Working in the family office world was an extraordinary privilege. It was always a treat to meet well known hedge fund managers and financial celebrities, but my favourite part of attending investment conferences was meeting people representing wealthy families. It’s a uniquely interesting crowd - whether it’s an eccentric visionary founder, or a fifth generation trust fund kid trying to make his mark in the world. I collected stories at these conferences like other people collect vendor swag.

Adam and I clicked immediately. It was yet another cocktail hour, and I was compelled to introduce myself after I overheard him criticizing Warren Buffett’s recent portfolio moves. Whether or not I agreed with him wasn’t the point - in this business you want to create a network of people who question conventional wisdom and challenge your thinking.

It turns out that Adam’s father had sold his company over a decade earlier for a huge windfall. Adam’s first love was always the stock market, and so after gaining a bit of experience on Wall Street, he returned to manage his family wealth on behalf of his parents and siblings.

The great thing about this kid was that he wasn’t selling anything or trying to impress anyone. He had strong opinions and a razor-sharp wit. A breath of fresh air in an otherwise stuffy setting.

Having had enough of the conference buffet, Adam encouraged me to join him for what he called “the best fucking fried chicken sandwich you are ever going to eat.” It was a 40 minute subway ride away, but how could I say no? When we arrived, it was quite literally the kind of place they must have been thinking of when they coined the term “hole in the wall.” I’m not going to lie, it was quite a surprise to be dragged to a grimy sandwich shop in the middle of Chinatown by a wealthy heir. I made certain not to touch any surfaces before eating. But the fried chicken, nestled inside a homemade buttermilk biscuit, was everything he had promised. And we had a great chat.

“Look,” he told me, “90% of the people at this conference have no idea what they’re doing, OK?”

“Well, I wouldn’t say 90%…”

“No, I know these people. 90% might actually be giving them too much credit. They’re smart, don’t get me wrong. They just don’t really understand a thing about investing. It’s a different mindset, you know? You’ve got to think independently and lean against the wind. They do the opposite. They follow each other into the same funds. Pile into whatever is popular. Whatever has the best recent numbers. Most don’t do any real due diligence. They have no idea what they’re paying in fees. They just own so much… crap.”

I couldn’t disagree. I thought about the chat with Ted a few years earlier. And it really mirrored my own experience with the families I met over the years.

“But their heads are in the sand. They don’t even know their returns,” he continued, “happy with 7% when they could have made 10% in an index fund with a lot less risk. But that’s no fun.” Adam trailed off and stared out the garage door that served as an entrance, but then snapped back. “Did you know this conference was held in Monaco a few years ago? Holy shit that was a good one. A tax deductible luxury vacation!”

“So how do you typically invest?”

“I’m pretty much all in stocks. We have a guy who helps me with research, but we hardly ever make any new investments. If I meet a manager I like at one of these things, I allocate a very small slice of the portfolio to them. Not really because I want to be in their fund, to be honest. Mostly because then I have someone smart to bounce ideas off, and expand my network. So we’ve got a few hedge funds, a bit of private equity, it’s like 5% of the portfolio. Most is straight up stocks. Oh, and we own a few apartment buildings for steady income.”

“No direct private equity?”

Adam rolled his eyes. “I’ve been cleaning up messes my father made for years now. He got rich by building a business up from scratch, and he thinks this is how you invest, too. He got into a bunch of angel and venture stuff right after he sold. What a disaster.”

“So this is interesting, because I’ve seen the same thing with so many families. Public market investments don’t interest them. I had one client insist that buying equities, evenly in an actively managed portfolio, was ‘passive investing,’ which I got a kick out of. No… I explained to him that ‘passive’ means something else in asset management but he didn’t care.”

“Yeah, they want to be involved. They want to feel like they’re part of the action! But ultimately it’s only fun if you’re making money. And most of these things don’t work out. It took a few wipeouts for me to convince my father to give up on it. We’re in a couple of small deals, mostly to support his friends, but it’s not my choice. I have very little interest in that area. It’s great if you want to keep busy but not really if you’re in it to make money. I just feel like you can do just as well in public markets without the headaches.”

“This is what I’ve always wondered,” I explained to him. “When I go to CFA conferences with industry professionals, these alternative funds are a sideshow. Most professionals don’t own them for their clients. But when I come to these family conferences, they’re the centerpiece - the main course. I’m convinced they are sold to families who don’t know any better.”

“Bingo. But who’s going to tell them that? Too much money to be made appealing to their vanity and selling them this garbage. There’s a whole aura around exclusivity in these funds, it’s an easy sale. Don’t get me wrong, some of these managers are very good and earn their fees… some. But it’s a small minority. And good luck finding them. Honestly, the best managers are not out there marketing, they’re busy doing research.”

It was an eye opening discussion, because Adam confirmed the conclusions I had arrived at on my own having seen how the wealthy managed their money. He had the technical knowledge necessary to filter out the bullshit. He knew what worked, and focused on it. And focusing on what works means you essentially ignore everything else. But most importantly, that wasn’t the only thing I agreed with Adam about. It was indeed the best fucking fried chicken sandwich I had ever eaten.