UHNW Survey on Portfolio Allocation & Strategy feat. Tad Fallows | Aspen Funds
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UHNW Survey on Portfolio Allocation & Strategy feat. Tad Fallows

In today’s episode, we sit down with Tad Fallows, the founder of Long Angle, a community for high net worth and ultra-high net worth investors. Tad shares his inspiring journey from selling his business and coming into significant wealth to creating a supportive network for investors. We delve into the community’s strategies across various asset classes, from real estate to private equity, venture, hedge funds, and more. Tune in to discover the current opportunities his community is exploring and learn how you too can navigate the complex world of investing. Don’t miss this insightful conversation!


View the Long Angle Portfolio Allocation Benchmarking Study https://www.longangle.com/benchmarking22
Connect with Tad Fallows on LinkedIn https://www.linkedin.com/in/fallows/
Connect with Ben Fraser on LinkedIn https://www.linkedin.com/in/benwfraser/


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Ben Fraser: Hello, Future Billionaires! Welcome back to another episode of the podcast. This is a really fun conversation. This is with a gentleman named Tad. He started a community for investors ultra high net worth, as well as high net worth called Long Angle. And uh, he did this because he is sold a business.

He came into a lot of money himself. And how do I deploy this? How do I protect this? How do I, grow? Those were, the questions he was asking and he didn’t have any community around him at that point, so he created one. And he shares a lot of just detail of how his community is allocated into different asset classes.

He talks about his background a little bit, and then we also get into the current environment. Where’s the opportunities right now? What are some of the things that his community are looking at and seeing, not just in real estate, but also in private equity and venture and hedge. And other alternatives.

So be sure to listen to the whole thing. It’s a really great, interesting conversation and appreciate you listening to the podcast. Enjoy it.

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 Welcome back to the Invest Like a Billionaire podcast. I’m your host Ben Fraser, and today we’ve got a really exciting guest, Tad Fallows at Long Angle, and I’ve been looking forward to this interview Tad, so this is gonna be a fun one. And a little bit of background, Tad. So he share his story here in a minute, but he was entrepreneur, bootstrapped a company so software as a service company.

And sold it and had a great problem, which was a big pile of cash. How do I diversify this? How do I create a great portfolio? And long story short, created this really cool community called Long Angle that is focused on high net worth and ultra high net worth, and creating related ecosystem to help people diversify.

Outside of just the stocks and bonds portfolio that most, average high net worth are in. And so officers, a huge alignment here. If you’ve been listening to this show for a while, and invest like a billionaire. Our whole goal with this show is to educate around alternative investments that, know, the billionaire, the billionaires, the, ultra high net worth and wealthy have been using for decades to deploy into, private equity, real estate, venture capital in many other asset classes.

With that long intro, Tad, thanks so much for coming on the show. I’m looking forward to this conversation. 

Tad Fallows: Thank you so much for having me. Very excited to be be on the show. Yeah. 

Ben Fraser: Start at the very beginning, not very beginning, but this whole journey. It unfolded for you as, starting a company and talk, walk us through that process.

What was that like and selling a company and then really the next step from there. 

Tad Fallows: Yeah. It was a fantastic experience, certainly. Formative experience in my professional life. So in my early twenties, I was a couple years out of college and decided that I’d always had an interest in being an entrepreneur.

It seemed like a good time to take a shot on that, wasn’t yet married, didn’t yet have a mortgage, and kids and those sort of obligations. And so thought. If I was ever gonna take a crack at it was a good time. So along with two close friends of mine, one from high school and one from college we saw start a software company.

We are focused on universities and hospitals. It was a pretty niche industry, but we helped them manage

their high-end research equipment, your million dollar microscope or d n sequencer or that sort of thing. As you I think mentioned, we bootstrapped that. So we ran it for about 10 years.

And it’s certain. Bootstrapping has its challenges, especially early on. If you’re growing 50% a year, going from 20,000 a year of revenue to 30,000 a year of revenue, it doesn’t feel all that satisfying and doesn’t leave a lot to pay the bills. But we were fortunate to be able to do that successfully.

So by the end we got it to about 75 employees. We had customers, maybe 20 countries. And so really great experience. At that point we sold it to a strategic acquirer. And, great company has. Good ethics, good values, was a good fit. Almost all of our employees are, still a number of years later, still employed there end up being a good fit.

But on a personal level, as you mentioned, what that meant for kinda my financial life is that we went in the same with my partner Siram, we. Went for a long time paying ourselves almost nothing as we rolled every dollar back into the business. And then on one day we got our deferred compensation effectively for the last 10 years of effort, , and we’re introduced quite abruptly to all these questions o of, high net worth questions like, okay, estate taxes, alternative assets, umbrella insurance, these things that we hadn’t been eased into, but said, okay, you need to figure this out.

and you have one chance to get this right. You may not be fortunate to have another major liquidity event like this, so I wanna be careful with it. We spent a while, talking with various wealth management firms, life insurance, sales people, different people to try and figure out, get advice on this.

And at least for us personally, we found there was a bit of a gap. There’s a lot of good. Free advice out there that’s targeting probably more of the more common problems of okay, setting up five 20 nines and 401ks and that sort of thing. But we can get into questions like estate taxes.

