Private Equity Gives Wealthy Client Diversification

10 January 2014

The 55-year-old client wanted to increase the size of the estate he planned to leave to his heirs and his charitable foundation.

A venture capitalist, he already had about 40% of his $250 million net worth tied up in alternative investments. But he wanted to diversify his portfolio further with non-stock assets that offered long-term growth potential while minimizing taxes.

"We wanted unique opportunities that would provide greater growth and returns beyond what we could find in stocks," says the client's adviser, Eric Thurber, who specializes in working with entrepreneurs and venture capitalists. His firm, Three Bridges Wealth Advisors, manages $400 million for 65 clients in Menlo Park, Calif.

The client was risk tolerant and didn't have immediate liquidity needs. So Mr. Thurber suggested looking at middle-market private-equity funds, which he says offer long-term growth that can outperform public investments like mutual funds. Private-equity funds also can provide additional diversification because of their historic low correlation to public markets.

The adviser also thought the funds would be a good match for this client because of their longer investment period: Private-equity funds, acting as general partners, raise capital from investors who then become limited partners owning a percentage of the fund's shares. The funds typically have a set investment period, often between five and 10 years, before they liquidate their investments. That structure meant that any gains realized at the end of the period would be taxed at the 15% long-term capital-gains tax rate.

The potential for higher returns and tax savings convinced the client, who then told his adviser that he'd recently met the founder of a small private-equity fund that sounded interesting. However, Mr. Thurber stressed the importance of performing due diligence on such funds, and told his client he'd need to carefully research this potential investment.

"You need to do on-site visits to get to know the management team, understand the operation and feel comfortable with it," he says.

Mr. Thurber looks for funds with a strong track record of partnering with middle-market companies to actively add capital and operational value. He also recommends small funds--those that manage around $50 million in investments--because they tend to outperform large funds.

After visiting with the managers, researching the fund's underlying investments, and making sure the managers had a track record of adding value to the companies in which they invested, Mr. Thurber determined that the fund met his criteria. The client invested 10% of his alternative portfolio.

The fund is in the early stages of investing capital, which means it's still too early to gauge potential returns. But Mr. Thurber and his client are pleased with the fund's investment choices so far. Mr. Thurber also continues to contact the fund's managers on a quarterly basis to keep tabs on the investment and relay any new information to his client.

He says that when advisers are willing to take this kind of hands-on approach, they can help clients excel with unconventional investments such as private-equity funds.

"You have to do your homework, making sure you understand fully the underlying investments to the level where you're comfortable," Mr. Thurber says. "That way you can explain it to the client in a way that makes them comfortable."


Good Luck Selling Mutual Funds To Twitter Millionaire

19 Nov 2013 | 9:00 AM ET

The estimated 1,600 Twitter employees who hit it big in the social networking giant's IPO join a small but growing subset of tech sector elite investors. Many of the "rank-and-file" employees from Generation X and Y who are on the receiving end of Silicon Valley IPO sudden wealth face the enviable task of deciding how best to invest for long-term success.

Eric Thurber, founder and managing director of Three Bridge Wealth Management in Silicon Valley, which works exclusively with young entrepreneurs and venture capitalists, said those with significant wealth can afford to increase their risk exposure with a larger allocation to hedge funds, foreign currency, liquid alternatives-hedge fund and private equity strategies packaged in "liquid" mutual fund structures, real estate, master limited partnerships and venture capital.

Thurber recommends clients with assets greater than $10 million allocate anywhere from 30 percent to 40 percent into alternative funds, while those worth less maintain a more traditionally diversified portfolio of stocks, bonds and cash.


From Wirehouse To RIA

1 April 2010

Perhaps you can never be too rich or too thin. But you can have too many choices.

As more wirehouse reps decide to ditch Wall Street and head to independent RIAs, they're finding there are a number of possible routes to follow. They can start their own business, with all the challenges that involves. Or, they can join an existing, traditional RIA. Then again, they might opt for a few newer alternatives: doing a deal with a roll-up firm that buys a stake in their practice in exchange for equity or cash. Or, they can find a firm that takes a portion of revenues while assuming care of all back-office and infrastructure support. "The market is laden with choices now," says John Furey, principal of Advisor Growth Strategies, a Phoenix, Ariz., firm that helps advisors make the transition. "The challenge is to sift through the alternatives to find the right fit."

How to decide which path to select? Since there's no one-size-fits-all, we offer the stories of three advisors, each of whom took a different route.

Growing On Their Own

Before the financial upheaval of 2008, Eric Thurber and his five-person team at Morgan Stanley had built a sizeable practice on Silicon Valley's Sand Hill Road, serving venture capitalists and the entrepreneurs they invested in. (He started in 1998 at what was then Solomon Smith Barney). Watching the disaster unfold around him, Thurber knew he didn't want to risk losing everything he had built over a ten-year-period at the firm. So, he and his two partners huddled together and decided it was time to leave. But, they realized, they needed to stay together so they could continue offering the wide range of services - estate planning, investment management and so on - they already provided to clients.

Initially, the partners started investigating five other wirehouses and banks, all of which offered tempting upfront bonuses. But, ultimately, Thurber and his partners decided the wirehouse investment platforms were not what they wanted. In early 2009, they began looking into going independent and calculating what that might involve. Briefly, over two or three weeks, they talked to a handful of RIAs in the area about coming on board. But, in short order, they came to a conclusion: They needed to build their practice on their own terms. With $740 million in assets, they had the resources to do it and do it well. "We realized there might be more risk personally, but with the right platform for our clients, we'd be better off," he says. "I guess we didn't want to be half pregnant."

Over six months, Thurber and his partners threw themselves into the process, spending afternoons, evenings and weekends at one partner's San Francisco home doing research on everything from the best hardware to buy, to office real estate and investment platforms. At the same time, says Thurber, they "leaned on" their custodians, as well as other RIAs, for advice. "We didn't want to reinvent the wheel," he says.

Thirty minutes after officially resigning from their employer in August, they officially launched their firm, Three Bridge Wealth Advisors. "We turned on the switch and we were off," he says.