Fall 2024 Letter

Dear Friends and Families,

Present Value of the Future Summit

We announced that our second Present Value of the Future Summit will be held in Shanghai on Nov 16, 2024. We had the first application deadline and received a lot of interest so far. The application for the Summit will be open through the end of October and the admission will be decided based on a first-come, first-served basis.

This event is one of a kind that you won’t see elsewhere. While we have received many applications from different parts of the world, we still have some available spots. If you are interested, please check out the details and register before the second and final deadline for the application which closes very soon on Oct 31, 2024 (capacity: 50).

Photo by Harry Jing on Unsplash

Building a Lasting Ecosystem of a Family Endowment Office

When we commenced operations in 2012, there were few single- or multi-family offices in Asia. While the industry grew, many peers disappeared as operating multi-family offices takes work. There aren’t many boutique multi-family offices that have more than 10 years of operating history. Starting a new multi-family office is in fact quite easy but maintaining its operations isn’t as easy as many hope. In our extensive work with Asian families, we've observed that communication often emerges as a critical challenge. Many parents grapple with the dilemma of wealth disclosure, fearing that revealing the extent of their assets might spoil their children. However, we firmly believe that withholding this information is not an optimal solution. To address this sensitive issue, we've taken an innovative approach by creating the manga series "Becoming Experts at Finding Experts". This unique educational tool allows us to delicately unveil potential problems from an outsider's perspective, encouraging children to engage in self-reflection by imagining themselves in the characters' shoes.

Our manga series serves a dual purpose: it not only helps in building bridges between family members but also introduces the nuanced concept of the endowment approach to the next generation. We strongly advocate for families to read this manga together, as it fosters open dialogue and shared understanding. By presenting complex financial concepts in an accessible and engaging format, we aim to demystify wealth management and promote financial literacy across generations. This innovative approach aligns with our commitment to tailored, holistic family wealth management that goes beyond traditional financial advice.

Shinya also became a starting member of the World of Allocators (”WOA”), a community of patient investors in Asia. This growing community now has 4 local chapters with almost 200 members who participate in activities to learn, share and connect. As an official licensee of Mr. Ted Seides’ Capital Allocators, WOA has an unparrelled access to the world’s leading allocators, investment managers and thought leaders. WOA also offers innovative educational programs called GP Academy for investment managers and Family Office Study Group for family offices. Our members have strong commitment to contribute to the community. We are proud of the community we helped to build and become better investors everyday.

As a family endowment office, we are expected to support our families for decades, if not centuries. To achieve this goal, we recognized the importance of building the ecosystem, which will evolve over time.

Research Activity Updates

The House of Mulans had another busy period. We had 549 Due Diligence Activities throughout the year, including 478 Meetings & Calls from January to September 2024.

We currently have 32 Approved Managers across Star Magnolia Capital’s platform. Since our inception, we approved 45 investment managers and terminated 13 investment managers. On average, we approved 2.9 new investment managers and terminated 1.1 investment managers. We believe that the optimal number of relationships is 30-40 to maintain diversification of the portfolio.

In Q3 2024, one of our investment managers, with whom Shinya had a relationship for more than 18 years, decided to retire to focus on his health. The end of relationships may be voluntary or involuntary and we need to be prepared for the unforeseeable future. Generally speaking, we anticipate that the average length of a relationship is around 10 years and this means that more than 3 relationships will be terminated every year for various reasons. This also means we need to identify 2-4 new investment managers every year.

In our 12 years of operating history, the average length of relationships has been 6.8 years. Amongst the Currently Approved Managers, we have 7 investment managers with the relationship longer than 10 years (22% of total) and 18 investment managers longer than 5 years (56% of total). Generally speaking, we re-evaluate our relationships after the initial three years and decide whether we continue developing the relationships. It is unlikely for us to terminate the relationship with our investment managers within 3 years. We had two incidents that our relationships were terminated within 3 years. The first one was related to the insider trading conducted by one of the partners of this investment manager. Although the investment manager conducted no wrongdoing, the majority of investors decided to redeem (we insisted that the investment manager should continue operating). The second one was related to aggressive fundraising. Within 2 years after we made a commitment, the investment manager decided to raise a fund nearly 100% larger than the previous fund and we decided not to reup, thus the relationship was terminated (we still have a stake in the fund, but the relationship was terminated).

Also, we tend to stay with the same investment managers longer if the relationship lasts beyond 10 years. So far, we only terminated 2 relationships that had lasted more than 10 years.

If you look at our relationship by cohort, there has been no relationships terminated after 2019, but we anticipate that we will eventually bid farewell to some of the relationships we have built since then.

Conclusion

Thank you very much for your continuous support. If you have any plans to visit Singapore or Shanghai, please feel free to email send any time. We will take you to our favorite (and affordable) local cuisines to enjoy food and conversation together.