September 20, 2020

More Wealthy Families Are Throwing a Lifeline to Distressed Businesses

“We’re always wary when someone pitches us an idea,” said Paul Karger, a co-founder and managing partner of TwinFocus, which works with 40 families that collectively have put $7 billion at the firm. “The first question is, how did this Texas oil deal miss everyone in Texas and end up on our doorstep in Back Bay Boston?”

Having sufficient selection options is something that even large private equity funds have to consider; many of them examine hundreds of deals before investing in one. But when it comes to direct investments, Mr. Karger said, he also is wary if professional investors are not part of the deal.

Mr. Karger said his firm advised most families to participate in direct investing through deals in commercial real estate — like apartments — that are easier to value and come loaded with tax advantages. He also counsels his clients to invest in deals through private equity funds and focus on the funds’ performance, not on the fees they charge, which are typically a 2 percent management fee and a 20 percent cut on an investment’s return.

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The Coronavirus Outbreak ›

Frequently Asked Questions

Updated August 6, 2020

  • Why are bars linked to outbreaks?

    • Think about a bar. Alcohol is flowing. It can be loud, but it’s definitely intimate, and you often need to lean in close to hear your friend. And strangers have way, way fewer reservations about coming up to people in a bar. That’s sort of the point of a bar. Feeling good and close to strangers. It’s no surprise, then, that bars have been linked to outbreaks in several states. Louisiana health officials have tied at least 100 coronavirus cases to bars in the Tigerland nightlife district in Baton Rouge. Minnesota has traced 328 recent cases to bars across the state. In Idaho, health officials shut down bars in Ada County after reporting clusters of infections among young adults who had visited several bars in downtown Boise. Governors in California, Texas and Arizona, where coronavirus cases are soaring, have ordered hundreds of newly reopened bars to shut down. Less than two weeks after Colorado’s bars reopened at limited capacity, Gov. Jared Polis ordered them to close.
  • I have antibodies. Am I now immune?

    • As of right now, that seems likely, for at least several months. There have been frightening accounts of people suffering what seems to be a second bout of Covid-19. But experts say these patients may have a drawn-out course of infection, with the virus taking a slow toll weeks to months after initial exposure. People infected with the coronavirus typically produce immune molecules called antibodies, which are protective proteins made in response to an infection. These antibodies may last in the body only two to three months, which may seem worrisome, but that’s perfectly normal after an acute infection subsides, said Dr. Michael Mina, an immunologist at Harvard University. It may be possible to get the coronavirus again, but it’s highly unlikely that it would be possible in a short window of time from initial infection or make people sicker the second time.
  • I’m a small-business owner. Can I get relief?

    • The stimulus bills enacted in March offer help for the millions of American small businesses. Those eligible for aid are businesses and nonprofit organizations with fewer than 500 workers, including sole proprietorships, independent contractors and freelancers. Some larger companies in some industries are also eligible. The help being offered, which is being managed by the Small Business Administration, includes the Paycheck Protection Program and the Economic Injury Disaster Loan program. But lots of folks have not yet seen payouts. Even those who have received help are confused: The rules are draconian, and some are stuck sitting on money they don’t know how to use. Many small-business owners are getting less than they expected or not hearing anything at all.
  • What are my rights if I am worried about going back to work?

  • What is school going to look like in September?

    • It is unlikely that many schools will return to a normal schedule this fall, requiring the grind of online learning, makeshift child care and stunted workdays to continue. California’s two largest public school districts — Los Angeles and San Diego — said on July 13, that instruction will be remote-only in the fall, citing concerns that surging coronavirus infections in their areas pose too dire a risk for students and teachers. Together, the two districts enroll some 825,000 students. They are the largest in the country so far to abandon plans for even a partial physical return to classrooms when they reopen in August. For other districts, the solution won’t be an all-or-nothing approach. Many systems, including the nation’s largest, New York City, are devising hybrid plans that involve spending some days in classrooms and other days online. There’s no national policy on this yet, so check with your municipal school system regularly to see what is happening in your community.

“There’s a cost to doing something right,” he said. “If you pay peanuts, you get monkeys.”

But Mr. D’Argento countered that family offices had become more sophisticated and had hired experienced investors in the last five years.

“They’re starting to look, feel and act like institutions,” he said. “With that added talent comes the ability to do more deals. It’s less of a cottage industry.”

Another risk in a moment like this, when there are many distressed companies looking for investors, is missing an opportunity to leverage the “family alpha,” or the operating knowledge that a family has in the area from which its wealth came, said Kristi Kuechler, managing director of client relations at Vernal Point Advisors, a multifamily office.

Article source: https://www.nytimes.com/2020/08/07/your-money/family-office-direct-investment.html

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