The Millionaires' Circle

April 1, 2009

Featured in April 2009

THE MILLIONAIRES’ CIRCLE

What goes on behind the closed doors of the super-elite investment group TIGER 21?

BY CYNTHIA COULOSON        PHOTOGRAPHS BY DIANE BONDAREFF

IN VIEW OF THE CURRENT ECONOMIC CRISIS
and stock market losses, most investors who used to
focus on increasing their capital would be happy now
to simply hold on to it. Ten years ago, a man who’d
made a fortune selling a real estate company was also
worried about preserving his wealth. He got together
with a handful of former businessmen with similar
backgrounds and goals and formed an organization
called TIGER 21. Part investment club and part peer-
support group, the organization’s success is evidenced
in its growth to 160 members, but today it is facing
unprecedented challenges.

“It is clearly the worst economic environment that
our members have experienced, almost across the board,
in their lifetime, observes Michael Sonnenfeldt, TIGER
21’s founder. “Most of our members’ investments were
down between 10 and 30 percent at the end of 2008. If
you think of the people running corporations some are
doing well and some are doing poorly. But it’s different
if you’ve already sold your business and are primarily
managing passive investments. There’s been a lot of
very deep shock and concern.”

In response to concerns over the economy, TIGER 21
members have made a large reduction in their exposure
to hedge funds, he says, and increased the cash in their
portfolios. “The severe reduction in hedge funds, from
12 percent to 3 percent, is the most significant shift.”

The collapse of Bernard Madoff ’s $65 billion dollar
Ponzi scheme has affected some members but has
not had a serious impact, according to Sonnenfeldt.

“Approximately 10 percent of our members report
having had some exposure to Madoff, but not a single
member has so much exposure that it fundamentally
changed their economic picture,” he says. “We think
that’s a reflection of our Portfolio Defense process. If
someone said they had 50 percent of their assets in
Madoff- or God forbid, 90 percent - they would either not
last in TIGER or they wouldn’t be interested in TIGER
because the process that we have always stood for has to
do with prudent diversification. About eight years ago
we had a single member who was completely invested
in Madoff, and he left within the first year because he
clearly didn’t feel comfortable defending what the group
would have counseled against.”

Sonnenfeldt is a tall, well-groomed Southport resident
who worried about holding on to his profits after he
sold his second real estate business with a billion dollars
in assets, in 1998. “When I sold my first business in
1986, I was thirty years old,” he recalls. “When you
are thirty and have great success, you assume you can
just keep doing it. So I gave a lot of the money away
and invested some of it less wisely than I should have.”

Twelve yeas later, he didn’t to fall into the same trap, “I
decided to surround myself with fellow peers who had
gone through similar experiences and were wrestling
with how to preserve wealth, not just how to make it.
Being an entrepreneur and making wealth is one skill
set,” he adds. “It’s a totally different skill set to preserve
wealth.”

He contacted half-a-dozen friends he’d met in an
organization for CEOs called the Executive Committee
(TEC), who also had questions about how best to invest
the money they made from selling their companies in
addition to more personal concerns related to their
wealth. “We were no longer CEOs, but we had new
issues,” Sonnenfeldt explains. “It could be an issue
with a sister or a brother in financial trouble, who may
have been unlucky or unwise. How does one who has
been very successful deal with them? How much do
you support them or a friend or a charity? I’d say the
single biggest issue is how to deal with children: How
do you not spoil them on one hand yet give them the
opportunity to succeed?”

The group decided to meet regularly, and TIGER 21
an acronym for The Investment Group for Enhanced
Returns in the 21st century, was hatched. Sonnenfeldt
enlisted Richard Lavin, who was a facilitator in his TEC
group, to join him as a cofounder and help organize the
meetings.

Today TIGER 21 has sixteen separate groups that
meet monthly, most in New York City but also in Los
Angeles, San Francisco, San Diego, Dallas, Palm Beach
and Miami. Another group will open in Chicago this
month. Members who include eleven women, are
charged an annual fee of $30,000, TIGER 21’s primary
source of revenue. “It’s not a club. It’s a business,”
says Sonnenfeldt, who owns the company and oversees
its management. “And we think some day it could make
money.” Potential members are screened and interviewed
by TIGER’s staff; then they are introduced to a group
that the staff thinks would be the right fit. A new
member is only admitted upon unanimous invitation of
all members of the group and must have a minimum of
$10 million in investable assets, although some have a
net worth as high as $700 million. Meetings are run by
professional facilitators and include presentations from
financial experts. Several members from Greenwich
agreed to be interviewed for this article as long as their
identities were not revealed.

