THE BEST THERAPY $10 MILLION CAN BUY
JULY 12, 2004The Best Therapy $ 10 Million Can BuyInside TIGER 21,an exclusive investment club where the seriously rich trade financial tips-and life lessons.BY ANDY SERWERMICHAEL SONNENFELDTis in for a tongue-lashing. It won’t be abusive-there’ll even be a few laughs mixed in-but a group of his peers is about to dis-sect and deconstruct the most intimate details of his investment portfolio.Inevitably the discussion will touch on his personal life too. Sonnenfeldt headsa little-known organization called TIGER 21, a group of seriously wealthyindividuals who aim to enrich themselves by disclosing their portfolios and theirpersonal lives, everything, to one another. Just a few years old, TIGER 21 is partinvestment club, part group therapy, and-in this particular part of the program,called the portfolio defense-part cross-examination. The folks at TIGER 21 liketo describe the process as “carefrontational.”The group’s daylong gatherings are private and confidential, but recentlyFORTUNE was invited to attend one on the conditionthat we keep much of what occurred off the record.Still, we can tell you enough about the goings-on togive you a representative glimpse into this singularorganization. Think Dr. Phil meets Morgan Stanley.Only more probing.Sonnenfeldt begins his portfolio defense by pass-ing around his financial vitals-an 11-page printoutof his net worth-to the nine members of the grouppresent. It’s an impressive bunch of mostly middle-aged males. There’s Carl Wolf, who founded theAlpine Lace brand of deli cheeses and meats. Andthe lone woman in the group, a former mathematicianwho works for high-net-worth clients at a brand-name investment bank. And another fellow whomade it big with his own software company. As thegroup pores through Sonnenfeldt’s portfolio, itquickly becomes clear that these folks aren’t shyabout asking pointed questions. “Why is this socomplicated?” says one. “You should sell all the littlestuff-there’s no return there except aggravation.”Says another: “Your equity exposure is opaque. Whydon’t you do more real estate? That’s what you’regood at.” And a third says later, “Michael, it lookslike you are having an identity crisis. Do you want tobe a private-equity manager or do you want to run afund of funds?”That’s just for starters. Soon the discussion organi-cally moves into heavier “what do you want out oflife” stuff. “The question really is, Michael, how doyou define yourself? Why not put all your money inT-bills and do what you really want to do?” Then:”Why not open a restaurant?” And finally (mostlykidding), “Have you tried poetry?” It’s challengingstuff, but Sonnenfeldt is taking it well. “This is help-ing me crystallize my thinking,” he says. “I have to behonest with myself. No bullshit. I really want to worksmarter, not harder, from now on.”As most of us know all too well, the world is full offolks happy to give us investing advice. The problemis that they all have an ax to grind or, to put it moreprecisely, a wallet to fill. Brokers want you to buy andsell stocks to generate commissions. Investment advi-sors want to gather your assets and then steer youtoward some of their firm’s product offerings. Andinvestment clubs? That’s where you ante up fivegrand and then watch ten other clowns vote to investit in the Nasdaq 100.So where do you turn? That was the questionSonnenfeldt, 49, faced after he sold his real estatefirm six years ago. His answer was to assemble agroup of like-minded individuals: folks who arewealthy and who want to learn from one another. And that’s the origin of TIGER 21-an acronym that stands for The InvestmentGroup for Enhanced Results (the “21” is for 21st century, added to avoid con-fusion with Julian Robertson’s former hedge fund).Sonnenfeldt grew up on Long Island (his father was an emigre from Germanywho was Hermann Goering’s translator in the Nuremberg trials and later a suc-cessful engineer at RCA) and went to MIT. He began his career at GoldmanSachs and moved on to real estate development in the New York City area. In1991, Sonnenfeldt founded Emmes, which became a successful real estate com-pany. He sold the business in 1998 and became a very wealthy man. “AfterwardI realized I didn’t have the skill or knowledge to take this large amount ofcapital and redeploy it into a diverse portfolio.” Sonnenfeldt already belonged toa peer group for CEOs, and he asked some of the members whether they wouldbe interested in forming a new club. In the fall of 1999, TIGER 21 was born.Today TIGER 21 has 31 members in four groups who meet monthly in New York,though some participants phone in or travel from California, Miami, Chicago, andLondon. Sonnenfeldt has plans to open more offices around the country and inEurope as well. According to the group’s literature, net worth requirements formembership run between $10 million and $100 million of investable assets. Thecost of membership? A cool $20,000 per year. Quick question: Is it worth it?Granted the white asparagus and lump crabmeat soup at the Plaza Athenee lunch isdivine, but 20 grand sounds like a lot for lunch and a gabfest.”Oh, I think it’s worth it,” says Carl Wolf, who looks and sounds a bit likeFrank Gifford. “It helped me change my thinking in 2000.” Wolf, who soldAlpine Lace to Land O’Lakes for $65 million back in 1997, recalls an epiphanywhile listening to a TIGER 21 presentation the year the bubble burst. “We hadthis money manager in who put up a bunch of charts that showed just howextended the rally in equities was, particularly the 100 most owned stocks. It wasstriking, and the talk around the table reinforced it. Within several months I hadsold down my stocks substantially and bought bonds.”A TIGER 21 meeting begins with a World Update, a session in which eachmember gives a briefing on what’s new with their lives and their investments. It’sa process that