Many family offices are focused on one objective above all: capital preservation.
Dany Roizman, founding partner at Brainvest Wealth Management, joins WealthChannel’s Andy Hagans to discuss the unique investment philosophy at his firm that has won over so many Ultra High Net Worth families.
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Episode Highlights
- Background on Dany’s career, and how he came to found his multi-shore, multi-family office.
- Why Dany focuses on risks and downside protection when managing portfolios for Ultra High Net Worth families.
- A comparison of the “soft skills” needed by a family office, versus the pure investment skillset.
- How Dany’s clients not only survived, but thrived, during the 2007-2008 financial crisis (hint: the story involves a famous hedge fund).
- Advice for entrepreneurs who are facing a potential liquidity event, on how to proceed in the important early stages of managing a family fortune.
Today’s Guest: Dany Roizman, Brainvest Wealth Management
- Brainvest Wealth Management – Official Website
- Brainvest Wealth Management on LinkedIn
- Dany Roizman on LinkedIn
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
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Show Transcript
Andy: Welcome to “The Alternative Investment Podcast.” I’m Andy Hagans. And today we’re talking with a multi-shore, multi-family office and getting insights into their unique investment philosophy. I’m very excited that joining me today is Dany Roizman, who’s the founder of Brainvest Wealth Management. Dany, welcome to the show.
Dany: Thank you very much, Andy. It’s a pleasure to be here, and let’s have a great conversation.
Andy: Absolutely. And you know, Brainvest is a very unique company, I would say. Like I have a lot of asset managers, a lot of family offices, wealth advisory firms on the show. Just the fact that it’s multi-shore, I mean, that’s already very interesting to me. But anytime I’m talking with a family office, I like to kind of step back and learn what’s the story, you know, what’s your background and how did you come to found this company?
Dany: Yes thank you. Well, I started my career…I’m Brazilian from origin. Like I was born and raised in Sao Paulo, Brazil. I started my career in an investment bank doing fixed-income proprietary trading. After four years doing that, I realized it was a great learning process, but trading was not my thing. And then I moved to private banking at JPMorgan in Sao Paulo. It was the beginning of the asset management industry in Brazil and they wanted to have someone at the private banking that was more than a wine and dine kind of guy that would be more, let’s say technical background. So, my trading background helped me a lot into getting into discussions with potential clients and trying to manage their assets.
Andy: Well, that’s interesting. You know, hearing about private banking. I didn’t realize there were jobs available where you could just wine and dine. I’m like, I’d love to work… If I can just work in private banking and wine and dine people, that sounds like a pretty good job.
Dany: Well, you know, like 30 years ago, that was mostly part of the job was wining and dining with the clients. That was something that I was never eager to do it. I was just one of those nitty bit of the investments that was something that I was more interested about. But yeah. Unfortunately, yeah, they’re still today. You see, like our industry, it’s very difficult to change, and people, they still believe that, you know, taking someone to golf and inviting them to nice dinners, it’s sufficiently enough to give a good service.
Andy: Well, you know, it’s interesting. Just my experience with private banking, Dany, I’m sorry to interrupt. I wanna hear the rest of your story. I think this is kind of funny because it’s happened to me. It’s happened to a couple of other people I know. We were members of a private bank, and we basically, or private banking division, we got kicked out because they wanted…this was five years ago, but they wanted this minimum cash balance. And this was back in the old days, you know, when interest rates, bank deposits were 0%. And I’m like, screw that. I can’t have that amount of money just sitting in cash in a bank. So they kicked me out, and now I’m just like, you know what? It’s better this way. I’m happy at the regular bank. So anyway, I’m an ex-private bank client, you know. I couldn’t quite cut it.
Dany: Well, that was the reason why I left the bank. It was because of the situation that, you know, what the bank wanted me to do or wanted me to sell or wanted me to push that was against what I believe it was the best interest of the clients. And that’s how I decided to leave the bank. But again, I was in JPMorgan in Brazil. I started to go offshore investments from some families. I was the link between the investment banking and the private bank. So, every time the JPMorgan had a mandate for a sell side on the M&A business, I would get involved and would help the process of that family to go through structuring themselves to receive the cash that that sale will, you know, produce and be ready for when the money comes that they have already the tax structure completely.