THE NETWORTH NETWORK

Jack Jones*, a Greenwich resident in his forties,
decided to join TIGER 21 in 2005 after he’d had a
successful career as a financial advisor and then started
a family advisory firm focusing on wealth issues. “I had
a very extensive network of contacts in the investment
arena,” he says, “but I wanted to tap into people who
had worked in other industries and had experienced the
dynamics and challenges of wealth. Another reason I
joined is that I was raising my children in this era of
entitlement and in a community where the magnitude
of wealth is so far beyond reality. I was worried about
that.”

Jones is one of five Greenwich multimillionaires
who spend seven hours each month on New York’s
Upper East Side on the top floor of an elegant stone
townhouse built in 1904 by another very rich man, steel
magnate Henry Phipps. They meet in groups of ten
to twelve to discuss how to best manage their money
and other personal issues. The meetings are run by one
of a dozen facilitators on TIGER’s staff and start off
with members reporting on what’s happened to their
portfolios in the previous month. Later in the morning
a speaker, known as a presenter, explains an investment
opportunity - such as a private equity deal or a hedge
fund or a real estate project - that members might be
interested in.

“When you’ve got twelve pretty smart private
investors, the questions are just constant,” notes Steve
Smith*, another member from Greenwich who joined
TIGER 21 six years ago. “After the presenter leaves,
we critique the presentation: Would you be willing to
invest? What do you think about the field, the risk? All
those things.”

Smith joined TIGER after he had retired as
chairman and CEO of a large publishing company
in New York. “Having just stepped down from my
corporate employment, I wasn’t at all satisfied with
the financial advice I was getting from big New York
financial institutions,” he says. “And when you leave the
corporate world, you need a new community of like-
minded people.

“The chemistry is key,” Smith says when describing
his initial meeting with some TIGER 21 members. “And
as happens in each group, we’ve become intimate friends.
We know a lot about each other, obviously, and they are
a group that I personally care an awful lot about.”

The morning session is followed by lunch at which
another speaker addresses a broader topic like U.S.
economic conditions or global issues. “We could have
someone from the Council on Foreign Relations talking
about Russia or Iran; we could have the epidemiologist
from the Environmental Defense Council talking about
viral threats in an unstable world; we could have a
speaker on philanthropy that will have a social impact,”
Sonnenfeldt says. “We had Senator George Mitchell,
and we’ve had Steve Schwarzman of the Blackstone
Group. We’ve had Burton Malkiel, who wrote a book
called A Random Walk Down Wall Street.

His latest book [From Wall Street to the Great Wall: How Investors
Can Profit form China’s Booming Economy] talks about
the explosive growth of China and how it will have an
impact. A few weeks before that we had Mohammed A.
El-Erian, the head of Pimco, the largest bond dealer in
the world. He didn’t come to talk about Pimco product,
he talked about the financial turmoil.

REVEALING MOMENTS

A unique feature of the monthly meeting is an exercise
known as the Portfolio Defense in which members are
required once a year to disclose the total and intimate
details of their financial situation. Many times they
have never shared that information with a spouse or
a lawyer or an accountant, according to Sonnenfeldt.

One member told a Dallas Morning News writer that
he could ask people “about their sex lives sooner than
I could ask them how much money they make or what
their net worth is.” Prior to defending their portfolio
they fill out a lengthy form with investment data, asset
allocations, balance sheets and income statements. They
also provide information about their risk and tolerance
and investment orientation that is compared with their
actual financial allocations and returns. Then the rest
of the group gives its feedback. “Someone may know
more about real estate or someone might be making
sure there’s enough insurance for the kids,” observes
Jack Jones. “It’s been comfortable for me, but you can
get pretty defensive.” It can put people on the hot seat
when their investment decisions are challenged.

The first time he presented his portfolio after joining
TIGER 21, Steve Smith recalls, “I was told, ‘You’ve been
so busy running a corporation, you’ve paid absolutely no
attention to this. You’ve abrogated the whole process
to this New York investment house. They’ve made
lots of money on you, and they haven’t done squat.”

So I fired that institution, one of the biggest names in
the business, and got new managers with whom I work
closely making investment decisions. Now I can say to
the group, at least I know what’s going on and why. I
may not like the results, but I’ve got nobody to blame
but myself for that.”

Unlike Smith, Bruce Brown * was not seeking financial
advice when he joined TIGER in 2006. “I don’t need
TIGER 21 to tell me what stocks to buy because that’s
what I do for a living,” says Brown, who is in his mid-
forties and has spent more than twenty years managing
investments. Having come from a modest middle-class
background, he wanted “a sounding board against which
to bounce ideas not only for investing but also for life
problems.”

