Throughout this year, Maurits Pot, the founder and CEO of Tema ETFs, and his colleagues spent more time with family offices to learn about how they built investment portfolios — and how they wanted to in the future.
Tema’s list of backers includes some high-profile wealth management executives (known to me and not to you, sorry!), so much of what the asset manager kept hearing from family offices was unsurprising: They aspire to invest more like institutions, especially university endowments, and they want to manage their publicly traded assets more efficiently to free up time to spend on their alternative investments.
In response to those conversations, Pot’s firm filed to launch the Tema Endowment ETF this fall with the ticker symbol “YALE,” a reference to a now widely adopted approach to portfolio construction pioneered by the late David Swensen at Yale University. (Bloomberg wrote about the ETF at the time, and we can debate how well it can and can’t replicate endowment-style investing — and whether anyone should even try to — in another Modus newsletter, perhaps.)
What hasn’t been written about is this: In November, Tema also filed to launch two more ETFs, specifically with family offices in mind. The Tema Family Office Compounding ETF will build a multi-asset portfolio of “compounding, wealth-protecting assets” that grow over the longer term. And the Tema Family Office Tax Aware Compounding ETF will have a portfolio of equities with the aim of compounding returns over the long term and maximizing tax efficiency, generally by investing in securities that pay little or no dividends (similarly to the Cambria Tax Aware ETF expected to launch this month).
Pot is the first to acknowledge that the strategies won’t be relevant to all family offices. But he believes more than enough of them are seeking simpler, turnkey solutions to support the ETFs. Most offices “don't have the size or scale yet to employ big investment teams, but they do have a public ledger to the portfolio, and this offers them a multi-asset way… to really manage that exposure or to basically implement a building block for that exposure,” Pot said.
Family offices can also double down on the tax advantages of the ETFs by seeding the funds and making Section 351 in-kind transfers (which must be done when a fund launched), effectively getting the benefits of the wrapper and deferring tax events. Tema is already in talks with a large multifamily office interested in seeding the funds when they launch in 2025, Pot said.
Tax-aware strategies are gaining ground, and a trend within that trend is avoiding dividends to reduce tax drag while still delivering the returns investors expect from dividend-paying stocks, said Brent Sullivan, a software developer who previously worked at PIMCO and Parametric and now runs a taxable product marketing and strategy consultancy called Tax Alpha.
“We will likely see more ETFs seeded in-kind because it removes the tax cost of switching between products and, for now, is a competitive advantage for mid-size ETF sponsors willing to lean in. It's incredibly investor-friendly, assuming the ETF is competitively priced,” Sullivan said.
If a family office can take advantage of the in-kind transfer and simultaneously get a more desirable mix of stocks, bonds and other publicly traded asset classes, some will do that, Pot argues.
“Multi-asset portfolios take this approach to another level. They offer all of the tax benefits of the ETF wrapper across asset classes, removing the cost and effort of rebalancing between products,” Sullivan said.
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Other News
- The CTA saga continues: Last week, a Texas judge granted a nationwide injunction and FinCEN said that family offices don't have to comply with the CTA during the litigation. On Wednesday, the Justice Department appealed for a stay on the injunction, so maybe you will have to comply? But when exactly you need to is very TBD. For legal advice, call your lawyer.
- A Turkish billionaire recently established a family office in London — the latest example of women’s rising power among the wealthiest private investors.
- Dennis K. Berman, a Wall Street Journal editor who went to work for Jahm Najafi’s private investment firm, has left to become the first publisher and president of The Free Press.
- Peter Hand, who previously held leadership positions at Aperio and Barclays Global Investors (both acquired by BlackRock), is now the CIO at Baker Street Advisors, a San Francisco-based multifamily office that advises clients on $17 billion in assets.
- Life inspires art; then, life imitates art. Earlier this week, a sealed court document obtained by The New York Times revealed that an episode of the HBO show “Succession” — the drama inspired by the Murdoch family — prompted Murdoch’s children to secretly begin discussing the public-relations strategy for their father’s death in April 2023. Wild.
- Larry Ellison had no ties to the University of Michigan, so The Wall Street Journal dug into why he seemed intent on helping the football team land the nation’s No. 1 quarterback.
Jobs
- Kay Shah, a recruiter at StevenDouglas focused on family offices, is helping one in Beverly Hills find an executive assistant.
- Or maybe Puerto Rico is more your style? Shah is also looking for an executive assistant there, too.
Where I’ll be…
- I always like to meet people in person when I can. If you work for or with family offices and want to get together, reply to this email! I’ll be…
- Attending holiday parties next week in NYC, where I’m based.
- In Calgary, Canada the week of Christmas.
- Back in New York to ring in the new year. (And, no, I will not be watching the ball drop from Bubba Gump Shrimp Co. in Times Square for $1,015. But if you are, I would LOVE to interview you about that choice!)
Housekeeping
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