So they would have the vehicles already set up, and then a portfolio allocation and a profile already discussed. So then we can invest in their money and not just receiving the cash and say, what should I do now? So with that, I have the opportunity to meet a lot of interesting families through this process. I moved to New York. I was transferred to New York to be more close to the markets where I was actually investing my clients’ money. Like I stayed for New York still in JPMorgan for like another one year and a half, almost two years. And then I was offered to move to Switzerland to take care of the Brazilian book of JPMorgan in Switzerland. And then after a couple of more years in 2003, I decided to leave the bank. There was the beginning of this very difficult relationship between the bank and the client when there was a lot of part of the pushing, a lot of we have to sell this, we have to sell that. And this is something that was going against my beliefs in really a long-term relationship with the family.
Andy: Do you think that’s still going on today, Dany?
Dany: Yes.
Andy: I do too. Yeah.
Dany: Unfortunately, you have targets, you have objectives that your compensation depends on it. So, if you really go according to what maybe the client’s interest is, just as you said, maybe the client said, you know, I want to stay in money market right now. That is a very effective investment decision. For the bank, staying in money market doesn’t produce any return on assets. So the bank wants to give you a loan, wants to give you a swap, wants to sell you a structured product, wants to sell you a fund that maybe you don’t want to invest but because it pays a big commission. So, the bank is a business, so it has to be run, and it have to be profited, they have to report to the shareholders, and they have to increase their margins. And a client is part of this process. And when you have a model that is based on that principle, for me, it doesn’t work. So, I wanted to work…
Andy: Yeah, it’s interesting. I mean, you know, banks. I don’t have anything against banks, but their business model is generating fees, right? And it’s interesting to me because when I think about an RIA or family office, a fiduciary who’s charging 1% or whatever, it’s interesting to me that a lot of clients will have mentally, they’ll have a hard time wrapping their way around that asset management fee or that fee that they’re paying the advisor. But I try to tell them, no, no, that’s good. You understand the fee that you’re paying. It’s explicit, it’s upfront, detailed, all that. Versus if you don’t understand the fees or you don’t see the fees, that’s the real problem to me. Then they’re much likely to be much higher than 1% if you don’t see them, right?
Dany: Yes, they are. And that’s why I always believe in transparency and being 100% open to the client and showing all the fees that it’s involved in every single transaction. So the client can understand if he wants to go that way or if he wanna go this way. So, that’s why the IRA model in the U.S., you know, the external side manager is the model that we have here in Switzerland and also in Brazil, that we have offices work very well. We are 100% aligned with the clients. We only get paid by the clients. Every money that we can receive from any other partner goes straight to the client. So, we pass any savings, any retrocessions, everything that we…
Andy: Okay. So for a family office or multi-family office, and maybe it’s different by country, is that becoming more normal, where if you, you know, receive a commission or whatever for being part of a deal that you pass that through to the client, is that becoming the norm or is that something that differentiates you right now?
Dany: That’s becoming the standard. It’s funny that you ask. When I founded Brainvest, when I set up the first contract with the first custodian bank that was going to hold my client’s assets, I was the first contract of that institution, which is one of the top three, still today, top three private banks here in Switzerland that didn’t have a contract that allowed the bank to pay us a retrocession. And the bank said, how are you gonna survive? And I said, I’m gonna survive by the money that my client is gonna pay me. And said, but doesn’t make any sense. I said, look, if you guys wants to pay me back 50% of everything that you charge the client, that’s excellent. If you charge 0.5%, we’re gonna charge the client 0.25, the client will see exactly how much he’s paying, and I’m gonna charge my fee on top of that. So, everything 100% transparent.
At the time, that was the exception. Now, that’s more or less the norm. It’s growing a lot. Now it’s the standard, I would say. Even if you still have to receive retrocessions, you have to disclose it to the client in Switzerland. You have to say to the client how much you’re getting paid by X, Y, Z in order to invest in whatever that you’re investing. Which is also great. If the client, they say, I don’t wanna pay a minimum, and I want you to get paid by whatever that you’re selling, as long as it’s transparent and the clients understand how much as you said they are paid, it’s also works. I always believe that, you know, the client can work whatever fits him better as long as the plain view is safe, everybody’s transparent and they know exactly what’s going on.
