In this interview we hear from attorney and passive investor Dan Schulte. Schulte was the former general counsel for a multi billion-dollar money manager and has invested significantly in private venture capital and other alternatives. In our passive investor spotlight series, we talk with individuals who have had success investing passively in alternative investments. Throughout this series, we’ll dive into what’s worked for them, what hasn’t, how they vet sponsors and manage risk.
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Passive Investor Spotlight: Hitting it Big Through Venture Investing with Dan Schulte
We have a very fun guest that we’re excited to introduce here, Dan Schulte. Do you want to give a little bit of Dan’s background first?
The whole goal here is looking at how the ultra-wealthy invest. Invest like a billionaire and emulating the best strategies, tools, resources and tactics that the ultra-wealthy are using to grow and protect their wealth and making those applicable to the average investors or a retail investor, an individual. We found that there’s a very big gap with the way that the ultra-wealthy investor versus the average investor. That gap is generally alternative investing, which includes real estate, private equity and hedge funds as well.
Most people think of investing in stocks and bonds when the ultra-wealthy think of investing is they have an allocation to stocks and bonds but heavily into alternatives, which is primarily real estate, private equity and hedge funds. We want to explore and educate in these areas.
One of the cool segments that we do in the show is called Our Passive Investor Spotlight Series. That’s what we’re doing. This is our first one. What we want to do is talk with individuals who have had success in passively investing, alternative investments and to learn from them. What’s worked and not worked for them? How do they hear about these investments? How do they look at their allocations and risk? That’s what we want to do with this interview. I ask these questions that we’re all curious about. This is not a thing that you have to do alone. We can learn from each other and learn from the failures as well as the successes of other investors.
We learn a lot from failures too. We have Dan and he is an accountant and lawyer. He worked for a large accounting firm for many years as well as an attorney for a while then the last assignment you did before coming to Aspen was Waddell & Reed, which is a $150 billion money manager and you were the general counsel.
You know a lot about investments, law and a lot of things.
The caution and the distrust I have in the public markets. That might be a too strong statement but that’s what led me to passive investing. Seeing what I saw as general counsel, the regulators tried to pin the flash crash back on us in 2010. Through that investigation, you see a lot of the things that go on in the market that other people don’t realize that, in turn, make you a little bit more cautious about investing. You’ve got the fast traders and everything else. Even though it’s supposedly efficient, I don’t feel less comfortable putting all of my eggs in that basket.
That will begin your journey to look at alternatives.
Even more bizarre from an insider’s perspective, what brought me back to alternatives is that we had a few mutual funds at Waddell & Reed that got to be so big that we started investing in alternatives inside a mutual fund. You can think about that headache but when you see those returns and those multiples, that’s what draws you back to the power of alternatives.
Inside your mutual fund, you started doing all this and you realize that they were superior and had some superior characteristics so you said, “Let me look for more of this”
As part of my personal journey, in terms of looking to invest more in those, that became a problem because in terms of my job at Waddell & Reed, I was very limited on what I could invest in. That helped me decide to move on out of that public realm and go into more of a private investing.
Stocks and bonds and you have no bonds, pretty much stocks and alts. What’s your allocation percentage?
If I look at my total portfolio, I am 20% stocks and 80% alts.
Super heavy alts. You’ve been doing this for how many years?
10 to 15 years. Smaller when I was at Waddell & Reed then as I moved out, my percentage has grown bigger. I would be in a higher percentage if it was me personally but I would move to allocation a little bit more to the public market just in case from an estate planning standpoint, something happens to me then my wife has at least a liquid basket.
Are your alts mostly heavy in real estate?
No, in the last couple of years, I’m more heavy in real estate but more private equity venture tech. It’s gone probably from 0% of real estate to 20% to 25%.
All your alts, they’re passive. You’re not an operator. You’re not running the business
The one investment that I had that we were the operator was a restaurant business, which ended not so well. I’m more in straight to passive business now.
I want to take a quick step back because you were a general counsel at Waddell & Reed for fifteen years.
Correct, from IPO to when I left in ‘14.
