The Myth of Better Investing for the Ultra-Wealthy

Photo by Joey Genovese on Unsplash

The other day, I was speaking with an investor who had a $1 million portfolio, and he asked an interesting question. What would we be doing differently if he had $100 million to invest?

He was surprised to hear my suggestion that very little would change.

We would use direct indexing for equities to keep things as tax-efficient as possible, and we would replace some of the taxable bonds with tax-free munis. We would likely have several different account types to facilitate more efficient estate transfers and gifting, but the investment strategy would be generally the same.

Just because someone is allowed to invest in complex investments doesn’t mean they should.

Back in February, I wrote a post titled "The Mirage of Private Equity for Retail Investors."

The gist was that private equity funds have stopped being able to return money to their institutional investors, so they are now looking to offload the positions onto retail investors.

That trend has continued, and this month, the Yale endowment, which popularized private equity investing in the first place, has announced it is in the process of unwinding $3 to $6 billion of its private equity holdings in the secondary market at a haircut of somewhere between 5% and 10%.

As this article notes:

By selling now before other institutions flood the secondaries market, Yale may be able to “offload aging or lower-performing holdings at a relatively modest discount and reallocate capital toward more promising investments.”

The article also notes that Harvard and MIT are planning similar moves in an attempt to boost performance.

In 2024, when the S&P 500 was up roughly 25%, Yale’s endowment was up 5.7%. In 2023, when the S&P 500 was up 26%, Yale’s endowment was up 1.8%.

Over the last decade (a unique era for private equity in which funds were able to borrow at near 0% interest rates for a majority of the holding period), Yale’s endowment had average annual returns of 9.5%, making it one of the top-performing college endowments. The S&P 500 had returns exceeding 11% during the same period.

Successful investing doesn’t require access to special funds or managers. It simply requires the patience to maintain a long-term outlook, with an allocation sufficient to survive whatever chaos may come in the short run. This is true whether your portfolio is $1 million, $100 million, or, in the case of Yale’s endowment, $42 billion.

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Last weekend, we were up in Austin for a lacrosse tournament and got to visit with my wife’s aunt and uncle.

My father’s day was spent watching the boys play lacrosse.

Jackson’s team won, Liam’s team took third, and a nobody died of heat stroke. Next weekend we head to Park City, Utah, for the last tournament of the season.