takes up a good part of the morning,and it provokes an unusual discussion that’s a mix offinancial analysis and Christmas-letter news. Firstup, the former head of a computerized bond-tradingsystem company speaks about a charity whose boardhe serves on, Trickle Up, which provides seed capitalto small projects in the Third World. As for the cur-rent investing environment, “I’m all high risk and norisk,” he says with a grin. “I’ve got an oil mine[which extracts nonpressurized oil] in Texas, but I’mconcerned about rising rates and leverage, so the restis in cash.” Next a hedge fund manager reports thathe’s been named to the board of a major university.Then a onetime head of a packaging companyannounces that he’s had heart surgery but feels fine.His money at Goldman Sachs was up 3% to 4% yearto date, which also made him feel fine.Personal information seems to be shared genuine-ly and with little hesitation during these updates. Forinstance, I noticed that the next member to speak,Tommy Gallagher, had a textbook, EssentialStatistics, under his arm. Like most of the attendees,Gallagher, 59, is a self-made man. (This is a no-stuffy-blue-blood zone.) Recently retired as a vicechairman of CIBC, Gallagher grew up in Brooklyn,the son of a tollbooth operator for the TriboroughBridge and Tunnel Authority. He tells the group, “Asyou know I’ve been going back to school to get a col-lege education at the New School. I just got my firstgrades. I got a B+ in James Joyce. An A in a philos-ophy course, Anxiety and Reality [“What’s the differ-ence?” someone calls out], and an A in a writingcourse.” Gallagher gets a big hand from the groupand beams humbly.There is another facet of the TIGER 21 experience:Members offer help andinvesting opportunitiesto other members. “[Mr.X] can help you getthat product on QVC,”says Sonnenfeldt at onepoint. And Carl Wolftalks up his new soft-ware company, Conduit.”We’re running thebusiness out of PennState, where we have anexcellent group of soft-ware developers. We’relooking to raise a million.I’ve put in $100,000,and if you invested, youwould get 13% convert-ible preferred stock.”Some of the headsaround the table nod.But the group looks evenmore intrigued whenWolf speaks of successfully combining business and family, as he describes a bur-geoning hors d’oeuvres business he’s doing with his daughter. “My son-in-law runsit, and it’s been wonderful working with him. It’s more than just the money.”A few of these folks are still active in the jobs where they garnered theirwealth. The investment banker tells the group she is in cash and a fund that isshort the S&P 500. Last to speak is Dinesh Desai, who did his portfolio defenseat the last meeting. “I’m still reeling from it,” he says. “It was the toughest pres-entation I’ve ever made, and as a CEO I’ve made a lot.” Desai took some grieffor his large number of positions, including a significant holding in Altria.”I’m lightening up some,” he says. “But inertia is powerful.”Early in the history of TIGER 21 it became apparent that a subject would comeup in discussion-China, say, or Mercedes vs. BMW-and the group would sim-ply hit an expertise wall. So why not bring in an authority on various subjects?Today every meeting features one or more lunch speakers. The day of my visitthe topic was real estate, and two experts had the floor as we dined on the afore-mentioned soup and our choice of veal tenderloin over cranberry beans or organ-ic chicken with morel mushroom and sweet-pea risotto. The first speaker headsup a large real estate investment fund and talks about the condition of and invest-ing in commercial real estate. (The minimum to get into his funds is $1 million.)The next speaker runs a much smaller operation, specializing in real estate turn-arounds. After the speakers conclude and leave, a critique of the presentationsbegins. “I want to know, If he is so good,” asks a member, “how come he doesn’thave even more money?” Another says he’s wary of the structure of one of thespeakers’funds.After lunch and beforeSonnenfeldt’s portfoliodefense (which takes upthe better part of an hour)member Greg Olsenphones in fromsome-where outside Moscowto report on his lat-estproject. He’s paying$20 million to visitthe International SpaceStation in a Russianrocket ship, a la spacetourist Dennis Tito.Why? “I’ve always beeninterested in science,and I like to just dothings,” he says. “Mykids are grown, so it justfelt right.”The meeting closeswith another discussionaround the table, with allthe members talkingabout how the session went-or anything else ontheir mind. One starts to speak of a twentysomethingson, saying that he hasn’t figured out what he wantsfrom life. That prompts Richard Lavin, the group’sfacilitator, to ask each member what he or she wasdoing at the age of 25. “I was in law school,” saysone. “I was working for a small business,” saysanother. “I was working on Wall Street, and I had adrug problem,” says Tommy Gallagher. “So who hastheir act together when they’re 25?” asks Lavinrhetorically. “You have to let your son know that hecan never be like you and shouldn’t try to be likeyou,” says one member. “You have to let him go.”Later the member with the son in question seemspleased: “This actually makes me feel so much better.You can feel so alone out there. It just feels great toconnect with people who know what it’s like.”The notion of investors getting together and helpingthemselves, as opposed to relying on the “supervision”(read: sales pressure) of Wall Street professionals, is anintriguing one. While the discussions occasionally feltforced, they certainly seemed honest. Plus, I can’t helpbut think that anyone who amasses a $30 million for-tune has some expertise that would benefit others.TIGER 21 might not be for everyone-you need to bepretty dang wealthy just to play-but if it’s right foryou, hey, the crab soup is truly excellent.