The general advice was, look, the exemption is so high, nobody’s ever gonna hit it, so don’t worry about it. So that was not super useful advice. And then, there’s a number of sources of information that are targeted specifically at the very high or ultra high net worth crowd. . But those are often, coming from somebody with an agenda of some product they wanna sell, whether that’s a wealth manager, whether that’s a trust and a estate attorney who thinks you need a complex trust structure, whether it’s a life insurance salesman who thinks life insurance is, the solution to the problems.

And what we really wanted to do was, Set up a community of friends of ours who are in a similar situation and where nobody was trying to sell each other anything. And that was really the genesis for how my partner Siram and I ended up starting this. And um, initially it was just gonna be a couple dozen of our friends.

That was about two years ago. Over the last two years, that’s grown from maybe 20 of our friends to about 12, 1300 members. Just all kind of word of mouth of one member saying, My co-founder, my director, my brother, would make a good member here. And, that need of looking for advice that was unbiased advice, targeted toward, the high net worth or ultra high net worth crowd was pretty commonly felt.

Yeah. So what year did you sell your company?

What year did we start? Long angle or the software company? The software company. When did you sell it? Started that in 2006. So ran it from 2006 until 2016. And then I spent a few years working at our acquirer after the company was purchased and then started Long angle uh, about two years ago.

Got it. 

Ben Fraser: Yeah. So what you said there is, I think, so important for a lot of people listening because we have people that, talk to us many times in a similar situation, right? They’ve been working for so long for their company and building, this company and that one day, the, I love how you said that you, it’s got all your deferred compensation in one day and it can be a significant number, but then it’s what do you do from there?

There’s not a retail store you go walk to and say, Hey, now I have 20 million, or whatever the number. How do I manage this? How to deploy it well. And generally, those wealth managers and other service providers that you mentioned, they all have an angle, they’re all selling something, right?

Which isn’t necessarily bad, but it puts them in a biased position. And and it’s difficult as you’re trying to explore, what do I truly need? Is this what I need? And it’s not all one size fits all. And what we’ve found is a very similar thing where there’s the, people that live in and work in corporate world and work there for 20, 30, 40 years and they have their 401ks and the 5 29 s and the wealth management system is built well for those types of people because it’s pretty quick cutters, pretty simple.

And then you have the ultra high net worth, like the family offices that can afford to pay their own staff to do, deal flow and underwriting and asset management and all that. Then you kinda have this gap in the middle where it’s what do I do? I don’t, it doesn’t really fit one way or the other.

And so you went and created your own community, which I love. So talk a little bit about what your community looks like and you did this study I’d love to get into here in a minute that shows just a survey that you did with your 

Tad Fallows: participants. Yeah, sure. So to share a little bit about who’s in the community it is primarily people in that gap that you’re talking about of where they have more money than a traditional kind of wealth management target to, but less than the family office range.

So I’d say. The bulk of our membership is between about five and 30 million of investible assets, so assets outside of their primary residence. In our particular case, I think that skews a bit younger than your average, very high net worth group. So the large majority, call it 85% of our members are in their thirties and forties.

That’s not a rule or necessarily intentional on our part. I think just more of a selection thing. And in terms of, their sources of wealth, I would say a number of different areas. A whole lot of entrepreneurs, whether that is tech or non. A lot of people from financial backgrounds, private equity, venture capital, hedge funds a lot of people who work in technology, and then everything from real estate to crypto to corporate executives, professional services et cetera.

And in terms of, how those people interact within the group it’s basically three parts to that. The first is a private online community, so like a PR private version of Reddit or a private version of Facebook. And that is gated in the sense of either stream or I interview every potential member and we validate people are in the qualified client cohort.

But it’s not monetized in any way. We don’t sell data, we don’t have ads. We don’t charge membership fees. It’s just a private discussion community there. And the second thing is live events. That’s a combination of in-person live events for networking and billing camaraderie.

So any of probably your top 30 metro areas. About once a quarter we organize a member dinner There. And then we also have a lot of Zoom based live events, whether that is member led, say, introduction to an asset class. Maybe you have three people who’ve started hedge funds. Take an hour talk about here’s what a hedge fund is.

Here’s the role in your portfolio. Here’s how to underwrite deals. We’ve done similar for crypto, for clean tech, for qualified opportunity zones, for fine art. Then sometimes we’ll bring in est external speakers, whether that’s trust in estates attorneys, people who specialize in raising children with wealth insurance experts, philanthropy experts, et cetera.

And again, that’s totally non monetized. We don’t charge us outside speakers. We don’t charge members. It’s just talks we think would be. And then the third thing that we do there as you mentioned is syndicated deal flow which is one to two deals a month in these areas of alternative assets.

And I’d say, I know we’re a little later in the conversation, we can get into, what we both mean by alternative assets and what they are. But that’s the third piece to it. This benchmarking survey though that you mentioned. I think this one could be interesting in the community, so we can take a few minutes to talk about it.


Ben Fraser: you get there, go ahead. I’d love to hear, just from your perspective as someone who is an entrepreneur, you’re building this business, you’re not really thinking about my 401K portfolio. You’re thinking about how do I grow, how do I make payroll this month? How do I keep building my net worth?

And then all of a sudden you have all this cash. What was your perspective then, were you already turned on or open to alternative assets, and what were you mean by that as basically real estate, private equity, venture capital, hedge funds. Those the big ones.

Or was that kind of a journey for you that, that unfolded and you became more up until as you were having conversations just start there. Cause I’d love to hear that before you, you decided to launch this. 