There’s a long stint there of Corporate America and you alluded to it seemed like but it’s a light bulb moment with alts and the realization that there’s some real ability to generate passive income and stability in your investing portfolio. Did that allow you to step away from corporate? Was that the driving mechanism? What was that whole process like when you decided to step away and then you started a private equity investment firm?
That was the impetus for me to finally say, number one, I can go do this passive investing and eventually quit my day job. In order to do that, I want to do it while I’m 50 as opposed to when I’m 70. That was the final push seeing the opportunity and being able to make those investments.
How do you find your investment opportunity? How have you picked? How many alternative investments are you in? What’s the number?
I’m at probably 100 right now.
Would you recommend that?
I’m a little bit different. I do everything in buckets in terms of I have my tax-deferred buckets, my taxable buckets and certain trusts that are set up. It’s not as concentrated as it seems but a few years ago, I started to whittle down what my investments are.
Wouldn’t you recommend someone else to do 100?
No, it turned out that way. With COVID, normally, you have 5 or 6 exits a year that whittled that down so that’s a little bit behind but I wouldn’t recommend that. In my perfect world, I would be at the most twenty.
Can you talk a little bit about your allocation strategy? You mentioned the bucket. How do you look at when you’re evaluating an investment? What are the factors that you’re using to determine it? Is this going to be a fit for me? Where does this fit and what are your primary objectives? Are you looking for income, more growth or do you have a balance there?If it doesn't feel right, walk away. You're going to miss opportunities, but maybe you get the next deal. Click To Tweet
First off, investment is something that has to interest me. Some of my bigger breaks is, let’s say, a biotech opportunity. Number one, if I don’t understand it and two, if it doesn’t say, “That’s something I want to be involved in. I’ll pass.” In terms of how I think about it, I generally think about I want a certain percentage of my investments that are in a taxable account to generate income because that’s something I want to supplement whatever else I’m doing. If I look at something and I think it’s tech, real estate is in that taxable bucket.
If it’s something that’s a venture private equity or a tech investment, I’ll put that in a tax-deferred account because then if it is a home run, I could put that tax-deferred dollar to work again. The only caveat there is you have to be a little bit careful because if that goes to zero, you don’t get to use that tax loss in a tax-deferred account. It’s a hard dynamic to say, “Is this investment going to succeed? Where do I put it?” If it doesn’t meet that test, you shouldn’t be in there at all. It’s a balancing of what do I have now in taxable versus non-taxable.
Most guys would be thinking, “How do you find these deals?” Number two, they would be thinking, “How do you evaluate these things?” Do you have an edge because you’re an attorney, you’re super smart and no normal people can’t do this? How do you find them and how do you get comfortable putting them right in a check?
When I first started, it was more of word of mouth. CPAs or attorneys would refer deals to you.
Were they in something you would ask about it that they’d say there are something?
People know we’re looking for deals so you get phone calls. What happened is that some of those were more hit and miss because, to your point, it’s hard to do the due diligence by yourself. It’s hard to dig down if there’s not an institutional-looking and evaluating the investment. What I did is morphed a little bit. I found 3, 4 or 5 private equity venture capital funds that I invested in. What they do is they allow you to do co-investment opportunities where if they’re doing an investment, you piggyback or you do a sidecar. The thing I like about that is number one, you get a lot more deal flow because they see deals all day long.
You can look over their shoulder as they’re doing the due diligence and be confident that you don’t have to ask all the questions.
Usually, they’re not offering the sidecar unless they’re investing so they’re investing my money in the fund and then they’re saying, “We’re doing this investment. We think it’s a great deal. Do you want to invest additional money outside the fund?” That way, you know it’s passed their test. They’re going to invest in it so you have some comfort plus you know they’re people who’ve been through everything and they’ve seen and done 1,000 deals.
Did you start doing this while you’re still working your corporate job?
This was a little bit after. Immediately after I left my corporate job, I did a number of deals on my own with some degree of success but figured out I wasn’t seeing enough deal flow and not having the benefit of somebody else looking at it as well then I gravitated more to the fund investment with the sidecars. I still get calls about other deals but now as you do this, learn, fail and succeed, you have a better sense of what to look for.
You’re not doing the due diligence that a venture capital firm would do. What are the key things that you’re looking for that flip the switch where you’re ready to write a check?
