What goes on behind the closed doors of the super-elite investment group TIGER 21?
Photograph 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 had 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 almost 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 years later, he didn’t want 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 the 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.
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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 from 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 Mohamed A. El-Erian, the head of Pimco, the largest bond dealer in the world. He didn’t come to talk about a Pimco product, he talked about the financial turmoil.”
A unique feature of the monthly meeting is an exercise known as the Portfolio Defense in which membrs 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 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, 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 everybody 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.”
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 knew 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 into 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