Tad Fallows: Yeah, that’s a great question. The honest answer there is a little bit funny.

It might sound a little bit contrived in retrospect, but really what happened is, After we sold the company, I had a whole bunch of stuff that I ought to have been doing for my family, but I was too busy, running a company and selling a company. So there’s a long honey-do list there, whether that was things, in terms of being a more full parental partner to my wife, or whether that was things with a house that needed to be fixed or with our portfolio, et cetera.

And for the, the financial ones, I basically, sat down and just made a list of here’s everything that needs to happen. , what’s the Im, I know I’m not doing any of these things right today. What’s the impact of not doing it right? And when I tried to put dollars against them, the impact of not having my portfolio, having put thought into.

Dwarfed everything else. I said, okay, if I can get 1% more per year return here, it doesn’t matter if I’m paying too much for insurance. It doesn’t matter if we’re paying too much for, a house cleaner for our travel, et cetera, if we can actually get a portfolio right, that is where all the money is financially.

So let me just set a process of educating myself there. So it had not really historically been a major interest of mine in terms of personal finances and area. Not that I disliked it, but it just wasn’t, something I did a lot of free time reading about or put a lot of my thought into, know, as you said, my thought was all just into how do we win another customer?

How do we improve the software? How do we meet payroll, hiring people, et cetera. And so then, I really did a lot of intentional looking there. started with, a lot of the resources that probably come up a lot, whether it’s things like a random walk down Wall Street or various, websites that of talk about basic portfolio allocation.

And certainly started with, what, I still have a whole lot of my portfolio in and would advocate anyone in terms of basic index funds. Low cost Vanguard index funds certainly form a critical port component of my portfolio. Alternative assets only really came on. And also I’d say real estate.

For me, for real estate, I’ve gone mostly just. Properties that I directly own, single family real estate much more of that than shares in, in LP shares. But in terms of the other alternative assets, elements of the portfolio, like private equity, venture capital, private credit trading strategies, arbitrage strategies, et cetera that has been, I would say over the last couple of years, Through the long angle community is really where I’ve learned much more about that.

And I would say, they’re all very interesting, so there’s some level of intellectual interest there. But I would say in general, if I were defining the difference between alternative assets and core assets, which for me would probably be stocks, bonds, and real estate as maybe more traditional assets, I think alternative tends to be much less liquid, much less accessible, and there’s much less inform.

So if you look at your public markets like stocks, if you pick 50 random stocks and buy them, you are gonna almost exactly perform the same as an index fund. It really doesn’t matter. You can, I enjoy looking at stocks so I can spend a lot of time nerding out on them and deciding if I think Apple or Microsoft are better.

But I’m not really gonna beat the market by doing that. I’m just gonna entertain myself. But if you’re looking at, private equity funds or hedge funds, if you buy 50 random hedge funds, you’re gonna lose your shirt. They are a place where there really is a difference between knowing what you’re doing and not knowing what you’re doing.

Yeah. So that was probably also part of the reason that I didn’t get into it until I had this community, is I felt like on my own, there’s a couple asset classes, the alternatives, that I probably have enough knowledge to do well in. If I look at, say, angel investing in B2B SaaS, C. Since I worked in that industry for 10 years, I can do a decent job of picking which ones are gonna be successful and not, and probably get good returns.

But if I look at, private cannabis lending, I know nothing about it, and I’m gonna just do terribly If I do that again, if I look at. Private equity, if I look at whiskey aging, I have no idea what de distilleries I should be buying from and whether I want Kentucky or Tennessee Bourbon and that sort of thing.

And so I really shouldn’t be playing there unless I have a way to learn about it. So that was really only for me more recently. 

Ben Fraser: Yeah. No, I love how you described that. Obviously, we’ve talked a lot on our show about one of the big disadvantages of alternative is generally lack of liquidity, right?

And but that can be a positive in some instances, right? Where, emotional selling is a thing, right? If you sell at the bottom you’re gonna lose automatically. And sometimes that force illiquidity can help you ride out downturns. But also the lack of information that you have through the public companies.

That’s a disadvantage, but can also be an advantage too, right? You have the ability to drive more, alpha to your portfolio or outperformance is a lot higher in alternatives because of that information gap. And 

Tad Fallows: yeah I would. I would completely agree. There’s one other one I’d add to that.

It’s, honestly, they are much less regulated. If you’re buying a stock in a public company, you can have 99.5% confidence that those financials are accurate. And if somebody misstates those financials, a CEO E O or A C F O, it’s probably gonna go to jail or they’re gonna lose millions of dollars and.

almost nobody is do, especially in the US markets. Maybe if you go to China, there’s a lot more question marks around it. But if you’re buying a N Y S E listed company, you pretty much know what you’re getting. Whereas, we have looked at, some things, for example, four x trading funds.

We’ve been digging into them and I just ultimately don’t have confidence in some cases. Hey, I’m not a hundred percent sure this is not a fraud. There is too much risk here. And of course, I don’t personally put any money into those ones where I think there’s a fraud risk, but it’s basically that lack of the regulation.

It’s not that there’s zero regulation, but the s e C has much less of a hands-on model in this world of hedge funds and private equity funds than they do in public securities and probably for good reasons. So I think that’s one other important element. But I a hundred percent agree. I think that’s the reason why you can get excess return in the private markets is because they’re less efficient.