If I separate that between non-taxable and taxable, for taxable, I like the fact if they’re paying a pref or they’re paying some type of income because cash doesn’t lie. Never go broke taking a profit. On the non-taxable side, as you do enough deals, you get comfortable like, “Do they have monthly recurring revenue? Do they have a product that’s protectable? Do they have something they can patent? What’s their growth strategy look like?” You get a feel but at the end of the day, it’s about the people. Do you understand the operator and what they’re doing? The good thing is, if you do this long enough, you start to see some of the same operators because they’ll do an exit and then they’ll go to a different company.
That’s when you know like, “I know what I’m going to get.” You’re betting on the jockey versus the horse and the ride.
That’s not to say that sometimes you don’t take a zero. That’s not what you want to do. If you do enough deals, ten times return wipes out to zero. The hard part is you tend to focus on the ones that didn’t perform so well. The only regret you have is usually on something does well is you regret not putting money in but you can’t turn that clock back.
What’s interesting is a lot of investors that we talk with at Aspen in the journey of passive investing in growing in offices, most of them start in real estate then gravitate more to the private equity venture capital and some even have hedge funds and beyond. You seem started with the venture capital, private equity side of it.
That’s more because of my background. When I was at the accounting firm, my area was entrepreneurial services so I saw the operators. I didn’t have a real estate background then when I went to a law firm, I did IPOs for 4 or 5 years. That was more my orientation and what I understood. As you start to look for passive income and cashflow, you tend to gravitate back towards real estate. I went backward only because that’s what I was familiar with.
When you were looking at those opportunities, were you looking at an early stage, growth stage, late stage when you’re investing in these funds whilst the sidecars?
When I first started out, it’s more of a seed fund because that’s the people you get introduced to. As you go into the fund standpoint, you start seeing the sidecar opportunities. You go up the food chain because they’re not bringing you in until it’s a series A or a convertible so I’ve gravitated more now away from seed and more to later rounds because you have a better certainty of what the concept is.
Seed is risky.
It’s super risky but returns are great too.
Can you talk about what did you see in that? You’ve been doing this for a while now. What was the outcome from some of those earlier seed-stage funds?
Surprisingly, the seed investments have been some of my best performers. I can’t say I’ve cashed any of those out yet but I call on the way to work. Coincidentally, one of my seed investments that we thought was going to go to zero in COVID has now been valued at ten times when I invest it. It’s the ones that you thought were going to be winners that ended up being zeros but from a seed perspective, I only had one that’s gone to zero and that was a COVID casualty. Everything else, I’ve been lucky. Interestingly enough, it’s to some of the later rounds that I invested in that unexpectedly had the plug pulled on in terms of they didn’t see a runway and they brought an institutional investor who didn’t like where it was going. At that point, they control the board or do what they want.
What’s the best deal you ever did?
I always want to say that the best deal is the deal I haven’t done yet but the best deal was a local deal through one of the funds and it was a sidecar investment. I got to double down on both my fund investment and sidecar and it ended up being, believe it or not, a 100% IRR return. It was a huge boom in a short timeframe.
In what sector? Was it tech?
It was automotive but it was tech. To put that aside, we’re in the middle of investment now in the mobile home space that’s being recapped. That’s going to be up five times as well. We begin the preferred the whole time, we’re doing a recap, take two times the money out and then we’ll get a second bite of the apple in a year from 2021. That might end up being from a volume perspective, my best exit.
Could you explain what a sidecar investment is?
It’s piggyback. It’s basically saying a fund is doing investment and companies do a $10 million in new investment round where the fund might come in and say, “We only want to do seven of that but can we offer that other three directly to our fund investors?”
You invest in the same terms alongside the institution and supplement their realm.Real estate is nice when you can get a pref, a return, figure out how to get income, and also get growth. Click To Tweet
To me, when you see those, it dings because you know something good is going on there because number one, the fund is done the diligence. It’s a solid company usually in a later round plus, if you’re that fund manager, you don’t want to put your investors at risk unless they think it’s a good deal.
Is it going to lower the capital stack than the fund generally?
