when you have over a 100, over 200, it's a total different game.

8:19 It's a total different set of complexities. You know, you're thinking about, you know, your wealth in different time frames. Um, so you know, for us, you know, we're really focused on this today hundred million dollar plus client and because we've been doing it so long, you know, we're ninjas. You know, we we know exactly how to deal with their problems. We know the blind spots. Uh, and you know, in many ways, you know, I say all the time, you know, we're here to protect the client from everybody trying to get at them. And you know, when you have wealth, everybody's trying to sell you something or or get in your pocket. Uh but in many cases we're we're helping the client kind of protect them from themselves and you know you got to push back on the client. Um you know in terms of you know what makes I think those you know sentimillionaires billionaires different from everybody else. I think it's uh you know one I would say decisiveness you know the ability to make decisions and not regret them and keep it moving. Um, you know, two, I would say it's, you know, understanding scale and realizing that, you know, you want to put yourself in highest and best use. Um, and you want to, you know, fill your team up with folks that are also able to work at highest and best use.

9:34 Uh, and and lastly, I would say it's, you know, certainly in my own case, it's like the ability to leverage relationships. Um, and that's, you know, that that takes time to figure out. It takes time to build relationships. And um but you know, when you've got those good relationships, those are the ones that last a lifetime. >> Got it. Um so last time you were on stage, you had some like red Spider-Man shoes on. You're not afraid to have an opinion. You have like a a good time with your clients. I know. And um so you're good at building those relationships, but I'm curious for you and like some others like like Grant Cardone or others you work with that are worth tens of millions or 100 million plus. Was it being genuine, authentic, and not boring and average like a business suit robot, you know, that looks like everyone else and acts like everyone else in corporate America that helped you become very successful? Or was it once you got really successful, you're like, I don't care anyone.

10:24 Thanks. I know what I'm doing. I'm just going to show who I really am. And uh can you explain which direction that went? >> Yeah, I I mean for me I I've always just been super authentic. Um and I I think you know I think authenticity sells. Um and you know I'm in this game where you know you meet somebody you basically have to be become their best friend pretty quickly. You know you got to learn and kind of get inside somebody's head. And you know the more experience you have in doing that the better you get at it. It's, you know, it's analogous to, you know, fighting or jiu-jitsu where, you know, you've not necessarily fought with everybody else out there, but you've had so much experience in trying different things and doing different things and and and you've prepared for it that, you know, you know how to roll roll with the punches? >> Sure. What's the number one thing you looked for when you're vetting a founder or the CEO of a company that you might back with capital or invest in?

11:17 >> It all comes down to the people. you know, I'd rather invest in just a rockstar entrepreneur with a shitty business plan than an amazing, you know, business plan and a shitty entrepreneur. So, it's it's all about people and, you know, especially when you're back in a company, you know, you um things don't always work out like you initially think and you know, everything in life takes more money, more time than we think. And if you know, if we kind of knew up front, maybe we wouldn't start. But, um, you know, you need you need to back folks that have that kind of tenacity and uh are willing to pivot and you know, own up to your mistake. can like I said just keep it moving. >> Got it. Yeah. We interviewed Larry Connor who's like a real estate billionaire. He said 95% of problems are people problems and 95% of the opportunities are people opportunities. So uh similar answer. What are the go-to top three things you talk to uh sent millionaires about when you sit down?

12:05 You're going to have a quick cup of coffee. Like he told me a story in Boston. He's like, "Oh, I got just a couple minutes here when we're supposed to meet for a longer amount of time." Like what are those top three bullet points in your mind that you go into with a new client or a new prospect? Uh first I would say it's thinking about what their constraints are. Um where their challenges are um and that you know that gives you something to pivot on and then it's about thinking about you know where you can leverage you know leverage those those challenges or objectives uh to deliver a solution. Um and then and then it's about you know I think very analogous to like hiring a doctor. um you know maybe 5 6 years ago unfortunately my mom my mom was diagnosed with cancer she's you know thank god she's in remission now but I remember um interviewing doctors and I live in Boston so we have you know MGH is like you know the high church of medicine you got you know Dana Farber which is like high church of cancer and you know I said to my mom after we interviewed all these doctors I said mom like they're all qualified like they're all harbored this and that but I said it's it's really about finding the person that you have the best chemistry with and that you believe has your best interest in mind because you know when you hire an adviser whether it's a doctor or an attorney or you know family office adviser you're probably not going

13:23 to second guess them too much you know it's why you're paying them. So it's you know it's about understanding that chemistry. >> Got it. Um and for investors here in the room you know credit has been hot for a while right like credit funds have exploded in size for obvious reasons. there's a higher expectation for interest people want to earn because of where treasuries have been at. What are a couple of investment areas that um you'd recommend people keep an eye on because you see them of like growing interest, growing requests from your clients or you just see like the macro trends and you're like I bet in two to four years that area is going to be big. Any comments on that that you're noticing in your office? >> Uh you know from my vantage you know our our first job is to keep the client rich, right? if I don't keep him rich, I don't have a job. So, it's about, you know, maintaining that wealth. And so, you know, we're constantly thinking about diversifying sources of alpha, diversifying sources of risk. Uh, and because, you know, we're not in any one given asset class, you know, and kind of when you are, you know, when your hammer, everything looks like a nail. So, you know, but we have the ability to kind of go out anywhere and everywhere. And, you know, I agree a little bit with Grant and thinking about owning some digital assets. I don't know if you know you got to think about the you know the allocation you have within your portfolio. I personally like gold. I I've been investing in gold for 20 years and I look really smart the