If Apple comes out with a new announcement or new earnings report, it’s gonna be half a second before that’s completely baked into the price. There’s no way that you can say, oh, it looks like sales are gonna be up next quarter. They gave good guidance. I’m gonna buy ahead of that. You’re way behind by the time you finish that sentence.

But if you look at these private ones where there is less information and less liquidity, These, as you said, this arbitrary, the alpha can persist for much longer periods of time because it doesn’t just get arbitraged away by, some fidelity manager putting a billion dollars toward. 

Ben Fraser: No, I love that.

Okay, let’s jump into the study here. So you did a study, this was for 2022, and we’re actually gonna put a link in the show notes. Cause this is stuff that I love. This is like my favorite type of reading here. But you did a survey of a lot of your participants or members of your community.

And just ask questions about portfolio, about, sources of wealth and how they’re investing and changes over time. Let’s stick to that a little bit. I think one thing that was, we talked about before you hit the record button here, I think it’s really interesting with your community.

It definitely skews toward, we call me first generation wealth. This is the self-made entrepreneurs, business owners, or even corporate executives that have done very well in their careers. . And so this is a lot of people that are, first time, money so to speak. And so they’re all trying to deal with the same problems of, how do not have entitled kids?

How do you avoid state tax or have a good portfolio. So I just wanna make that point cause I think it’s really valuable. And I think we’ll relate a lot to our audience. That I know is a lot of first generation wealth as well. So let’s dig in here give us some kind of really high points and then for those that want a full study, we will be linking to.

Tad Fallows: Yeah, sure. And one other thing I would say in terms of that background of who’s participating, I think given the fact that they are mostly people, say in their thirties and forties who have created substantial wealth on their own. In most cases, they’re going to be more risk accept, accepting, and optimizing for long-term returns than maybe if somebody had 20 million they inherited.

I think on average that person might be a little bit more risk averse and a little bit more concerned with wealth preservation. I think the person who made that 20 million the first time. Probably has a little bit more willingness to roll the dice and think if I really have to, I can make some money again.

And I don’t want my money just sitting there in bonds for the next 30 years. I want it to be working as hard as I did. So I will say that I wouldn’t pur purport for any of this to be universally applicable portfolio allocation. It’s just, it is what makes sense for this particular subgroup here, but it may not apply to each person’s particular situation.

And in terms of, what we’ve seen, we’ve actually run this study two times. The second time was with a much bigger sample set since our community had grown quite a bit in 2022 versus 2021. And just to give a high level breakdown to what we ask people to do. We gave about 60 different asset classes and say, Hey, in percentage terms, not, the absolute dollars don’t matter, but as a percentage of your overall net worth, can you break it down to a variety of these categories?

And we’d cluster them together of, here’s a few categories that’ll represent equity, whether that’s private equity, whether that’s US stocks, international stocks, et cetera. Then here’s a set that represent real estate. There is directly held real estate limited partner positions and real estate funds and so on.

And then we also asked him, how much debt do you have? So that you’d say, okay. If my net worth is a million dollars, maybe I have 1,000,005 in assets and 500,000 in debt. That sort of thing. The way it broke down is basically about 50% of people’s total holdings were in equity of some sort, whether that was public equity or privately held companies.

And because we have a a lot of entrepreneurs in the group, a bit of that is coming from some people holding a lot of stock in the company that they founded. About a quarter of. Was in real estate equity, so not the gross value of their real estate, but net of any debt they had about it. And about 25% of it was in real estate.

And then the remaining 

Ben Fraser: That would be directly owned real estate not REIT holdings 

Tad Fallows: generally, or the combination of both, whether that’s public REITs, private real estate funds, or direct real estate. I’d say most of it was in direct real estate, but across all those categories, you get a little bit more than a.

And then about 20% was in everything else, cash, bonds, alternatives, et cetera. If we look at the direction of how that changed since 2021, I’d say the big shifts were probably away from public stocks toward real estate and toward private equity or. Holdings in private companies. I think some of that was probably driven by market performance that you had real estate having a great run, a number of private companies doing well, but the overall stock market not going up as much.

And then some of that was intentional rebalancing, I would say, especially historically, if you look at literally today with interest rates having gone up quite a. . I think there is our members, were seeing them be less bullish on real estate. But if you looked at the situation 12 or 18 months ago when you had inflation that was picking up and people had high confidence, was gonna continue to pick up, but interest rates still record low, it became all right, this is a no-brainer.

I’m gonna put into something where I can get 30 year debt, fix it two and a half percent, and I think inflation’s gonna be, 5% plus I can’t lose here. And rebalancing toward real estate and private. A couple of other just interesting things from it and happy to dig into details.

One is that even up to about 50 million in net worth, people’s primary residents continue to be a pretty appreciable amount of their portfolio. I think with those with maybe, on the lower end of the spectrum, like two to 5 million, their primary residents, their equity in it represent about quarter their portfolio.

but even up to those in the 25 to 50 million range, it was still about f 13% of their portfolio was in equity in their primary residents. So I ne I wouldn’t necessarily have expected people to continue to invest more in their primary residents as their net worth went up. But that was certainly something we saw.

Also interesting, but in the opposite direction is only about half of people owed a. and in that half that didn’t, a quarter of them is cuz they didn’t own a home, so these were people who certainly could afford it. They had maybe 10 or 20 million, but they just chose not to. We did some qualitative follow up to understand why, and I think it was a combination of some people saying, Hey look, I can just get better returns.