They don’t want to blow up their investors by bringing them into a side deal that’s on top of their fund deal. You have to have a better sense of comfort that they’re giving you. This is a solid opportunity to pay attention to.
What about the worst deals you’ve got?
The worst deals I’ve done started out as a passive investment and then we ended up being the operator and that was a restaurant. In general, I’ve had tech deals where I was a seed guy, it’s a solid investment, you made a bad judgment on the operator and that was in the aviation space.
I would say you’re not a tech guy. What the heck are you doing in that?
To me, that’s why from that experience is where I pivoted to, “I’m going to go invest on the tech side with the tech fund guys. If I can do a sidecar on top of that.
Besides that, you might be a lead investor. It’s going to be something you really know. You know the space. You get your head fully around it, the operators and the risks and everything else.
One of my newest ones is we’ve been in the wine business for few years. It’s the guys that I’ve invested with in the past. Their family is starting an Irish whiskey distillery which if you understand production, distribution and branding, you get the space they’re in. I was comfortable doing that because I know all the hoops they have to jump through. If they gave me a status update, I’m going to know right away what the issues are.
Can you talk a little bit about how you vet a sponsor or an operator especially in a venture deal?
That’s something that I think a lot of our readers and investors in general feel like, “What do I look at? What do I look for? How do I find the ones that are going to be the winners?” What do you look at and what have you seen that’s worked? Things maybe you thought originally would be good indicators but ended up not be.
Everyone always has a good story. People are good at telling the story. What I found to be most indicative of success is if that’s their 2nd or 3rd deal in most tech guys. They build something up, they exit in the middle and somehow, in that exit, they come up with a new idea and then they go start something new. I feel comfortable about those guys. If it’s somebody new, you call the attorneys, the accountants, everybody you know to try to figure out. What is this guy has done? Do I trust him? You have a gut feeling but in terms of someone who’s a brand-new operator in a brand-new space or has never done this before, you don’t. I’ve been lucky with a couple but most of them, you become a little more jaded as you do it and you start making that additional call. If it doesn’t feel right, you’ll walk away and you’re going to miss opportunities but you get the guy’s next deal.
How do you work with financial advisors? It sounds like you don’t.
I don’t a lot. As I went through this and I got to the point of estate planning, I do have a good financial advisor now on the public side but it’s more of a discretionary, “Here’s your bucket in the public market.” In terms of the passive stuff, I don’t use financial advisors at all. As you start to do investments and there are exits, you tend to get to know the other investors. That’s a whole other network that you can rely on them in terms of, “We were investors in this deal. You were in this space and I’ve got this new deal. Take a look at it for me.” You figure out who to call and who your subject matter expert is. A lot of it’s based on investing with them in the past.
Describe your inner circle when it comes to protecting and growing your wealth like advisors, attorneys, accountants, mastermind groups? Who do you rely on?
You always have to have a great accountant. I have a great accountant who helps me structure in terms of, “Where do you want to get to? How do you structure this? Where should this investment live based on what it is that you’re trying to accomplish?”
Primarily, which bucket, the taxable and non-taxable?
Can you develop a little bit more? How do you define a great accountant?
I define a great account as not someone who’s keeping score at the end of the day and doing the tax return. It’s someone who I can call on a random question and say, “Here’s what I’m looking at. Here are the attributes of this investment.” If that’s a success or a failure, how’s that going to run through my tax return? What else should I be thinking about in terms of structure?
It’s somewhere at a strategic level than just attaining your goal.
It’s a value add. “Here’s what I’m looking at and if it goes wrong, how do those losses affect what else I’ve got going on?” Part of what I go through is trying to figure how do I make my taxable income as low as possible. You’re never looking to realize losses but in the private equity curve, if you can use those losses along the way to offset other gains until that turns, the whole hockey stick approach in terms of how a PE value runs across growth, that’s the main thing. How’s this going to affect me? Is it worth it at the end of the day?
Who else is in your circle?
I’ve got a bunch of guys from previous lives. There’s a bunch of senior execs that all left Waddell & Reed at the same time. We have all gone on and done our own thing. You could call that an unofficial mastermind group because they were across different sectors. They were in investments, distribution, sales and accounting.
Do you get together on a regular basis and share ideas or thoughts?