Andy: So, in Switzerland, then it sounds to me like it’s maybe even legally required, like in the States, different types of advisors may have a fiduciary responsibility. Other types of advisors do not have a fiduciary responsibility. You know, and to be fair, it’s complicated because providing services to clients with assets below a certain amount, it’s not as economical, right? It’s harder to provide services. So, it’s a complex issue. I’m not here to pass judgment on anyone. But it sounds to me like the way you’ve set things up almost, because you’re in these three countries, you have like a best practice or maybe a standard, and then you’re applying it equally to the clients in every country, regardless of their law, I guess, or their legal requirements.
Dany: Yes. That’s our model. We can work differently in the U.S., we can work differently in Brazil. There’s other options as well. For us, it doesn’t matter. That’s how we operate. We started the business here in Switzerland because I was here, my clients had their money offshore, and we are investing abroad. At one point, the client said, you are providing such a great service that I want you to do the same thing for me in my local country, in Brazil. I want you to apply the same kind of service and allocation, and portfolio construction in Brazil as well. That’s why we started our office in Brazil. We opened in 2007. Then we started managing our clients’ onshore accounts in denominated currency. You said we were multi-shore. Yeah, in 2017, we opened an office in Miami, again, because the clients required us to do so.
Andy: I was gonna say, that’s where all the Brazilians are in the United States, right? In Miami, or many of them.
Dany: Yes. Right now we are like a Latin-focused multi-family. So we have families from Latin America. Not only Brazil. We started in Brazil, now, we are more Latin. But yes, Miami at the time was and still is the private banking center for Latin Americans. And now it’s getting not only for Latin Americans, it’s getting like even for U.S., there’s so many people from New York moving to Miami because of everything that is going on.
Andy: I love Miami. Yeah. I actually was born in Florida, but I didn’t grow up there really, but recently visited Miami, and I was just reminded how much I love Florida. It’s just a great talent totally. I’m curious though, so operating in the U.S., operating in Switzerland, operating in Brazil, is there a different, you know, business climate? What about the cultural climate? Do clients have different expectations? Or maybe at this point, ultra-high net worth maybe has a kind of similar expectations regardless of where they are in the world?
Dany: To be honest with you, we’re catering for the same type of clients. When we started our business in the U.S., it was because some clients that had their money here in Switzerland, decided that they wanted to be managed out of the U.S. because of the proximity. They were like traveling more to U.S. than they were traveling back to Switzerland. And also because, especially there was one specific family that their children became Americans. They went to study abroad. They were working in the U.S., and then the moment that they became U.S. resident, we needed to have a specific license to being able to manage their money. And the client said, look, I need you to take care of my children’s money now. And now because they’re Americans, you have to figure it out.
And then we said, you know what? I think this isn’t gonna be not only your case. See, we’re gonna see more and more of the situations that families are gonna be more complex. We cater to the ultra-high net worth. Their children are gonna be living in the U.S., in Europe, in Asia, whatever. And you have to have a structure that’s gonna be able to take care of them no matter what they are. Different jurisdictions, different types of profiles, different succession issues, inheritance issues, managing the assets in a different way.
Andy: So, hey, you know, you mentioned, this is something that always fascinates me. By the way, I love talking with family offices because, how should I phrase this? If you’re not a family office, you’re always kind of wondering, what goes inside a family office. And we’ve had DJ Van Keuren on from the Family Office Real Estate Institute, and he always says, if you know one family office, you know one family office, right? Because every family is different, every patriarch is different, every dynamic is different. How much of your job…you know, because you’re talking about, you know, on the one hand, you’re very interested in the fundamentals, you know, the pro forma, the underwriting, the nuts and bolts of the investments. But so much of running the family office is client-focused, you know, and I’m almost thinking like family drama and the sorts of problems that ultra-high net worth people have. So, how much of running Brainvest or working with ultra-high net worth families, how much of it is that soft, you know, people skills, just, you know, human being type skills versus just straight up managing the portfolio?
Dany: To be honest with you, I would say it’s…I would not say 50-50. They’re equally important. And that’s why you have to cater to all these aspects with the same attention and importance. And that’s why we decided that we need to have different people, different areas to tackle specifically one of these problems. So we have what we call family office solutions, which is a group of people that only caters to that kind of concerns that you mentioned. They look at the more, let’s say, emotional or soft aspects of the life of a client is…And I’m gonna die, what’s gonna happen? My children are living abroad. What means that, you know, what’s the more efficient way to transfer my wealth to them either if I’m alive or after my death?