I have access to, great deals in these different markets and I think those are gonna grow better. And I can just rent a house. Tie up a bunch of my equity in a house. And then other people honestly didn’t want the hassle. They felt Hey, I like being able to just call landlord and tell ’em there’s a leak in the roof and I don’t have to, figure out how to fix the leak in the roof.

And I can certainly, as someone who owns multiple properties, identify with that and think there’s a lot of value in that. So a quarter of people didn’t know at all another quarter or their own home outright with no. 

Ben Fraser: Going back to kinda your core audience of, the the survey here, being a little bit younger, I think that it was also part of the lifestyle, changes over time too.

Kind an older audience, that maybe is more 50, 60 seventies that may, home ownership was a bigger deal, right? That was part of the American dream. This is how you show you’ve arrived. But I think that’s becoming less of a thing. And so I think it’s interesting to see if that continues over time.

If you know the lifestyle. Yeah. And freedom continues to be a big part of 

Tad Fallows: driving that. and we certainly by no means majority, but have some members who identify as nomads. Ask ’em where do you live? And then say no, we’re in particular, I’m in Berlin this month.

I’m maybe in London next month, I sold my company. And those of course tend to be the people without kids. I think, speaking of someone with two little kids, who’d be a lot harder for me to be a nomad, but a lot of the single people just enjoy the fact that they. Follow the cherry blossoms as they’re blooming up Japan or things like that.

And, not be tied down to real estate obligations in any one place. Yeah. And then I guess, a last two points I’d make that I thought were interesting in this benchmarking study, one is that the group was quite light on cash and bonds. And I think that’s probably somewhat a factor of what I mentioned before.

These people generated their own wealth to a significant amount relatively young, and so maybe don’t need the feel the same need to keep a bunch in bonds for sort of risk mitigation. I think some of it is probably also the fact that at least until recently, the yields have been terrible in cash and bonds You say, okay, if a 30 year bond’s gonna earn me 3%, why the heck would I put my money into that?

It just seems like a very foolish thing to do. I think, today, over the last six months as those rates have gone up I would suspect that when we run this again next year, we’re gonna see people pay more money into bonds cuz there’s just much more upside there. And then the other thing was, which also surprised me and goes the opposite of what I was saying about people willing to take risk, is that in general the group is quite light on leverage.

80% of our members had debt that was less than 25% of their net worth. So if we take the person with say, 10 million in net worth, 80% of them would. Less than two and a half million in debt and 12 and a half million assets. Most people are willing to take a lot of risk with what they put their money into, but were not willing to take a lot of risk by levering that bet up.

I will say that I personally actually am very much on the side of having leverage, given the fact they own a lot of direct real estate. I was in that position of saying a couple years ago, Hey, I’m gonna load up on 30 year fixed non callable debt cuz it seems like a good bet and that’s worked out okay

But I would say I represent an outlier there that large majority of people are saying, Hey, I’ve been successful once, the last thing I want to do is, take a hundred percent, go from 10 million to 20 million of assets but risk being wiped out. And I think that’s probably a good call.

But it’s interesting if you look compared to maybe conventional financial advice there, there’s a lot less leverage going. 

Ben Fraser: Yeah, that, that makes sense. And do you think that’s also potentially a function of, I would imagine that in the re holdings lot, most of those either as direct or, through REITs, those have leverage on underlying you.

Would they be counting that leverage against the assets that they’re owning, do you think, as an lp? Or is that 

Tad Fallows: description capital? That is fair. I am just talking about direct debt, so I, it probably is a factor. , one C can take on a a lot of debt, for example, with borrowing against your stock portfolio.

Sure. But I think very few people would recommend going to the limit. If you’ve got, let’s call it 10 million in stock, you could probably find a bank that’s willing to lend you six or 7 million on that. But I think it would be pretty irresponsible to do so because of the market then drops 30%.

You’re gonna get a capital call, you’re gonna have to sell the downturn. It’s gonna be a downward spiral. So I think most people are really only taking debt against their. State, and as you said, if I am a holder in a reit, I’m not gonna count the embedded leverage that’s happening there, at least for the purpose of our study.

So the, I’m sure there is a fair amount of embedded leverage. 

Ben Fraser: Yeah. But that makes sense. Conceptually take a step back as you increase your net worth, right? Obviously you wanna keep growing that and you want to generate higher yields, but there’s also the trade off of wealth preservation. How much are I putting at.

And not only that, but you also bring in the asset protection side of this thing, right? There’s also a lot of other extraneous things that can happen to your wealth, not just investment loss, but other things you wanna be thinking about. And so you become more, risk averse potentially as that, that goes up.

But to your point earlier, it’s, high concentration of entrepreneurs or business owners in this group maybe that’s not accurate representative in this study, but definitely interesting 

Tad Fallows: point. Yeah. And actually, a bit of a tangent, but just your listeners might find this interesting.

There is a lot of discussion within the group around that. Asset protection. Cuz there’s a sense of, hey, again, if I made 10 or 20 million, I’m probably not gonna make such bad investments. That goes down to zero. I think a lot of people have this sense of what are the unknown unknowns? What if I accidentally get in a car accident and hit a school bus full of kids and now you know, I could be wiped out by that.

