The Investment Club You Can’t Get Into

December 2, 2004

THURSDAY, DECEMBER 2, 2004        ©2004 Dow Jones & Company. All Rights Reserved

The Investment Club You Can’t Get Into

Wary Wall Street, Wealth Families Form Peer Groups to Share Advice, Manage Money

WEALTHY families are
discovering a new source
of financial advice: each
other.

One of the hottest
corners of the wealth-management
business is “peering” where
organizations charge wealthy families
to meet other wealthy families. The
idea is for families-tired of the hard-
sell from wealth-management firms
and private banks-to band together in
formal peer groups to swap ideas and
advice.

Those who join can get first-hand
recommendations on such things as
finding hedge funds to hiring private-
jet pilots and preparing kids for their
inheritance. They can also make
investments together and get group
discounts from money managers, banks
and even travel companies.

The groups, which include New York-
based Tiger 21 and Met Circle, as well as
Boston-based CCC Alliance, aren’t just
high-end coffee- klatches or investment
clubs. Most charge thousands of dollars
in annual dues and require members to
have several million dollars in liquid
assets. There are monthly or quarterly
meetings, and most groups have secure
Internet networks that allow members
to trade questions and answers.

The groups are growing in popularity
as the number of rich families grows
in the U.S. There are now more than
130.000 households in the U.S. with
net worths of 510 million or more,
more than double the number in 1990,
according to a Federal Reserve survey
of consumer finances.

Wealthy families have traditionally
tiled to private banks, trust companies
and brokerage firms for advice. But
with bank consolidation. conflict-of-
interest scandals on Wall Street, and
more intense competition Among
wealth-management advisers, families
often fear that their
interests no longer come
first. Some don’t trust the
advice they are getting,
says Preston Tsao, head
of Met Circle. Mid many
“feel like they’re getting
lost in the shuffle.”

Each of the new groups
has a different focus-
and some are more
commercially
minded than others. New
York’s Tiger 21 is one
of the fastest growing.

Founded in 1998 .by
six entrepreneurs who
cashed out of their
companies and got
together to help each
other as investors, Tiger
now has 40 members managing more
than i4 billion of their assets, according
to co-founder Michael Sonnenfeldt,
a successful real-estate developer. To
join, members need at least 510 million
in assets; they pay a fee of $30,000 a
year.

Tiger also evaluates prospective
members, looking for smart, active
investors with specific expertise. They
don’t take someone who may have shuck
it rich through a divorce settlement, for
example. “We like our members to have
something to offer, and something to
learn,” Sonnenfeldt says.

To achieve some intimacy, Tiger
divides its members into smaller groups
of no more than 12 individuals. With
membership rising, Tiger launched a
fourth group this fall and is about to
launch a fifth. The organization plans
to move into larger office space in
Manhattan to house its growing staff and
hold bigger events. It is also considering
renting office space to members and
selling them concierge services and
travel advice.

iger 21 is known
in the industry as
the “deals” peer
group; members
often get together
on big acquisitions
or investments. One
group, for example,
bought an oil well.

They also chat about
family issues and
living with wealth.
The main event
for Tiger 21 groups is
an annual “portfolio
defense.” Members
get up in turn to lay
out their personal
balance sheet income
statement and
financial aims. Other
members challenge the presenter’s
decisions and suggest alteratives. All
are hound by strict confidentiality
agreements. “We’re not there to judge,”
says Mr. Sonnenfeldt. “This is what we
call a ‘carefrontational’ approach.”

Tiger 21 often gets discounted rates
on financial products and services, and
the savings are passed onto members.

The organization doesn’t make any
money from companies looking to sell
products to its members and allows
no corporate members. Met Circle,
another New York peer group with 1011
families, also has a strict “no vending”
policy-meaning no corporate members
or sales pitches. Families meet twice a
month to chat about everything from
hedge funds to real-estate. One of the
meetings is a ‘round-table” limited to
family members. The other meeting
features an outside presenter.

CCC Alliance in Boston has taken
the peer-group model a step further
by teaming up with University of
Pennsylvania’s Wharton School. In a
newly launched joint program called
Wharton Global Family Alliance,
dozens of wealthy families-including
CCC members-help the school
conduct research on family businesses,
philanthropy and wealth management.

The research is then shared with the
families and incorporated in Wharton’s
academic programs on family business.

With a peer group “you can turn
to other families whom you get to
know and test over time,” says Laird
Pendleton, a founder of CCC Alliance.
“These are families who have walked in
your shoes and maybe even been down
the same path.”

Some peer groups have taken a
commercial approach to the trend. The
New York-based Institute for Private
Investors and the Chicago-based
Family Office Exchange, which are rum
more like businesses, derive revenue
from companies that sell products to
the wealthy. The Institute has about
310 family members and about 175
companies. The firm aims to foster
better communication between wealthy
families and wealth-management firms.

Charlotte Beyer, president and founder
of the Institute, says that about half her
revenue comes from companies and the
other half from families. Rather than
creating a conflict, she says, corporate
members help educate family members
with their expertise and in-depth
experience. “You cannot close the door
and just have a group of families talking
to each other,” she says. If a group has
a dominant member who recommends
a particular investment that isn’t
appropriate for the others, she says, “the
whole group can go off like lemmings
off the same cliff.”

Along with regular meetings, the
Institute hosts two electronic message
boards-one strictly for family members
and another that’s open to vendors.
Members post questions like “Anyone
know a good overseas bond fund?” or
“Preparing children for wealth?” The
questions are sent to the families-only
group first, then, with the names of the
questioners removed, they are submitted
to vendors for response. The answers are
posted for others to see.

“Peer groups can be fabulous, but they
can be dangerous if there is no teaching
going on,” Ms. Beyer says.

If you are interested in learning more about TIGER 21, please complete the contact form and you will receive a copy of our most recent Asset Allocation Report.