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June 9, 2014

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PentaInsights and advice for families with assets of $5 million or more.FRIDAY, MAY 4, 2012 | By RICHARD C. MORAISTIGER 21: Tough Love For the Very RichBack in 1998, Michael Sonnenfeldt of New York made tens of millions of dollars when he sold his real-estate firm, Emmes & Co. He had to quickly get up to speed on how to be a successful portfolio manager,rather than a builder of buildings. At the time, he thought to become a good investor he had to “join asuburban golf club” and pick up stock tips in the locker room. Luckily, he also knew enough to know hedidn’t know enough.So Sonnenfeldt founded a peer-run investment group, The Investment Group for Enhanced Results inthe 21st Century, or TIGER 21 for short. The organization runs professionally facilitated monthly meetingsfor 10 to 14 peers, where each member has a chance to present to the group their portfolio strategy andallocation decisions, alongside a careful articulation of their investment criteria and long term objectives‚Äì what their risk tolerance is, for example, or whether their goal is to spend it all down before they die, orcreate a family legacy to last generations.The other members in the group then pick apart the portfolio, looking for disconnects between stated goalsand what is actually happening in the portfolio. Members coming intoTIGER 21 first have to submit to arigorous vetting and due diligence process to show they have more than $10 million in liquid assets toinvest, before signing nondisclosure agreements and paying $30,000 in annual dues.Think of TIGER 21 as a rich investor’s equivalent to theclassic writing workshop at a liberal arts college. It can getrough, the timbre revealed in the name, “Portfolio Defense.”Sonnenfeldt genteelly calls these bruising encounters”Carefrontations,” which, to us, sounds like “interventions”at a rehab center.In one case, for example, a TIGER 21 member whopresented himself as a generous philanthropist was hithard by the group; they pointed out, as a percentage of hiswealth, he was not very generous at all. During the ensuingdiscussion it became clear the fellow started life in verymodest circumstances and the sum, in absolute terms,looked huge to him. That’s a common occurrence with NewMoney; it takes a while for the psyche of a wealth-creator tocatch up with their late-in-life wealth status.But there’s a happy ending to this particular tale. The fellow was able to take in his peers’ reality-check andhe changed his giving patterns. Today, his name stands over a building at the center of a college campus.”Our purpose is not to judge,” insists Sonnenfeldt, but to “help members reach their goals.”TIGER 21 is clearly not for everyone but there is a powerful logic to joining such self-help groups. (Thereare others to consider, such as the much more low-key CCC Alliance up in Boston.) My colleague GeneEpstein recently pointed out how quickly the 1% swing through the revolving door of wealth. According toa Tax Foundation study, only half of all millionaires last at that elite level for more than a year, and only 6%remained millionaires during the entire nine years of the study. There is, in other words, terrific churn at thetop, just as there is terrific churn everywhere else in the economy.So quickly learning how to be wealthy from your own peers, in a safe environment far from prying eyes andfee-fed advisors, is not such a dumb thing to do. Sonnenfeldt says TIGER 21 members stay on averagefour years, a median between those who bail within a year and those who see the peer group’s long termbenefits. Still, there’s a steady-flow of New Money eager for TIGER 21’s unique style of doing business.Thirteen years after the group was founded there are 18 chapters across North America, including in SanFrancisco, Dallas, Vancouver, Miami, and Washington DC..TIGER 21’s 190 members, according to Sonnenfeldt, are sitting on $18 billion – that averages out to $95million a head ‚Äì and a press release further claims its members spend $1 billion to $1.5 billion annuallyon “living and travel expenses, capital purchases, insurance, and legal investment and professional fees.”No wonder everyone from George Soros to Mohammed El-Erian have addressed TIGER 21 meetings.The group has also morphed somewhat over the years: to the portfolio defense, TIGER 21 has addedworkshops focused on children, succession, and philanthropy.When I went up to Sonnendfeldt’s Central Park West apartment in New York, I asked the soft-spoken clubfounder what trends were emerging from his members. He said that most were “taking risk off the table,”earning 2% to 5% on their hyper-conservative portfolios. But they were coming around to the fact that thissort of return over a long period, and the income needed to fund their current lifestyle, requires a continuousand dangerous draw dawn of assets. So many are “rolling back their shirtsleeves” and going back to work,often as advisors to companies in their old field of expertise. One TIGER 21 member who made his fortunein the paper printing business has, for example, gone back to work advising a related digital-era upstart.I am continuously amazed how human nature is human nature, no matter what the income level. In this,TIGER 21 members are battling anxious times the exact same way the Social Security-dependent retiree iswhen they take on part-time work at Walmart to make ends meet. In both cases, these prudent souls thinkspending more than they earn is not a wise way to live a life. If only governments would follow suit.