We tried that but we’re not that structured. We have random phone calls and late at night on weekends, whatever the case may be. That’s a lot of the deal flow. They’re in their own markets and things that they to look at. If they see a deal that they like, they’ll pick up the phone and say, “Do you want to be in this deal? Here’s what I’ve done.”
Are there advisors and attorneys?
Attorneys not so much because I can wear that hat. Mainly, people I’ve invested with and people I’ve worked with in the past are accountants and then on the public side, I do have a good financial advisor. You get help wherever you think you needed. You even pick up the phone and seeing someone who’s involved in the investment or another investor. They’re also a good person to pick because people like to talk to each other. That’s one of the things I’ve learned. I’ve always tried to do things on my own but the more you do this, the more you realize people do want to help you because they figure out it comes back to them in terms of other advice or other deals that they might say.
Let’s hit the attorney thing a little more. If you’re talking to one of your friends who’s not an attorney, how should they use attorneys?
From an investment standpoint, it’s mainly in structure. If it’s an LLC, what’s the operating agreement say? Does the waterfall work in the documents the way that the proponent of the investment is describing it? That’s the main thing. You don’t get the investment side from them. It’s more of structure and do the documents match with what the pitch book says. How is it going to work? At the end of the day, what’s my exit going to look like? Along the way, does the waterfall accomplish what they say it’s going to accomplish?Real estate is not necessarily getting trapped into space. Real estate never goes to zero. Click To Tweet
Many of the legal docs that I’ve written, I’ve signed and I’ve been a part of are all saying, “Here are all the reasons why you’re a complete idiot if you invest.” It’s all super cited towards the sponsor and we shouldn’t be scared off by that stuff because the sponsors are trying to stamp legal action. They’re just trying to stay legally stamped.
If you start to do deals, you see enough deals that you don’t do where you see the documents. The documents started from at least from a private equity tech standpoint. It all started to become uniform. The convertible notes all look the same. You can get a sense of other than the percentage difference in a discount or whatever. After a while, you start to say, “Everyone is using the same form.” It’s more from seed investment, early-stage investment, making sure someone who’s not using the same tech attorney everybody else is using and those documents say what they’re supposed to say, at least what your understanding is.
Now, it’s the gold. What’s coming? How are you positioning for the future? How are you allocating? Where are you focusing on? Where do you think the big wins are that you’re positioning your portfolio for the future?
Part of it is when I became involved with Aspen Funds in terms of looking for income and growth. I’m high right now in real estate as an investment thesis other than retail whether it’s industrial, it’s service-related in terms of being able to provide the space for someone who’s doing a service or basic passive income whether it’s a multifamily or single-family.
All real estate sectors you’re pretty much full of the shot including commercial and residential.
Especially residential. Retail and office are still a little bit not sure of but everything else, industrial, cold storage, all those industries are booming.
You’re sticking the fork end to capture that and high on Aspen.
In all real estate. A lot of that is where I’ve come into, where I’m at in terms of as I get older and I start thinking, “If I get hit by a bus tomorrow, we’re in about twelve years of exit. They got to ride the wave.” Real estate is nice where you can get a pref, a return, you can figure out how to get income but you can also get growth. That’s not a long-term prospect. It’s not a ten-year thing. It might be a five-year deal.
How do you invest across these asset classes within real estate? You invest in single operators, single asset class, you invest into a fund and multiple asset classes. How do you do that?
I’ve traditionally done single operators or a single asset. Whether it’s a private REIT focusing on industrial, Aspen Funds focusing on residential, mobile home space, which is a single operator or storage, I haven’t gone in but again, along the same spectrum, at some point, if you run out of opportunities from a single operator then you start to look at the fund and then that generates more additional opportunities. It’s the same timeline of how I started on a venture, the individual wants to lead me to a bigger assimilator of products. That’s something that Aspen is looking at. It makes sense because it allows you to do bigger deals. Many people are chasing so many deals that you have to have the opportunity from a bigger assimilator to go out and find those properties.
We are seeing overpriced assets. It’s easy to find overpriced real estate and bad investments even though the sector might do well. There are a lot of nuggets and golden opportunities as well.