And of course the moral and ethical problems of that are much bigger than the financial outcome. But still people are worried about that. Or let’s say I own a rental property and somebody has a slip and fall there and, they sue me over that. And I’d say, one thing that’s, there’s basically.

Two tracks you could take to mitigate that risk. One is through a complex ownership structure where, okay, I’m gonna put this property into L C and I’ll put the land into a land trust, and then I’m gonna have this other L C over here, and all my assets I’m putting into irrevocable trust. So I don’t technically own anything and I can’t be sued that way.

And then the other general way is through insurance. And I would say, I have looked at both and our communities looked at. On average, most people really are going toward that second one of insurance. And we have, a few people in our community who are personal injury lawyers. So they’ve seen the other side on this of, hey, if the person who got in a terrible car accident now wants to go suing, what does it actually look like in a lawsuit when I’m trying to recover assets?

And if you can get five to 10 million of umbrella insurance for really not very much money, for a few thousand dollars a year of premium, you can get 10 million of coverage. and there is virtually no lawsuit out there that’s not gonna be covered. Maybe if you are doing something truly fraudulent, truly intentional and unethical, you’re not gonna be covered.

But if you’re talking about pure bad luck accidents, you weren’t trying to hurt people and just something went wrong, that 10 million of coverage is gonna provide you a whole lot of protection. And in some ways, it’s gonna be just much less expensive and simpler than trying to have this really convoluted trust structure that when tax laws change or if it turns out your kids have a problem and shouldn’t be getting access to money, you give up that control.

So I would encourage any of your listeners who don’t have umbrella insurance and are in that kind of asset bracket to take a look at it cuz it’s really much less expensive than you might expect. 

Ben Fraser: No, I love that little nugget. Thanks. Thanks for sharing that. And just to be clear what you’re saying, so there’s, to get the whole route with all that of asset protection, but a lot of people use trust structure as irrevocable trust, which cannot be revoked.

And and are using insurance as a supplement to that. And you’re seeing a lot of people in the group using insurance. And there are, I will say, we are on the personal side looking at different trust structures and there’s some really great benefits on the estate side of things from an estate tax standpoint.

But that’s another whole separate issue. And you gotta go down the rabbit hole in your own situation. But again, this is the whole point of creating this community, right? You’re around the like-minded people in a similar position and instead of, going knocking on the door of, the insurance agent, the trust attorney, and all these people that make a lot of money off of their clients, not say that’s wrong, but it’s always biased, right?

And so you’re gonna hear this is what you need from this person generally versus. Hey, buddy, that’s the most position I’m in. What did you do and how did that work? And are you happy with that? And, you can have a lot of really beneficial information being transacted through this community.

I, I love that.

So let’s keep going down few more points here. And then I would love to get into how do we bring this down to now, right? We built, understand allocation’s important and diversifying alternatives. It’s great including real estate, but, where are the opportunities now?

What is your group seeing and where are, some things to be thinking about given the current environment. 

Tad Fallows: Yeah, I think it’s a fantastic question. I’ll share two things that I’m seeing people have a lot of interest in, and then another one that I particularly or personally think may be interesting, although I will admit that I’m probably in the minority on that.

So in terms of the things that are popular right now, One is I’ve seen a lot more interest in private credit than I had previously. And basically, private credit just means making direct loans. So the same way a bank will loan somebody to buy, mortgage on their house or a car loan, it can be me lending.

either to an individual or more commonly to a company. And I think the reason that’s become more popular lately is a couple of reasons. One, as general interest rates and the Fed has raised interest rates, private credit gets a premium to that. So if the risk-free rate is 0% and you get a 6% premium private credit, then you’re still only gaining 6%.

If the risk free rate goes up to 5% and then you’re getting a 6% premium on that, now you can be earning 11% on your private credit. And I think that tends to be, a lot more interesting as those rates go up. And I think what we have seen is that, a lot of 10 to 12% kind of interest rates for things that are quite well secured.

So they may be. Hard money lending on real estate, where you’re backed by a solid piece of real estate with a pretty good buffer, maybe a 50% loan to value. You might also be getting a personal guarantee from the borrower. That might be a cash flow positive business, things like that. But you can still get double digit interest rate.

So I think people are getting better interest rates. And then also with the general feeling that there could well be a recession. None of us have a crystal ball, so I can’t tell whether the Fed has engineered a soft landing or not. , but I think the odds of a recession in the next 18 months are certainly non-zero.

And so people want to be a little bit higher up the capital stack. And so when you’re making private credit lending, there is risk, but you have that buffer there. You’re not the first lost risk the way you are in an equity position. So that’s one that’s been popular that we’ve seen a number of interesting deals around lately.

Yeah. And I and then a second one is secondary. Sorry, go ahead. 

Ben Fraser: I was gonna say I definitely agree with that. So we’ve I’ve come from a banking background and I think another driver of what’s also create opportunities in the private credit space is, traditional lenders are pulling back, right?

So they’re already generally in the first. Position on the capital stack, but they’re reducing leverage ratios. They’re, we’re done in this bucket. We’re not gonna do any more, multi-family, we’re not gonna do any more X and so it’s being pulled back so it’s create opportunity.

And obviously if you go into recession, there’s potentially more risk in different types of assets, but. If you have good underlying fundamentals, and if you’re lower position on the capital stack, risk of capital loss is much lower. And then I even think too, another area I like that, I think you’re gonna maybe hit on a second, obviously loans, harmony money, loans to real estate, which is a very, developed asset class, but then also a venture debt.