“My partners and I sold our business when I was
thirty-eight,” he explains. “I woke up pretty wealthy,
and it’s not easy to handle all the aspects of it.” Brown’s
concerns ranged from how to do tax and estate planning
to how to respond when a sibling or a parent asks for
financial help. “ These are thorny issues,” he says.

“You sit in a room with twelve people every month
and everyone has their own view and perspective and
bias and experience, not just on investments but across
all these dimensions,” observes Jones. “At the end of the
day, you have to figure out what’s important to you and
how you want to approach these things.”

Brown says that his group is made up of people from
a variety of backgrounds, which he regards as a big
asset. “We have ex-Wall Street people, entrepreneurs,
people who manage family wealth, retired business
executives, ages from the late thirties to the sixties.

In general, they’ve made money themselves, but even
the people who’ve inherited it have a hell of a lot of
experience managing money and dealing with these
intergenerational issues, which I just had no idea about.

When you get that tremendous diversity in a room and
facilitate it and focus it, it brings that diverse expertise
to focus on your problems.”

 TIGER 21 has a private website where members can
log on and get advice from the broader membership.

In addition to forums on investments and philanthropy,
the site includes one called “looking for” that recently
posted inquiries from members who sought a securities
lawyer, a travel agent and a physician. “Eight or nine
months ago, one of my good friends was diagnosed
with breast cancer,” Brown reports. “I told everyone on
the forum that I had this problem. Within twenty-four
hours, I was bombarded with tons and tons of referrals
and advice and offers to help. No amount of money can
buy that.”

Although Steve Smith, the former publishing CEO,
primarily joined TIGER 21 for financial advice, he also
found help in resolving a family matter. “My wife and I
had long debated, and disagreed to some extent, on how
much information we should share with our children,”
he says. “I was really hesitant. The question my group
asked that changed my mind was, ‘Are they trustees of
your estate?’ I said yes, and they said, ‘How can you not
share that information with them?’”

So he sat down with his children and gave them
copies of his Portfolio Defense, with all the details
of his financial picture. “Their reaction was sort of
unstated, but their body language told me, ‘Dad, that’s
all you’ve got!’” “Smith recalls, laughing. “I now do it
once a year. It’s extremely important for our family to
understand where we are and where we are not.”

ECONOMIC AWARENESS

To help TIGER 21 members gain insight into current
problems in the economy, last August Michael
Sonnenfeldt initiated a biweekly conference call on
Fridays at 4 p.m. when a panel of members with expertise
on a specific topic discuss the week’s developments and
what’s likely to occur next. Forty to sixty members from
around the country participate in the call. A typical call
on October 10 focused on gold, hedge funds and Master
Limited Partnerships (MLPs), along with equities. “One
member [on the panel] owns a gold mine, another is a
major trader in MLPs and another runs a multibillion
dollar hedge fund,” says Sonnenfeldt, who moderates
the calls. “So we were able to literally get up-to-date
market information and real-time analysis.” Members
who miss a call can listen to it on TIGER’s private
website afterward. Recently Sonnenfeldt has added a
guest speaker to most conference calls. On February 6,
for example James Melcher, founder of the hedge fund
Balestra Capital and one of a handful of people who
forecasted the current recession two years ago, shared
his observations about current financial conditions.

“Everybody is really shook by the meltdown in Wall
Street,” Steve Smith observes. “As investors, we know
about the subprime. But even the smartest investors
didn’t know about other things that were going on, such
as credit default swaps.” He says the market turmoil has
made him rethink where he wants to go for investment
advice. “I’ve been gradually moving more and more
out of the big institutions in to the Field Point Private
Bank here in Greenwich.”

Jack Jones has witnessed a variety of reactions by
members of his group. “You’ve got plenty of people
who are panicking and selling hedge funds and mutual
funds and stocks” he says. You also have a group of
people who understand long-term investing, that you
are going to have down-40-percent periods and might
be taking advantage of investing in this environment.

“I think if there is a silver lining in what’s happening
economically, it’s that we will revert back to a value that
prioritizes who people are and not define each other by
the material aspects.”

“The one thing people should know is that this isn’t
some snobby, rich-people’s club.” Bruce Brown says.

“People are not ostentatious or pretentious. That was
my biggest fear when I joined, I thought ‘Oh God, this is
going to be like a country club,’ because my experience
with clubs growing up was more as a caddy than as a
member. We have a lot of egos and very wealthy people,
but the only way they are trying to outdo each other is
in trying to help other members. The last thing people
in Greenwich need is more social competition. Their
daily lives are so filled with that.”

*Not their real name

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.

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