What happen if they move from one place to another, if their children are different, how can I been able to perpetuate my wealth? So all these discussions, they’re very valid. They’re very important. I said, you know, it doesn’t matter how efficient you are on your portfolio management, if you screw up on the taxes, you gotta pay more taxes than you gotta return on your investments. So, one thing, it’s very linked to another, and you have to tackle them individually with people that are focused on doing exactly that kind of job. That’s why we…
Andy: But you also need someone at the top who’s seeing the big picture, right? With the relationship.
Dany: Exactly.
Andy: Okay.
Dany: And that’s why what we do is that on the family office solutions, we have the head, like, you know, the person we’re calling, he’s the conductor. He’s the guy that puts all the plan together. You have different, you know, players on the orchestra, but if they don’t play in unison, you know, it’s a mess. So you have someone that has to take control of everything. And we believe that this goes on the family office solutions. And it’s interesting because like, this is something that we learn. We were very lucky that when we started the company here in Switzerland, I was getting to get to know very large single-family offices here and we start to exchange a lot of information because, you know, Brazil, in the beginning of the 21st century, it was very hot.
A lot of foreign investors were going to invest in Brazil. At the time, we were 100% Brazilian-focused. So they’re coming to us and say, “Can you help me to find someone that knows open paper?” You know, Brazil, it’s a large country also. The wealth is very concentrated, so we know more or less everyone there. So I was putting this very large South African mining company that belongs to this single-family office to talk to a large Brazilian family that also owns some mining business as well. So when we start making that relationship, we start getting to know this single-family offices better. And then we are able to understand how they were managing all the aspects of these very large family offices. And what we did is they say, look, if it’s working so well for these families that are being, in some cases on the fourth generation already…
Andy: Well, that’s already amazing, right? Because usually, it’s gone by the third generation. Isn’t that statistically speaking? So, if I hear fourth generation, I’m thinking, that family has good planning, good processes, they probably have a family mission statement and…
Dany: Oh, yeah.
Andy: A culture of stewardship.
Dany: Exactly. And it’s not only one, I can name, like, more than 15 that we talked that are already passing that milestone and going strong. And then I applied what I learned with them in order to create exactly the same type of infrastructure and methodology to cater to our families. And that was another thing that was very important for us. And I think that’s how we are able to migrate the way that we are investing our clients into a very different way. Because, you know, we’re talking about in Alternative Investments Podcast. So, I have been investing in alternatives for a long time. This is something that I’m very passionate about. I started in the mid-90s with hedge funds, when hedge funds were giving 15%, 20% per year, no correlation. It was beautiful. You know, I…
Andy: In the good old days, right? The good old days.
Dany: Oh sure. No, I said, I had money at Medallion, you know, like we were [inaudible 00:21:18.822] at Medallion. So, you know, having that kind of manager, it’s amazing. Unfortunately, we got our money back because they returned all the capital. And I think it’s going to the roots of the families of Brazil. You know, Brazil has until ’94, for more than 20 years, it had a very difficult problem with inflation. So, Brazil, it had a hyperinflation for a period of time. I was a fixed income trader as I mentioned to you in a moment that, you know, the daily interest rate was around 4%, 5% daily.
Andy: Wow.
Dany: So, I know about inflation. And all the Brazilians…
Andy: But it’s money. It’s funny, Dany, when I hear bond trader, you know, that’s either, in my opinion, I’ve never traded bonds, it’s either gonna be the most boring job in the world, or the most exciting and stressful job in the world, right? Like, I feel like it could be either, depending on what’s going on.
Dany: It’s crazy. Like at the time our universe were 30 days. We could not go over 30 days. That was the universe that we could imagine. Trading fixed income, and the longest you can go is 30 days. But it’s still very interesting. But the psyche of the Brazilian at the time, and most Latin Americas, as I said, they’re very alike because they all been through this process. Argentinians, Chileans, you know, Venezuelans, Colombians, they all have been going through this process. So, for a Brazilian family, when they were talking about offshore, they could not understand the concept of the portfolio going down, losing money. They didn’t understand this concept. Because when you have a high inflation, you have the indexation of the inflation in everything. So, it always goes up. Your real return…
Andy: In nominal terms.
