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June 9, 2014

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Featured in April 2009THE MILLIONAIRES’ CIRCLEWhat goes on behind the closed doors of the super-elite investment group TIGER 21?BY CYNTHIA COULOSON PHOTOGRAPHS BY DIANE BONDAREFFIN VIEW OF THE CURRENT ECONOMIC CRISISand stock market losses, most investors who used tofocus on increasing their capital would be happy nowto simply hold on to it. Ten years ago, a man who’dmade a fortune selling a real estate company was alsoworried about preserving his wealth. He got togetherwith a handful of former businessmen with similarbackgrounds and goals and formed an organizationcalled TIGER 21. Part investment club and part peer-support group, the organization’s success is evidencedin its growth to 160 members, but today it is facingunprecedented challenges.”It is clearly the worst economic environment thatour members have experienced, almost across the board,in their lifetime, observes Michael Sonnenfeldt, TIGER21’s founder. “Most of our members’ investments weredown between 10 and 30 percent at the end of 2008. Ifyou think of the people running corporations some aredoing well and some are doing poorly. But it’s differentif you’ve already sold your business and are primarilymanaging passive investments. There’s been a lot ofvery deep shock and concern.”In response to concerns over the economy, TIGER 21members have made a large reduction in their exposureto hedge funds, he says, and increased the cash in theirportfolios. “The severe reduction in hedge funds, from12 percent to 3 percent, is the most significant shift.”The collapse of Bernard Madoff ‘s $65 billion dollarPonzi scheme has affected some members but hasnot had a serious impact, according to Sonnenfeldt.”Approximately 10 percent of our members reporthaving had some exposure to Madoff, but not a singlemember has so much exposure that it fundamentallychanged their economic picture,” he says. “We thinkthat’s a reflection of our Portfolio Defense process. Ifsomeone said they had 50 percent of their assets inMadoff- or God forbid, 90 percent – they would either notlast in TIGER or they wouldn’t be interested in TIGERbecause the process that we have always stood for has todo with prudent diversification. About eight years agowe had a single member who was completely investedin Madoff, and he left within the first year because heclearly didn’t feel comfortable defending what the group would have counseled against.”Sonnenfeldt is a tall, well-groomed Southport residentwho worried about holding on to his profits after hesold his second real estate business with a billion dollarsin assets, in 1998. “When I sold my first business in1986, I was thirty years old,” he recalls. “When youare thirty and have great success, you assume you canjust keep doing it. So I gave a lot of the money awayand invested some of it less wisely than I should have.”Twelve yeas later, he didn’t to fall into the same trap, “Idecided to surround myself with fellow peers who hadgone through similar experiences and were wrestlingwith how to preserve wealth, not just how to make it.Being an entrepreneur and making wealth is one skillset,” he adds. “It’s a totally different skill set to preservewealth.”He contacted half-a-dozen friends he’d met in anorganization for CEOs called the Executive Committee(TEC), who also had questions about how best to investthe money they made from selling their companies inaddition to more personal concerns related to theirwealth. “We were no longer CEOs, but we had newissues,” Sonnenfeldt explains. “It could be an issuewith a sister or a brother in financial trouble, who mayhave been unlucky or unwise. How does one who hasbeen very successful deal with them? How much doyou support them or a friend or a charity? I’d say thesingle biggest issue is how to deal with children: Howdo you not spoil them on one hand yet give them theopportunity to succeed?”The group decided to meet regularly, and TIGER 21an acronym for The Investment Group for EnhancedReturns in the 21st century, was hatched. Sonnenfeldtenlisted Richard Lavin, who was a facilitator in his TECgroup, to join him as a cofounder and help organize themeetings.Today TIGER 21 has sixteen separate groups thatmeet monthly, most in New York City but also in LosAngeles, San Francisco, San Diego, Dallas, Palm Beachand Miami. Another group will open in Chicago thismonth. Members who include eleven women, arecharged an annual fee of $30,000, TIGER 21’s primarysource of revenue. “It’s not a club. It’s a business,” says Sonnenfeldt, who owns the company and overseesits management. “And we think some day it could makemoney.” Potential members are screened and interviewedby TIGER’s staff; then they are introduced to a groupthat the staff thinks would be the right fit. A newmember is only admitted upon unanimous invitation ofall members of the group and must have a minimum of$10 million in investable assets, although some have anet worth as high as $700 million. Meetings are run byprofessional facilitators and include presentations fromfinancial experts. Several members from Greenwichagreed to be interviewed for this article as long as theiridentities were not revealed.THE NETWORTH NETWORKJack Jones*, a Greenwich resident in his forties,decided