This is a, I’m not personally invested in this, but I’ve talked with other operators and, and sponsors that do this. And I think, especially right now as we sit, the SVB. Which was the biggest funder of venture backed companies for many decades has now evaporated. And there’s this huge vacuum that I think is gonna create a lot of opportunity for backing venture and the deposition, right?

So you’re actually you’re taking debt risks. So you’re first position usually get UCC filing and you’re covered by a lot of times. The assets of the company, but you also can negotiate upside through, equity options and other types of call pro options and get some equity upside by through that.

So I definitely agree. I think there’s some opportunity here. We’re actually look, looking at things in that opportunity set as well and finding some pretty cool things. 

Tad Fallows: Yeah, no, I couldn’t agree more. And we’re not, there’s a limitless number of these private credit ones, so it won’t go into all of them.

But to build on what you said, a couple of examples, I’ve seen a number of things lately where they are lending to software as a service, businesses that have this, highly predictable recurring revenue. So I know, okay, if they’re getting a million dollars a month, I can lend them a few million dollars.

And they’re pretty much guaranteed to get that money in over the next few months based on their recurring contract. There’s other examples, like maybe cannabis lending, something like that where banks have various federal regulations that mean that traditional lenders can’t lend to cannabis.

But these companies can be highly profitable and stable businesses. But something where you as a private lender can take advantage of the fact that you are not regulated by, federal regulators and dealing with those cannabis issues. And so you can get either, as you said, better interest rates, and I agree with you, those equity warrants, we’re seeing a lot more of them.

I think part of that is with rising interest rates, there’s only so high an interest rate can go that a company can still afford. They’re not gonna borrow it 30% and you might run into user law issues and that sort of thing, but if they were previously paying 12%, maybe they’ll still pay 12%. Plus you’re getting options or equity warrants or some sort of upside on top of it and makes it effectively a 15 or a, 18% return.

You know what one other, what I was saying, one is private credit, a second area. that we’ve seen a lot of interest in and done a few deals around lately is secondary. and this basically that can be across a variety of asset classes, but it’s something where you have a fund, call it a real estate fund or maybe a venture capital fund or a private equity fund where I am a limited partner.

So I invested in this five years ago, maybe I’ve gotten 30% of my capital back and it’s been performing well. So I put in a million, it’s now worth 2 million, but I can’t actually get that 2 million. Now I could go to you and say, okay, I’m gonna sell you my possess. That has a net asset value of 2 million, but I’ll sell it to you for 1,000,005 because I need the liquidity.

Maybe I had a setback, maybe I want to retire, maybe I wanna diversify, whatever it is. So we are seeing across a number of different asset classes, like real estate or like venture. The ability to buy these things at, 60 or 70 cents on the dollar. Now of course you have to be clear what the dollar is.

If it’s venture capital and they marked up, every 3D printing and, robotics and, electric bike company up to, to be a unicorn, then you don’t really believe that. , but there’s ones, like very legitimate real estate operators. I don’t think there’s any world where real estate has lost 30 or 40% of its value over the last few months.

But if somebody will sell to me at 70 cents on the dollar, then it’s a great investment. And the other interesting thing about buying those secondary positions is you actually get your money back faster. If you look at, for example, a venture capital fund, if I put my money in today, it could be 10 or 15 years until that fund is fully returned.

Just cuz I’m investing in a brand new startup and I’m waiting for it to go public, in long, in the future. But if I buy into a fund from, 2014, that fund’s already got nine years of lifestyle. So the J curve, that means things are flat for a long time and then spike up, I’m actually buying right before that spike up.

So I might expect to get my money back in five years rather than 15 years. Plus I’m buying a discount. And again, that could go for venture capital or real estate or private equity. So I think that combination of buying at a discount plus getting, being toward the tail end and getting a faster return of capital can make those secondary shares a pretty interesting asset class right now.

Ben Fraser: No I love that. I think those are both really good points. If you think about from an i r perspective, internal rate of returns, time, weight is, so when you’re buying into the share you’re buying into a fund or a syndication or whatever it is. At the initial value that when it was initially offered, but you maybe keep coming in several years later.

Not only that, you’re buying it a discount to what it’s actually, was the initial capital contribution because this shareholder needs the liquidity for whatever reason. So you have this kind of double factor that can drive IRRs much higher. I will, pull word of caution. I’m sure you would agree that, and in the real estate world where I’m in more than the other kind of private equity world, they’re, I’m starting to see some secondary share sales, but they’re on deals that are going really bad, right?

So it’s, they had fully right debt and they didn’t buy an interest rate cap, and maybe they were going into hot but they were way too aggressive on their rent growth. They’re not hitting those seat. Not every secondary offering, is gonna be a good offering. You really have to do, dig in to your point, what is that dollar, what’s the value that you’re actually buying?

So you’re buying it at a discount, but has the value of what you’re buying gotten down greater than that discount? Is an interesting exercise to think about because we are seeing, obvious would say at as a whole real estate. We’re probably seeing five or 10% pullback and price values and depending on which market you’re in, what asset class, nothing significant, but on a deal by deal basis, I know there’s some deals that are gonna be full equity wipes.

And I’m in different communities where I’m starting to see some of these, know, things pop up. That’s not a deal I wanna be in, even if it’s at a 80% discount, right? So just to make a point there, but I agree with you. I think that’s gonna create some huge opportunities as we go.