Dany: In nominal terms it always goes up.
Andy: Yeah.
Dany: So, it was very difficult for them to understand that, you know, you can invest in a bond and you can lose money in a bond. Because it’s fixed income, it can only goes up. So, the solution for us, and for me when I was trying to invest this portfolio of these clients, and at the time when I start looking at, you know, what the model of the bank, the asset allocation model that they were presenting, it was the traditional 40-60, you know, very heavy equity related. And there’s a…
Andy: Sorry, a dumb question. Is a 60-40 for Brazilian client…you know, this is something that Meb Faber talks about a lot is the home country bias. So, you know, too many clients in the United States will have 60% in stocks or 50% in stocks. It will be almost all in VTI or S&P 500. Is this the case also in Brazil where…?
Dany: No.
Andy: Okay.
Dany: No. And to be honest with you, until 2010 or something like that, I think less than 0.5% of Brazilians invested in stocks.
Andy: Whoa. Wow.
Dany: The stock market, it’s a new thing in Brazil. Although it has been a long time, but the market is very small. It’s growing now, but right now, over the last 10, 15 years that it started to really get more popular in terms of like small investors having been able to invest in it. So when I was…
Andy: I’m sorry, ultra-high net worth then in Brazil, if they’re investing in stocks at that time, would they typically be investing in the S&P? Like in the U.S. stock market, or…
Dany: Well, in the U.S., no. At that time, they would try to…again, that’s the problem with the Brazilian. They would try to invest in something that they were comfortable. So they were also investing…even they were going offshore. They were going to Brazilian stocks.
Andy: This is just blowing my mind because it’s the things that we take for granted.
Dany: Oh, yeah.
Andy: You know, in the United States, like you take it for granted, start with a 60-40 if you wanna allocate to alternatives, put 25% in alternatives, you know, whatever. It’s just part of the backdrop here, having a well-functioning stock market. Now we have crises, we have high inflation, but not a crisis like that where the interest rate’s 4% a day, nothing on that scale.
Dany: And that changes completely the way that an investors thinks. So, for Brazilians, stock market was something that was… Because you had so much money on the fixed income that you only invest in fixed income. Even today when you talk to a Brazilian, when you say that you gotta put 20% in equities, that’s very aggressive. Like it’s, oh my God, I’m gonna go 20% in equities. It’s still big. So the 60-40, when you say 60 equities, 40 fixed income, it’s something that it’ll never be accepted by a Brazilian investor, especially when I started.
So, having the opportunity to show to clients that there was a way to invest in an asset class, that was totally uncorrelated to the market, but the most importantly was it geared to an absolute return focus. That was the key thing that unlock the potential for my clients to invest. Because when they take their money out of Brazil, they wanted to have some sort of security to escape all the issues that you have in Brazil, you know, sometimes you had the political risks. Imagine that in 1990, you know, the government confiscated everybody’s assets. All the money that you had in the bank was frozen for 18 months. You could not have access. So, Brazilians…
Andy: That’s gonna be the type of thing. You know, it’s interesting, Dany, when you talk about that, it’s like, the generation that lived through World War II.
Dany: Exactly.
Andy: You know, that if you go through some kind of experience like that, where it seems like…well, in Europe, society might come crashing down or war, or, you know, food is being rationed, or hyperinflation, that’s going to literally change the way you think about money or about security for the rest of your life. And probably even you’re gonna pass on some of those beliefs to your children even, you know.
Dany: Oh, yeah. It’s the generation where now the new generation is the one that doesn’t have that kind of…you know, the 20-year-olds, the 25-year-olds, the millennials, they are the ones who didn’t have that experience. And so now they’re more open to invest in equities and other stuff.
Andy: It was a bad experience, but it opened the door to the concept of absolute return. And that sounds to me like it’s almost the theme or the genesis of Brainvest in your company around this concept of absolute return that resonated with this client base, ultra-high net worth individuals in Latin America and Brazil.
Dany: Yes.
Andy: And so you grew with that philosophy it sounds like. Is that still your philosophy even to the present day or has it evolved over time?