to join TIGER 21 in 2005 after he’d had asuccessful career as a financial advisor and then starteda family advisory firm focusing on wealth issues. “I hada very extensive network of contacts in the investmentarena,” he says, “but I wanted to tap into people whohad worked in other industries and had experienced thedynamics and challenges of wealth. Another reason Ijoined is that I was raising my children in this era ofentitlement and in a community where the magnitudeof wealth is so far beyond reality. I was worried aboutthat.”Jones is one of five Greenwich multimillionaireswho spend seven hours each month on New York’sUpper East Side on the top floor of an elegant stonetownhouse built in 1904 by another very rich man, steelmagnate Henry Phipps. They meet in groups of tento twelve to discuss how to best manage their moneyand other personal issues. The meetings are run by oneof a dozen facilitators on TIGER’s staff and start offwith members reporting on what’s happened to theirportfolios in the previous month. Later in the morninga speaker, known as a presenter, explains an investmentopportunity – such as a private equity deal or a hedgefund or a real estate project – that members might beinterested in.”When you’ve got twelve pretty smart privateinvestors, the questions are just constant,” notes Steve Smith*, another member from Greenwich who joinedTIGER 21 six years ago. “After the presenter leaves,we critique the presentation: Would you be willing toinvest? What do you think about the field, the risk? Allthose things.”Smith joined TIGER after he had retired aschairman and CEO of a large publishing companyin New York. “Having just stepped down from mycorporate employment, I wasn’t at all satisfied withthe financial advice I was getting from big New Yorkfinancial institutions,” he says. “And when you leave thecorporate world, you need a new community of like-minded people.”The chemistry is key,” Smith says when describinghis initial meeting with some TIGER 21 members. “Andas happens in each group, we’ve become intimate friends.We know a lot about each other, obviously, and they area group that I personally care an awful lot about.”The morning session is followed by lunch at whichanother speaker addresses a broader topic like U.S.economic conditions or global issues. “We could havesomeone from the Council on Foreign Relations talkingabout Russia or Iran; we could have the epidemiologistfrom the Environmental Defense Council talking aboutviral threats in an unstable world; we could have aspeaker on philanthropy that will have a social impact,”Sonnenfeldt says. “We had Senator George Mitchell,and we’ve had Steve Schwarzman of the BlackstoneGroup. We’ve had Burton Malkiel, who wrote a bookcalled A Random Walk Down Wall Street.His latest book [From Wall Street to the Great Wall: How InvestorsCan Profit form China’s Booming Economy] talks aboutthe explosive growth of China and how it will have animpact. A few weeks before that we had Mohammed A.El-Erian, the head of Pimco, the largest bond dealer inthe world. He didn’t come to talk about Pimco product,he talked about the financial turmoil.REVEALING MOMENTSA unique feature of the monthly meeting is an exerciseknown as the Portfolio Defense in which members arerequired once a year to disclose the total and intimatedetails of their financial situation. Many times they have never shared that information with a spouse ora lawyer or an accountant, according to Sonnenfeldt.One member told a Dallas Morning News writer thathe could ask people “about their sex lives sooner thanI could ask them how much money they make or whattheir net worth is.” Prior to defending their portfoliothey fill out a lengthy form with investment data, assetallocations, balance sheets and income statements. Theyalso provide information about their risk and toleranceand investment orientation that is compared with theiractual financial allocations and returns. Then the restof the group gives its feedback. “Someone may knowmore about real estate or someone might be makingsure there’s enough insurance for the kids,” observesJack Jones. “It’s been comfortable for me, but you canget pretty defensive.” It can put people on the hot seatwhen their investment decisions are challenged.The first time he presented his portfolio after joiningTIGER 21, Steve Smith recalls, “I was told, ‚ÄòYou’ve beenso busy running a corporation, you’ve paid absolutely noattention to this. You’ve abrogated the whole processto this New York investment house. They’ve madelots of money on you, and they haven’t done squat.”So I fired that institution, one of the biggest names inthe business, and got new managers with whom I workclosely making investment decisions. Now I can say tothe group, at least I know what’s going on and why. Imay not like the results, but I’ve got nobody to blamebut myself for that.”Unlike Smith, Bruce Brown * was not seeking financialadvice when he joined TIGER in 2006. “I don’t need TIGER 21 to tell me what stocks to buy because that’swhat I do for a living,” says Brown, who is in his mid-forties and has spent more than twenty years managinginvestments. Having come from a modest middle-classbackground, he wanted “a sounding board against whichto bounce ideas not only for investing but also for lifeproblems.””My partners and I sold our