Maybe a little of a slaughter potential recession where people do need liquidity. They’re selling for legitimate reasons, really good assets or businesses. So let love that idea. 

Tad Fallows: Yeah I would completely agree with what you’re saying about, you need to know what you’re doing. And that was my point.

General with alternative assets, they are not like public sox where you can blind buy blindly. Yeah. Now, that also doesn’t mean though, that I have to be an expert in real estate to invest, I can go to somebody there are funds, and the only purpose of that fund is to buy secondary shares. Again, whether that’s venture or real estate, another asset class.

Or I could go to someone like you who’s a sponsor, and I’m trusting your expertise to help me separate the good from the bad. I can look within my community there and take advantage of that community knowledge, or if I personally have expertise, I can do it. But I agree with you. I think that would go universally for an alternative asset.

Don’t buy it if you don’t either understand it yourself or have access to someone you trust who truly, does under understand it. I was gonna say, one other asset class that I have seen limited appetite in our community for so far, but I’ll just say I personally think could be interesting right now is that venture and especially early stage venture, you’ve seen as probably everybody knows angel and venture investing, the prices, these companies got way marked up over the past several years as public growth markets were going crazy.

But that has ratcheted back pretty significantly. And I think if you look historically, The famous blind when there’s blood on the streets. If you buy at the time when everybody is turned off by an asset class and think it’s riskier, there’s a good chance you’re buying into a good vintage. So I certainly can’t guarantee it, but I think, now is much better time to invest in venture than a year ago or two years ago was, and I think there is a good chance that some of those investments, again, done in moderation could turn out well 

Ben Fraser: And coming from someone who ran the software company for 10 years, so you probably have some insight that maybe the community.

Doesn’t based on, personal experience and the natural thought, me personally not being, a venture, having a venture background, there’s a recession, right? These startup companies, they’re gonna be, hit harder than a more established later stage company. That makes sense. But there’s probably certain business models that are very scalable and, you can ratchet down and if you have to, cut expenses, you can have a recurring revenue and just ride that through.

But yeah, I think you’re right, the contrary and, investment can be turned out very well. 

Tad Fallows: Yeah, and I mean I think if you look historically, some of the best companies were started in downturns and that’s probably a variety of things. In some cases, talented people just got fired.

If you look at Amazon and Google and Facebook and others, they’re firing people left and right. Those engineers are gonna find something to do and a lot of them are gonna go start. Companies think some of it is you’re just buying in at a better. Every investment is a great deal at one price and a terrible deal another, so if you can get a $2 million evaluation on Angel Company versus a 20 million valuation, you’re gonna get far better returns on that first scenario.

Then I think also just sometimes companies get that dna n of if I’m started, my software company starting 2006, so really our formative years where in oh 7, 0 8. And we just, part of the reason we bootstrapped it is there was no venture funding that we haven’t had in 2008. So we had no choice but to build a cash flow positive business model.

We couldn’t be throwing big parties and having growth with no revenue. And you of get that embedded in the DNA n of these companies of, Hey, we have to solve a problem that a customer is willing to pay for, even when that customer is hemorrhaging money. And even when it’s tough times, we need to still grow through that and we need to be personally profitable.

So I think that can be another thing that kind of works to your favor in some of that recessionary invest. 

Ben Fraser: Awesome. Tha this has been super, super interesting. Just for the benefit of our listeners that we wanna get plugged into your community and just get in the mix. What’s just clarify too, is this a paid membership?

Is it not paid? And what does it take to be part of this community? 

Tad Fallows: Yeah, sure. No, it is not paid. There’s basically three parts, as I mentioned to what we do. There’s the private online community and the live events. Neither of those are monetized in any way. No selling data, no advertising, no membership fees anything like that.

The third piece is syndicated deal flow in these alternative asset worlds, and there’s a small management fee and carry on those, and that is how we cover the cost of the community. There’s certainly no requirement or expectation to participate. You can be in the discussion groups and come to live events, et cetera, and never do the deals, and that’s perfectly fine.

But that is how we run the community financially. And we are we’re about 1200 members now. It is something I would’ve expected when we started that a few hundred people would’ve been the ideal size, and we’d cap the membership. We have found that the community keeps getting richer as we grow.

So we’re not looking to recreate LinkedIn here. There will be some limit. I don’t want a million members, but as of right now, found a thousand people is much better than 500 and I think 2000 would better than 1000. So we are very interested in uh, if. Your listeners think that it might be a good fit for them, we’ll be more than happy to speak with them.

And the process would just be to go to our website long angle.com. And you can submit the form there that just asks you to, give a couple facts about yourself. And then we will every potential member has a discussion with either me or my partner Siram. But we can turn around those discussions pretty quickly if Somebo, if a, your listeners were interested in getting involved.

Ben Fraser: Oh, cool. Very cool. So your partner in Lionels was your part business partner in the soccer company. 

Tad Fallows: That’s right. We we watched cartoons together growing up, I remember watching a lot of the Smurfs on his couch there, . And we tried to start a few companies during high school and college.

So yeah, we go way back, which is pretty neat to have somebody who, you’ve known for the last 25 or 30 years and still working with closely. That’s awesome. 

Ben Fraser: That’s so cool. Thank you so much for coming on. This has been super, super informative and I do hope you know, some of brothers friends will reach out and jump in the community and thanks so much for coming on.


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