Dany: The philosophy is exactly the same. Our objective, it’s capital preservation for our clients. With a small nominal, sorry, with a small real growth over time. So, in terms of what it is, it’s like, what is capital preservation? You have to get inflation, minimum plus 4% to 6% return. If you have that kind of return, you can, you know, take care of your money for a long time. Your purchasing power will be preserved and you gotta be able to continue to enjoy and to pass on the wealth.
Andy: I mean, Dany, that sounds to me almost like perpetual. If it’s 4% or 5% real return per year, or 6% real return per year, I can withdraw 4% a year, and it’s growing.
Dany: That’s the idea. That’s the idea of capital preservation that we wanted to start giving to clients. So, when we started at the time, we’re doing a portfolio that was mostly hedge funds. You know, we’re talking about 40% already. We had 40% of our clients normally investing in hedge funds. Sixty percent were mostly fixed income. Stocks, very little. You know, sometimes, you know, 5%, 10%. But that was not more than that. That was the initial kind of asset publication when we started. And…
Andy: That just sounds crazy. I mean, as a U.S. investor, the concept of your portfolio would be mostly fixed-income and hedge funds. I understand it, just that sounds so wild to me. Because in the States, you’d be in stocks and bonds and then maybe, you know, five asset classes later, then real estate, then maybe commodity. Maybe you end up investing in hedge funds. So that seems backwards, you know.
Dany: I know. It is. It’s not traditional. And again, that’s why I said we are a different animal in all aspects that we have been.
Andy: That’s okay. It’s good. I mean, it’s good.
Dany: Thank God, we have the track record and we can show that we have achieved that. Our clients have achieved over, you know, the almost 20 years that they are already with Brainvest and over 30 years they are working with me, they have that kind of return. So, it does work. We have to make big changes. Now, today, the asset allocation is completely different, and I’m gonna explain why we had to change. But the most important thing is that, and that comes why alternatives has also been such a strong part of the portfolio, but also create another very different type of behavior that we at Brainvest have with investments and with governance regarding investments. We had 40% of our assets in hedge funds. How can I make sure that my macro view, that the view that I have that I had to be implemented in the portfolios were aligned with what 20, 25, 30 hedge fund managers were doing? So, if I didn’t have a way to kind of have some control of it, I will not be able to have a portfolio construction that worked. So…
Andy: I mean, couldn’t some of those hedge funds even be betting against each other? Couldn’t they be taking…
Dany: Exactly. So, when I was figuring it out, I said, look, I was saying I need to have first, a white label fund. I want to work on a fund-of-fund basis with someone that has deep knowledge of that industry that can go through every hedge fund strategy and portfolio and make sure that we can create a portfolio that not only is in line within the portfolio, but also in line with our view. So that’s what we started. We started with a fund of funds that it was managed only to us by a very good manager here in Switzerland at that time is with Rothschild. They created the first hedge fund of the fund of funds on hedge funds in 1969. The fund is still in existence. So, they had a huge experience on that.
And then most importantly, they understood what I needed. And then we created our fund of funds of hedge funds that we still exist. We still invest in them today. So, we started in 2006 and still working as of the same team. They’re not at Rothschild anymore, but they’re still the same team managing it. But it works very well since the beginning. But when 2008 came, then was a major issue for me with the great financial crisis. Because we were, I would not say lucky, but because of the governance that we had, and again, remember that I’m a fixed income trader by formation. So, I don’t know if you remember…
Andy: What does that mean? You know, spell it out. What’s the implication? Just that risk-averse, that you spot risks or what?
Dany: Yes. For me, it was very simple. And in the beginning of 2007, when I looked, and again, remember that I had fixed income and I have hedge funds. When I looked in the beginning of 2007 of the spread between the AAA and the BBB, it was, I think at the time, the narrowest it has been ever. So for me, as a fixed income trader I said, why I am taking the risk of investing the BBB.
Andy: Run away. Run away, right? Run away.
Dany: Run away. Something’s wrong. I don’t know what’s gonna happen, but there’s only one way to go. So, we started selling our high-yield exposure. We had a lot of high yields, we had a lot of corporate bonds. We started to change to high grade corporate, but we had…one of the biggest parts that we have in our hedge fund portfolio was some distress and credit managers that work at credit arbitrage. They did a lot of strategies into the fixed-income space. And remember then when I said we need to have governance, if I’m exiting my risk in credit on my fixed income portfolio, I have to do the same thing on my hedge fund portfolio. So I had a meeting with the manager, I said, look, this is what I’m doing. I want you to unwind our part of our credit and distress credit portfolio, and let’s move it into macro to CTA, to all the other strategies that are still gonna perform, and they start doing it.
