E404: Why This Billionaire Family Office Doesn't Rebalance Its Portfolio | Pincus Family CIO
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What is the main topic discussed in this episode?
In today's conversation, we explore why most investors measure performance incorrectly, why Scott moved away from the traditional endowment model, and how sophisticated families think about portfolio construction, risk, and preserving wealth across generations. Joining me is Scott Aboukir, CIO of Pincus Capital Management, where he helps oversee the wealth of the Pincus family and thinks deeply about maximizing after-tax returns for long-term investors. Without further ado, here's my conversation with Scott. Scott, one of the ideas that you've really spent a lot of time thinking about is after-tax returns. Why is nobody focused on it?
It's really hard to calculate, genuinely difficult to calculate after-tax returns. We can get into the structure of our operation in a little bit, but just like maybe one way that a lot of sort of larger single-family or multifamily offices might differ from your traditional wealth client is just the complexity of like entities and You have individuals, entities, sometimes pooled vehicles that are created, all of which kind of have different nuances in how they're taxed. Some income from a fund might flow from a fund to a pool vehicle to a trust, and then certain types of income might stay there and taxes get paid on behalf of the trust. Certain income goes down to an individual. These entities all can be in different jurisdictions.
How do you attribute income tax liability sort of appropriately to the right place and the right investment to actually do the right analyses? There's a whole bunch of reasons. It's just genuinely difficult. There's like timing issues. Oftentimes you've probably experienced this. Your accountant might call you around April to do like an extension thing and you've got to make it at the same time. You're trying to truing up your prior year's tax liability. You're making a first quarter payment and that might be sort of framed as like a lump sum. So somebody has to go through and say like, okay, well, What time period was that for? On the individual investment level, you've got things like a simple example is like private equity fund might write up a company two or three years ago, but realize it today.
And so where does that liability go in terms of how you would adjust your time weighted return or whatever it is you're looking at, your IRR? So there's just like a bunch of genuinely difficult calculation issues. And then I would say equally as important, frankly, I think incentives are off a little bit here. I mean, in most, I'd say institutional investors, and certainly the case in family offices, because it's so hard, a lot of people are incentivized on pre-tax returns. And so I think the incentive to really roll up your sleeves and do this is...
Why do family offices prioritize after-tax returns over pre-tax returns?
Not really there. I think in probably the same a little bit for the accounting profession, just a little bit easier for everybody if this is just so complicated that you just ignore it. Those are a few reasons.
It's deeper than even the incentives of the managers. You could argue their fiduciary responsibility to their investors, which are mostly institutional non-taxables, actually to maximize their pre-tax returns, not their post-tax returns.
Exactly. But it's all the way down. I mean, when I was saying the incentives, I was actually referring to like someone in my seat who's allocating typically to fund managers.
What makes calculating after-tax returns so difficult for multi-entity families?
But you're right. I mean, from the fund manager's perspective, I mean, this is another one that's genuinely a difficult one to answer. Their clients might be, are all subject to different jurisdictions. And so what is the right way that they should actually report this? But yeah, I think like you said, it's, they're raising money from a variety of people, including people that aren't subject to any tax. And so what is the right way to show it? Obviously these things are hard to, you can imagine if you start breaking out of different ways, SEC mandates and all other rules also come into play. Like it's very hard to footnote everything that you're doing.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–2:31
2
Why do family offices prioritize after-tax returns over pre-tax returns?
2:31–3:02
3
What makes calculating after-tax returns so difficult for multi-entity families?
3:02–22:08
4
How does Pincus Capital actually measure and report after-tax performance?
22:08–38:31
5
Why did Pincus abandon fixed endowment-style rebalance targets?
38:31–52:49
Speakers
2 identifiedMore from How I Invest with David Weisburd
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