business when I wasthirty-eight,” he explains. “I woke up pretty wealthy,and it’s not easy to handle all the aspects of it.” Brown’sconcerns ranged from how to do tax and estate planningto how to respond when a sibling or a parent asks forfinancial help. ” These are thorny issues,” he says.”You sit in a room with twelve people every monthand everyone has their own view and perspective andbias and experience, not just on investments but acrossall these dimensions,” observes Jones. “At the end of theday, you have to figure out what’s important to you andhow you want to approach these things.”Brown says that his group is made up of people froma variety of backgrounds, which he regards as a bigasset. “We have ex-Wall Street people, entrepreneurs,people who manage family wealth, retired businessexecutives, ages from the late thirties to the sixties.In general, they’ve made money themselves, but eventhe people who’ve inherited it have a hell of a lot ofexperience managing money and dealing with theseintergenerational issues, which I just had no idea about.When you get that tremendous diversity in a room andfacilitate it and focus it, it brings that diverse expertiseto focus on your problems.”TIGER 21 has a private website where members canlog on and get advice from the broader membership.In addition to forums on investments and philanthropy,the site includes one called “looking for” that recentlyposted inquiries from members who sought a securitieslawyer, a travel agent and a physician. “Eight or ninemonths ago, one of my good friends was diagnosedwith breast cancer,” Brown reports. “I told everyone onthe forum that I had this problem. Within twenty-fourhours, I was bombarded with tons and tons of referralsand advice and offers to help. No amount of money canbuy that.”Although Steve Smith, the former publishing CEO,primarily joined TIGER 21 for financial advice, he alsofound help in resolving a family matter. “My wife and Ihad long debated, and disagreed to some extent, on howmuch information we should share with our children,”he says. “I was really hesitant. The question my groupasked that changed my mind was, ‚ÄòAre they trustees ofyour estate?’ I said yes, and they said, ‚ÄòHow can you notshare that information with them?'”So he sat down with his children and gave themcopies of his Portfolio Defense, with all the detailsof his financial picture. “Their reaction was sort ofunstated, but their body language told me, ‚ÄòDad, that’s all you’ve got!'” “Smith recalls, laughing. “I now do itonce a year. It’s extremely important for our family tounderstand where we are and where we are not.”ECONOMIC AWARENESSTo help TIGER 21 members gain insight into currentproblems in the economy, last August MichaelSonnenfeldt initiated a biweekly conference call onFridays at 4 p.m. when a panel of members with expertiseon a specific topic discuss the week’s developments andwhat’s likely to occur next. Forty to sixty members fromaround the country participate in the call. A typical callon October 10 focused on gold, hedge funds and MasterLimited Partnerships (MLPs), along with equities. “Onemember [on the panel] owns a gold mine, another is amajor trader in MLPs and another runs a multibilliondollar hedge fund,” says Sonnenfeldt, who moderatesthe calls. “So we were able to literally get up-to-datemarket information and real-time analysis.” Memberswho miss a call can listen to it on TIGER’s privatewebsite afterward. Recently Sonnenfeldt has added aguest speaker to most conference calls. On February 6,for example James Melcher, founder of the hedge fundBalestra Capital and one of a handful of people whoforecasted the current recession two years ago, sharedhis observations about current financial conditions.”Everybody is really shook by the meltdown in WallStreet,” Steve Smith observes. “As investors, we knowabout the subprime. But even the smartest investorsdidn’t know about other things that were going on, suchas credit default swaps.” He says the market turmoil hasmade him rethink where he wants to go for investmentadvice. “I’ve been gradually moving more and moreout of the big institutions in to the Field Point PrivateBank here in Greenwich.”Jack Jones has witnessed a variety of reactions bymembers of his group. “You’ve got plenty of peoplewho are panicking and selling hedge funds and mutualfunds and stocks” he says. You also have a group ofpeople who understand long-term investing, that youare going to have down-40-percent periods and mightbe taking advantage of investing in this environment.”I think if there is a silver lining in what’s happeningeconomically, it’s that we will revert back to a value thatprioritizes who people are and not define each other bythe material aspects.””The one thing people should know is that this isn’tsome snobby, rich-people’s club.” Bruce Brown says.”People are not ostentatious or pretentious. That wasmy biggest fear when I joined, I thought ‚ÄòOh God, this isgoing to be like a country club,’ because my experiencewith clubs growing up was more as a caddy than as amember. We have a lot of egos and very wealthy people,but the only way they are trying to outdo each other isin trying to help other members. The last thing peoplein Greenwich need is more social competition. Theirdaily lives are so filled with that.”*Not their real name