Two months later, they called me and they said, Dany, we have a problem. Because of the liquidity of some of the funds and because of the time to unwind this position, you have a tail risk. And I understand that you don’t want to have that risk. So we have to be creative in how we’re gonna manage that. And that’s sometimes, you know, things happens, by the way. They came to me and said, look, we have a very good manager that we are investing. It’s a merger arbitrage guy. The guy is very smart, but he sees as you that there is something weird going on in the market, and he’s creating a specific fund to doing one specific trade that is not gonna cost you more than 5%, 6% per year, but it’s gonna be short in some credit structures that if the credit market really collapses or have a correction, you gonna make money out of this position and it’s gonna compensate for the tail risk that you still have on the other positions.
Andy: If you make that investment, it’s a hedge against your unwinding that’s happening in other…
Dany: The idea was to do a hedge. But the name of that guy was called John Paulson. And he was doing that trade. He was shorting the subprime and we made a kill. So, in 2007, our hedge fund portfolio went up 21%. Instead of hedging, we made a huge… So our hedge fund portfolio on the great financial crisis, we made money out of it, which looking backward, it’s like it’s very difficult for someone to understand what happened.
Andy: Yeah, Dany, I have to ask though. So this is interesting. You know, this is a concept to me is that you had the wisdom to set up this top-level structure with governance, but then underneath that governance, you’re making the decision to unwind some of these fixed-income trades. And you’re admitting. By the way, I just love how honest you are. You don’t necessarily identify the tail risk, that’s not even necessarily on your radar in that moment of that exact moment where you’re on… But that thing that you did initially, this having the wisdom to, you know, set up the governance, that system that you set up is what led to the good results. So it’s like, day-to-day, you can make a mistake day to day, we all make mistakes, right? What, you and me, anybody can make a mistake. But just the wisdom of setting up that governance structure is what sounds like what essentially saved you or what led to this very good result for you and your clients.
Dany: Exactly. And that was very important for us because look, what we built, it’s based on the trust that the client had on us in order to really invest and safeguard their wealth. So, I took that very serious, I still take it very seriously. And for me not being able to… And again, sometimes, you know, it’s just with the people that you work with that helps you a little bit. Like, the guy that I would work for four years as a fixed-income trader was my boss. He was the head trader and the guy still today, he’s considered the best hedge fund manager in Brazil. He was my boss and he was my mentor. And he’s pessimistic by nature, so I’m pessimistic by nature. And he always told me that, look, what a pessimist makes in 1 day, it takes 10 years for the optimistic guy to achieve. So, if you think about the worst-case scenario and you get it prepared, it’ll make a big difference. So for me, everything that I do, I’d always look at what the worst can happen.
Andy: I love that. And you know, you mentioned some families, some clients, you know, maintaining their wealth, maintaining the legacy into the fourth generation. And I think you have to have that kind of a mindset, right? Because really, you know, with the use of leverage and other mistakes, one mistake can wipe out everything. And, you know, we’re almost out of time, but I have one more question for you. And, you know, you’ve been so generous and I love just the wisdom that you’re sharing. You know, for me, it’s not just about asset classes or particular trades, it’s more, I really appreciate your philosophy, Dany, but okay, this is an abstract question. I’m gonna give you a what if. Because so many of these clients and these family offices, they start with the liquidity event, right?
And someone may just overnight have a fortune. So, let’s say, you know, I’m a prototypical client. Netflix comes to me and they say, Andy, we love “The Alternative Investment Podcast.” We wanna buy this concept and put it on Netflix. Here’s a check for $100 million. So just overnight, I’m a TV star, and now I have this fortune. Now I’m ultra-high net worth. What’s the first thing I need to do? Or even like the first 30 days, the first 90 days, what are the key things to get in place first, you know, after a liquidity event, when a person becomes ultra-high net worth?
