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Answers by Joe Lonsdale, GP at 8VC; Co-Founder of Palantir, Addepar, Opengov, Affinity and Formation 8, on Quora.
Q: What does Addepar do? How is it different from Wealthfront and other new wealth management startups?
A: I shouldn't speak directly for Wealthfront and Personal Capital and other great wealth management companies, but they seem to have started to compete with low-level RIAs (registered investment advisors) or else to farm off some of their work into a smarter, low-fee passive investment strategy. It is clear the industry is going to and should shift this way and I support what they are doing for the most part.
Basically if you have a few million dollars as say an upper middle-class family, a large part of your wealth should probably be managed in a handful of low-fee passive investment vehicles. You should make sure to tax harvest and rebalance these, and it's important to have your trusts and estates setup well but maybe you shouldn't be paying huge fees to an advisor every year at this level. Based on this, these companies are competing to take clients from the smaller advisors. There are hundreds of thousands of these advisors, and it's a great business, and the new technology will be very disruptive. I've seen over 15 of these sorts of automated wealth mgmt companies now and some are doing very well.
That said, it turns out the majority of actual capital in the world is managed in billion-dollar + portfolios, and that when you manage capital at this scale it's actually not a great idea to just do passive investing. Lots of the top family offices and investment groups have achieved higher returns with alternatives like savvy real estate, private equity, and technology and resource investments, and these are important areas for the world for this money to flow into.
But this other investing is a mess, and it's not very data-driven - the infrastructure behind global finance and these more complex portfolios was mostly built 20 to 40 years ago. (At one bank we were working with early on at Palantir, I remember that we were replacing systems from the late 70s).
I've written about this in other posts, but I believe that fixing/upgrading this financial infrastructure is very important. Addepar is a data platform that underlies this more complicated area of global finance and connects thousands of custodians and fund administrators and others and provides tools to the advisors running these very large portfolios. Unlike the smaller RIAs, I don't think advisors to the major families or insurance companies or banks or sovereign wealth funds are in danger of being replaced anytime soon - not until AI is also replacing you and me. But they badly need a new global infrastructure to manage this key part of finance.
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A: 2008 was my toughest year.
I had gotten a big ego and had a bonus worth tens of millions I was expecting as a 25 year old based on my ownership in a fund we'd built, which is a big challenge to expect I now realize for anybody that age. And I was not only pushing forward two areas at Palantir and still hiring and mentoring lot of the team, but was trying to build a quant group on top of my macro trading. I was the management point of failure on multiple teams and, in retrospect, I was convinced I was too awesome to fail.
I over-extended myself. Then my mother got cancer, and I took a little time off to spend with her and family, so I had even less time and wasn't managing things well - and then she passed away much sooner than we expected. I was emotionally in a really tough place. When some people went against me at the quant group (which, honestly, I wasn't giving enough time given all of my responsibilities, even though I think we were on to some amazing things), others followed and I was shocked how nobody stood up for me. I am sure I did not respond maturely.
Even though I ended the year up a lot in my trading, the main fund was down, and the big bonuses were gone, and tempers were high - as investors panicked across the board, we went from like a 7 billion dollar fund to a 1 billion dollar fund. The quant group disbanded. I had to sacrifice my pride to save the team I cared about at Palantir, and agreed to shift the focus and not go after the global financial platform project in that area. And I saw how pride and ego are dangerous and can destroy us and cause failures, especially when we think we are invincible and everything is working.
This was a very important time for me. I like the Greek saying that the gods pile pride on men as they rise, until finally it destroys them - that this happens to all of us. It was also important to me to remember that everyone is your loyal friend as you succeed, very few people will stand up for you or be there when they see you are falling.
Fortunately, Palantir kept succeeding despite some of the rocky year, and I remained a close advisor to the top people there and after replacing myself went on to found Addepar the next year to pursue our passion in that area, and we have had a good run. The episodes and lessons for me from 2008 made future challenges in my career easier to overcome, and also brought me even closer together with my family and those I love and trust.
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