It’s just harder to find those from a single operator as opposed to someone who’s looking across the entire landscape like we’re trying to do.
Give us a couple of sentences on the thesis. Why real estate? What’s in your thinking?
For me, valuations are always going to be good so you don’t have to worry about that. Income generation is good. A lot of tax benefits whether it’s depreciation or being able to defer gains outside of it.
That’s timeless. Why real estate now?
I see the opportunities there in terms of residential is going to be a hot market for a number of years. COVID has put us in the spot where everybody wants single-day delivery of goods so industrial, all of a sudden, is hot most from logistically and cold storage. To me, it’s the right place at the right time. We’re going to see a while before valuations come down.
We did a survey with our audience and ask about challenges in investing alternatives. One of the big ones was, how do I find deals? What you said was you think about it from an active investor trying to find deal flow but as a passive investor, it’s also a challenge of having a good deal flow for finding the best opportunities. When you say when you’re getting started, investing at a fund level or in a not as operator-specific asset class but going one step back and investing at a fund, you get into the network, space and world and by association, you start getting more deal flow. That’s interesting to me because a lot of people sit on the sidelines waiting for the perfect deal to show up on their desks.
A lot of it is there are a lot of funds that go out of their way to say, “We’ll provide co-investment opportunities.” That’s the best way to start to figure that out as opposed to someone who might ever do that. You don’t get into that because they’re very protective about their book and about their deal flow but someone who is very successful is not going to worry about that because there’s going to be enough deal flow and enough opportunity to bring everybody in. It’s almost looking for that right fund group to start that allows you to do co-investment opportunities.
The co-investment opportunities, you’ve got to have a pretty big checkbook generally.
The one I saw is only a $50,000 investment.
Is it a co-investment as a piggyback?
You’re starting to see those minimums come down. You still see some that are $500,000 but a lot of them, depending on what round you are in or what stage, you can get in at a smaller amount.
Here’s the big question. You’ve clearly been doing this a long time. You’re heavily in alts. Have you beat the guys that are in the market because it’s pretty hard to beat the stock market. One, has it worked?
I’ve never done the math and said, “If I had all of it in the market, here’s what it would look like,” but from a pure net worth standpoint, I know it’s working because I’m pretty religious about checking everything every month, doing the tally and it ticks up. I feel very good about it. Sometimes, when you’re in the middle of deals going on and doing taxes, you might want to say, “Why didn’t I throw it all in the market and go to Mexico?” The bottom line is it’s also fun to be involved.
You said you’re having a blast. You’re networking with people that you enjoy, you’re doing the deals you like, you’re working with entrepreneurs and sponsors you like.
It has been successful because I know what my number is and it goes up every month. I feel very good about that. As I get older, you take more and more off the table and you do more of an allocation to the public with bonds because you’re worried about what might happen. I’m always having a good balance between the two. I would never go below 50/50 in terms of alts because there’s always so much more opportunity.
When you are allocating across different strategies, some of these moonshots, you don’t want that to be all of your investment then you have these more plain vanilla income approaches. You have some fun investments like restaurants, a vineyard and other things. Are you having a fun bucket if it’s the right opportunity? Do you limit exposure to more moonshot opportunities?
I started to limit the moonshot opportunities to a smaller dollar amount. At that point, if it is a moonshot, you might always regret, “Why did I put $50 and not $100?” If it’s going to be a moonshot twenty-time return then it doesn’t matter. You still accomplish what you wanted to accomplish. What I do is I’m always reallocating but a lot of it, I’ll look at an opportunity. If I know I have an exit that’s relatively close to when they want the investment then I might be more aggressive about that. I carry high cash balances for a lot of people and I have a baseline that I won’t go below but above that. I’m still pretty aggressive.
As you’ve been doing this for many years investing in these investments, do you feel there’s any challenge of overcoming hindsight bias? What works for me at this point may not work for me in the future even as your risk tolerance goes down as you get older. How do you combat taking the pen to paper and making sure you’re not relying on the tech side?