Dany: Well, I would say the first thing you have to do is to set up your business in a way that when you sell it, it’s gonna be efficiently in order to how you’re gonna pay the taxes on it because that’s already creates a big difference. So, always plan ahead in terms of…even if you don’t think it’s gonna happen, always think that it might. Again, the best case scenario, if I sell my business for a fortune, what I have to do now that it’s still small or still growing, that if that happens, I’m gonna be more efficient in the way that I’m gonna get. So you have to think about always thinking in front even though that it might not be a possibility, but be prepared.
Andy: Sure.
Dany: So, preparing how you’re gonna be able to cash out, that’s very important. When you cash out, the first thing is when you start handing the discussions. We have some vertical of clients, and one of our verticals, it’s what we call tech founders. Because we invest so much in venture capital and we met these guys when they start their business, we start giving them advice. Even though they’re not our clients, they don’t have any money. They don’t have pizza money for sure. They’re just grinding and building their business. But for us, at one point, this guy, it’s gonna exit in a huge IPO and he’s gonna be a billionaire. So, we start preparing him in how he’s gonna be able to manage and cope and understand when he’s not gonna be an entrepreneur anymore and he’s gonna be an ultra-high net worth.
So there’s a lot of education in this process of understanding what is the asset classes, what you wanna do, and how you can invest soundly and for a long term. But the most important thing that I was saying, and I think that’s why being Brazilian and coming with this Brazilian kind of mentality, I would make like a summary that for us, we don’t look about the upside. For us, it’s always about the downside. We don’t wanna lose money. That’s why the absolute return concept of the portfolio is so important. Because we’re in the compounding game. And the compounding game only works if you are constantly making money.
If you go down 25%, for you to go back to that initial level, you have to go up 50%. So, every time that you’re just surfing the waves and you’re just constantly going through. Yeah, over a long period of time, you will make money. But when you’re talking to someone that has already a large sum of money that wants to really as I said, perpetuate that wealth, it’s not about how much do you make, it’s how much you don’t lose. And that’s why every investment that we do, especially the alternatives, for us, when we do the underwriting, when we look at every single deal, for me, the worst case scenario, and yeah, I’m a pessimistic. When I underwrite and I put a really strong stress test. Worst case scenario, I have to get my money back.
If the worst case scenario, I get my money back, okay, let’s look at this and let’s do it. Oh, sometimes you have to give up a lot of good deals because of that. Yeah, that’s fine. And I learned that from my very first family that worked with me. You know, the principal, which is still a very, very, very wise guy. And he said to me, Dany, for you to succeed in your business, don’t care about not making the best deal of your life, really, really do care of not making the worst deal of your life.
Andy: You know, that’s so interesting because I feel like I’ve heard that from Warren Buffett, you know…
Dany: Maybe, I don’t know.
Andy: No, I’m not saying that you got it from him, but just that concept of both in life and in an investment track record, if you can avoid those three or four huge mistakes, and, you know, zooming out, if you can avoid those really, really bad days, really bad mistakes that can take years to recover from, that’s, like you said, perpetuating generational wealth. That’s very, very, very important. I love that philosophy, Dany. I know that definitely will resonate with a lot of our audience. I know we’re out of time. But that being said, where can our audience, our listeners who are high net worth or ultra-high net worth, where can they go to learn more about Brainvest Wealth Management?
Dany: Well, if they go to our website, you know, brainvest.com, they can understand a little bit about the philosophy, the investment that we do, the geography that we do invest. This year we’re gonna open an office in Singapore, so we need to get into Asia as well. It’s one-third of the GDP worldwide, so we’re missing that part. It’s important. We have clients moving, again, moving to Asia, so we have to follow them.
Andy: Are you gonna get a private jet, Dany? You’re gonna need a jet.
Dany: No, I’m not. I learned from my clients, you know, it’s not worth it.
Andy: You can ride in their…It’s better to ride in their jets, right? It’s like, you don’t wanna have the boat. You want them to have the boat and invite you on.
Dany: Exactly. We have a link there, you have, you know, our email. You know, please, we love what we do, and I think we will definitely be happy to talk to anyone that it’s interesting to learn more about our story and what we have accomplished and what we still can do for not our clients, but for anybody else.
Andy: I love it. And I’ll be sure to link to your website in our show notes, which are always available at wealthchannel.com. Dany, thanks again for joining the show today.
Dany: It was my pleasure. Thank you very much. Congratulations on the podcast.
Andy: Thank you.
Dany: Bye-bye.
