A Capital Crowd
Thomas Gallagher shifted uneasily in his seat. He waited for each of the 10 people around the conference table to review his 15-page financial report and braced himself for the barrage of questions, criticisms, and laughter.
Laughter? Gallagher, the 60-year-old former vice-chairman of CIBC World Markets (BCM ), had distributed a printout of his net worth to fellow members of an unusual peer group of multimillionaires called Tiger 21. The camaraderie and banter among the men and women in the room eased his anxiety. "Hey, Tommy, have you put your house in a QPRT?" asked one (referring to a qualified personal residence trust, an estate planning tool).
Tiger 21, which stands for The Investment Group for Exceptional Returns in the 21st Century, is a cross between a high-end investment club and group therapy. The entrepreneurs, corporate chieftains, and Wall Street wizards get together one day a month to talk about how to preserve and increase their wealth. On this mid-March morning in a Manhattan town house leased by the group, Tiger 21 gave BusinessWeek access to one of its confidential day-long meetings. As part of the deal, we agreed not to divulge the names of participants who wanted to remain anonymous.
To qualify for admission, members must have at least $10 million investable assets (excluding real estate, art, and collectibles). They also have to ante up $25,000 a year in dues, which covers meeting expenses, rent, speaker fees, and salaries for six staff members. Membership in the seven-year-old organization has doubled in the past year, to 74 men and 5 women, meeting in groups of 10 to 12. The average age is in the mid-50s. Members are mostly from New York, but offices in Florida and California are slated to open soon. The goal: 300 members.
Interest in Tiger 21 reflects growing concern among the wealthy that private bankers, trust companies, and brokerage firms have a not-so-hidden agenda to sell financial products and services. "I felt the advice I was getting was always tainted," says Michael Sonnenfeldt, a 50-year-old real estate developer who co-founded Tiger 21 as a profitmaking venture, earning its money from memberships. Others have formed similar groups where the wealthy can swap ideas without the pressure of a hard sell.
What makes Tiger 21 unique is that participants are encouraged to invest together, and in fact, potential members are admitted based on their ability to bring deals to the table. The idea, says Sonnenfeldt, "is to create a collective intelligence and build a confederation of investors who are always looking out for each others' interests." For example, a year ago, Patricia Cloherty, CEO of Delta Private Equity Partners, needed to raise $10 million more to close its $120 million Delta Russia Fund. Sonnenfeldt, who knew her, invited her to a Tiger luncheon, and she walked out with commitments totaling $9.3 million.
Another Tiger 21 partnership bought into a Texas oil well, while three others are investing in real estate on the Puerto Rican island of Vieques. Amnon Bar-Tur, managing partner of SafeHarbor Holdings, an investment holding company, recently joined a fellow Tiger member, and together they raised $330 million from investors to build a Hard Rock Theme Park in Myrtle Beach, S.C. "We're wealthy enough where we can pool our assets and open our own doors into alternative investments," says Sonnenfeldt. Indeed, the group's total assets surpass $5 billion.
Many Tiger members are entrepreneurs who have cashed out of their businesses, though some are still working. They've had no problem making money but don't feel as confident making sure it lasts. "Getting rich is not the same as staying rich," says an 82-year-old real estate developer.
Reginald Brack, the former chairman and CEO of Time Inc. (TWX ), says his Tiger membership is well worth the time and expense. He had been a client of a preeminent investment bank for six years and paid huge fees. Yet his returns were flat. In 2005, the first year he managed his money on his own with Tiger 21's help, his portfolio was up 8% (net of fees). "My costs are less than half of what they were," he says. Two other members found out at a meeting that they shared an investment manager but were charged different fees for the same service. They confronted the manager who cut the fee for the man who had been paying more.
Sonnenfeldt is used to starting ventures. After graduating from Massachusetts Institute of Technology, he went on to Goldman Sachs (GS ) and worked in the real estate group for about a year. He moved into New York real estate, and by age 30 he had cashed out of a huge commercial renovation project (New Jersey's Harborside), splitting $120 million in proceeds with a partner. By 42, he had built and sold a company that bought property from failing savings and loans. At the time he was a member of The Executive Committee (TEC), a peer group for CEOs of private companies. Six of the members had sold their businesses, and he asked them if they were interested in forming an investor club. He asked Richard Lavin, the TEC group facilitator, to join him as a co-founder of Tiger 21.
Besides having the financial means to join, Tiger 21 members must be willing to disclose their entire investment portfolio once a year. "Doing a portfolio defense is like taking your clothes off in public," says one member who runs a wealth management division for a major Wall Street firm.
Gallagher's portfolio defense was one of the highlights of the day-long meeting BusinessWeek observed. Gallagher said he was content with the annual return of 9.1% on his portfolio of mostly hedge funds, private equity, real estate, artwork, stocks, and bonds. Since his last annual review, Gallagher had put a few million dollars into two investments -- a hedge fund and a real estate fund -- because the managers of both felt "like me, much more negative about the state of our economy and the world." Several members challenged him on his bearish views. In his defense, Gallagher said: "I'm looking at investment opportunities differently, and if I lose 10% in these investments, I'll pull out."
When the meeting began, members shared news of the changes in their lives and their portfolios since the last get- together. Some were questioned on moves they had made in both. When a former investment banker commented that he was "looking into starting a money management firm," another member asked: "Is this really what you want to do? Won't it significantly alter the time you spend with your kids?" He said he wasn't planning on doing it full time.
Each group meeting has two speakers. The day's first was James Melcher, chief investment officer of hedge fund Balestra Capital, which had received an investment from a Tiger member. Although Melcher was not a particularly dynamic speaker, he was nonetheless pelted with questions about his investing strategy.
Later, the members shifted focus from their wallets to their psyches. Lunchtime speakers Jeri Sedlar and Rick Miners, the authors of Don't Retire, REWIRE!, led the members through an exercise to figure out what they wanted to do next as they turned their attention away from working full time. Sedlar asked: "How many of you have a passion, and what is it?" Most didn't have an answer.
Clearly, Tiger 21 isn't just about dealmaking. Mark Kress, CEO of Spencer Forrest, a maker of hair products, says the group has prevented him from making bad investments and helped him disentangle himself from some messy tax shelters. "There isn't a major decision I would make without the support of the group, be it financial, marital, health, or family," says Kress. "It's a kind of therapy you can't get on the couch."
By Toddi Gutner