A lot of times, the mobile home space is a good example in terms of you have to know when your run is over because you have an opportunity to recap and roll forward but at some point, you have to say, “I think that space is fully priced so I need to move on.” In the tech space, it’s harder because you don’t know what the next big thing is. Whoever would though there’s Zoom? That is where you have to rely more on the tech side, the fund guys in terms of where are we going. That’s what I like about real estate. It might not go up in a straight line. It’s always going up. They’re not making any more of it. That’s the other thing that’s pulling me towards real estate. It’s not necessarily getting trapped into space. Maybe the storage space gets overplayed but in terms of residential or industrial, that market’s good.At the end of the day, if something gets a twenty times return, that's your best investment. Click To Tweet
Real estate never goes to zero. That would mean 1% of your capital per deal and even twenty deals, you’re 5% so you’re very diversified.
Sometimes you think, “Why am I wasting my money?” I’ve started to become more diversified in deals as I shrink them and I know what to look for.
Would you do it differently now that you’re looking back? Was that process of looking at a lot of opportunities and investing a lot of things got you to where you’re at, you know what you like, what you are comfortable with and then you pair down from there? Would you do it differently where I might pick five operators I like or I can invest more with them? Was that shotgun approach helpful in that process?
The shotgun approach was helpful as I earned what I wanted and what worked and what didn’t work. I’ve gotten to the point where I’ve got a couple of fund sponsors that I invest with that have done very well but that doesn’t mean fund four is going to do as well as fund three. I’ve hit my max in terms of, “I might do fund four but I’m only going to do X.” As opposed to the fund sponsor always wants you to put in twice what you did the fund before or three times the amount. I’m more of finding people who’ve had a good performance, allocating to them, shrinking the number of total investments and doing bigger deals with fund sponsors but not over-allocating to them.
What was your favorite investment from a pure enjoyment standpoint or an investment return?
I’m having fun at Aspen so that’s one of my fun. It’s weird because the winery investment, you would never go down as your best investment but that’s the one we have the most fun with. At the end of the day, if you get twenty times return, that’s your best investment for a while.
Last question. How would you distill your success into 1 or 2 key points? What’s been the most successful or the thing that has helped you be the most successful in passive investing? What are the few keys that you always hold to the tenants that have brought you to where you’re at in investing?
What I’ve discovered along the way is that having a return, even if it’s $1. The fact that there’s cash coming back, that’s something that helps you sleep at night. Other than that, it’s terms of being diversified, being in something that doesn’t go to zero, being in something that you know there’s growth and structure-wise. Being able to structure everything that I control my own destiny as opposed to I don’t have a fiduciary. I’m the fiduciary on my tax-deferred accounts. You know the structure that you build that picks the investments you want the way you want to do.
Thanks for joining. Tune in next time for the next episode. We’re glad you’re along the journey here with us.
About Dan Schulte
Mr. Schulte was formerly a Managing Partner at B12 Capital Partners, a private equity firm that focused on the acquisition of mid-market manufacturing and distribution companies in the Midwest. While at B12 he formed and operated B12 Real Estate Advisors, an entity that provided financing for single tenant sale-leaseback transactions. In that capacity, he also formed and managed Triple Crown Realty Trust, a real estate acquisition and development company that will convert to a REIT in 2019.
He remains on the Board of Triple Crown as an independent director and Chairman of the Board. Previously, he spent 15 years as the Senior Vice President and General Counsel of Waddell & Reed Financial, Inc., a NYSE-Listed asset management firm with $135 billion in assets under management located in Overland Park, Kansas.
In that role, he advised the management, officers and directors of Waddell on all legal, compliance and corporate governance matters, including all legal issues in acquisitions, strategic investments, divestitures and regulatory compliance. As a result, he has extensive experience in the raising of capital through the public and private offerings of securities. Dan also manages several family-owned investment entities that have direct investments in private operating companies.
He is also a founding and managing member of Market Vineyards, an award-winning boutique winery located in Richland, Washington. Prior to his roles at Waddell, Daniel was engaged in the private practice of law as a transactional business and securities lawyer with the Klenda Mitchell law firm in Wichita, Kansas. He also spent two years as a tax accountant with Ernst & Young, LLP in Kansas City, Missouri. Dan is a graduate of the University of Kansas School of Law and Bethel College where he majored in Accounting and Business Administration.