14:40 last three or four. Um so it's I I think it's about you know diversifying and off offsetting all these various risks. But I think the big thing is just avoiding long lines and um you know as as Grant was saying you know the thinking about kind of what you believe to be true. You know in martial arts you Bruce Lee used to always talk about preparing for multiple scenarios. you just you just don't know what's going to happen. You don't know what's going to happen over 2 3 4 5 10 years. And um we have a we actually have a big real estate business. We have probably about a billion five of real estate, you know, assets all over the country. Um you want to be in good location markets, but locations shift over time, you know. So, uh you you know you it's the stay-rich game is really about spreading out the risk. >> Got it. Um, what's the most powerful insight, strategy, or investment comment you'd like to make that we haven't touched yet in this interview? Like maybe some some note that you prepared to share.

15:35 >> Yeah, I think I hit them. You know, it's like uh avoid the long lines, you know, avoid those crowded trades. It's hard, you know, sometimes everybody's everybody's in line. I, you know, I use AI every day. We use it across my firm. We are absolutely in an AI bubble. You know, I I met with two young guys last week that were running uh AI businesses that are both raised over hund00 million dollars from the Sequoas of the world. And you know, it it won't last. You know, it's these are there's there's a cycle to this whole thing. And um I was telling these guys as they were thinking about taking secondary, you know, you want to take enough off the table that you're you know, that you can live another day. So um yeah, it's I think it's I think you got to think about, you know, risk management in your life constantly. >> Got it. And I and you were telling me a story last night over dinner about how like many times a client comes in and you renegotiate a thing or two and almost like pay for yourself immediately. Can you tell tell me a little tell them a little bit more about that story and and how you do that?

16:30 >> Yeah, I don't know I don't remember specifically that story. Probably too many glasses of wine. But I think um you know for me because unlike you know unlike a fund where you're paying two and 20 or one in 20 or whatever it is and you know the investor doesn't see the fee it just kind of comes out of NAV. my my feet is seen every quarter. And so I'm in the what have you done for me lately game and you know when we bring on a client you know we we basically solve for all this kind of lowhanging fruit with first 6 12 18 months. Uh and then you know then you kind of solve some of the bigger problems some of the you know phase 2 estate planning stuff. Um but in phase three when we move into kind of maintenance mode it's really what have you done for me lately? And I I have a friend all the time that says, "Paul, your tagline should be twin focus. We come for the investments, but we stay for the little situations." I'm solving little situations every day. Um, you know, some are confidential. Uh, some are not so confidential. And, uh, you know, we pay for ourselves. You know, I I had a actually had a situation this last week where we we've invested in SpaceX for a bunch of clients and they announced last week it was basically a 2x over um over over what it was at the last round. So that makes me look really good. That's a super tangible way. I' I've added some value.

17:46 But truth be told, it's um you know, most of the most of the problem solving is not on the investment side. It's on the life side. And you know, clients come to us because they know we're experienced. They know we we've been in the trenches. They know we've got solutions and and they know we're their partner, you know, and and they can call me up or text me and we can have a quick confidential conversation about something and and I can go, you know, I can go solve their problem for them. So, >> yeah, it makes sense. I think the story last night you're telling me about how someone was basically came up became wealthy through an exit, but they're still paying retail wealth management fees. So, you're able to go in and renegotiate their trading or wealth management to pay like a fourth of what they were paying and basically paid for you on an annual basis. That's the secret in the family in this kind of multif family office, family office world is um you know typically entrepreneurs have a have a big exit and they they can't even spell family office. They don't they don't know where to go and so they're you know they go to the Goldman, they go to the JPM and after a couple years they realize again they're the problems aren't being solved and by the way for that indexing strategy they're paying 60 basis points to Goldman. I can get them that for 10 and I'm gonna take the vig, but I'm gonna solve all their problems. And so, you know, it's an evolution. You know, people have to go through these through this journey to figure out, you know, where the value is.

19:00 >> Got it. So, maybe not specifically with Twin Focus Capital, although it could be, but there's a lot of multif family offices out there and we've had some at the Super Summit meet someone and, you know, seed or invest 30 or $50 million sometimes into a a fund or a platform. Um, why don't we finish up with a tip or a strategy of like how do you how do you build a relationship of trust with someone that gets sent hundreds or thousands of things you could plug into all these independent RAIA platforms, you know, they're UBS or JP Morgan or uh Schwab, etc. or source your own deals. So, there there's so much coming at a billion dollar plus MFO. How do you get through that noise? >> I think you take I think you take your time. Um, relationships take time. I'm good at building them fast, but relationships take time and you know when you seem I think you made a comment earlier like when you seem too eager or you know the fund is closing in two months or one month and that's kind of a turnoff. So it's you know it's it's taking the time sometimes it's it's giving away a bunch of free You know I I'm I'm working with this entrepreneur that I met a couple weeks ago that's got a couple hundred million on paper and I said listen you need a prenup. You need this. You need that. I said let's let's dance before we before we date. Let's you know date before we get married. I I'll help you solve a bunch of these things and I'm going to show him over the next year a bunch of value ad and for me it's like a couple phone calls and sending some emails but

20:18 I'll look really good and you know we'll build that trust and you know he'll be he'll be at my door when he's got the secondary transaction. So >> awesome. Yeah, super helpful. Great. Let's give Paul a big round of applause. Thank you. >> Thanks everyone.