E284: Why Family Offices Invest Differently w/Robert Blabey

0:00So you were the CIO of several family offices before starting Align. What gap did you see in the market that let you start Align 2014? I feel like family offices are the only sort of large industry, I'll call it, participant that I'm aware of that you can't sort of evaluate the business from the outside. What we saw when we started Align was that, you know, oftentimes there was a mismatch between what the family hoped to get from their family office and what their goals were and what their internal resources allowed for. And so I come from an institutional background originally. And, you know, a lot of these groups, quite frankly, have institutional level capital and they don't always have institutional level resources.

0:42And so were it to be a commercial business, I think they would probably run themselves very differently. And these are intentional decisions that are made by the families. And it's not to say that there's a negative to it, but there is a business opportunity we felt in that space. And so that's what we started Align to address. And now that was, you have 2014, so a while ago. And how we should describe Align's value proposition in a sentence or two. What is it that Align does exactly? So Align started out originally, I'll call it as an adjunct or sort of a specialist in that category between where family offices had desires and lacked the resources to accomplish their goals.

1:21And so that's really where we started. And the way Align now has evolved and starting in 2019 evolved very like in a very deliberate fashion was through now an investment platform fund business that that currently has just just three limited partners, myself, my partner in Align and another family. And we started that business in 2019 with the explicit goal of looking for, you know, sort of absolute return opportunity in an opportunistic world. And so that was, that was our, our goal in starting the sort of fun business. And we got to there because we had worked with the family that was our, our anchor for that business, as well as a bunch of other families in quite, quite a diverse cross section of unique investment opportunities.

2:05And, and they spanned everything from traditional assets to alternatives, but tended to tilt more in the alternative category. And as you'll see with families, they typically have a, most of them have a quite a broad, I'll say, spectrum of investments. But the things that they tend to be most interested in and the most time on, I found, or most sort of excited about tend to be alternative investments. And so that can be managed through whatever. Alternatives is a big part of the markets. It's quickly going to be roughly the same size of Publix, what part of the market in the Alternatives universe do you see as the best risk-adjusted part of the market, Q4 2025?

2:46That's a great question. For what we do, I still really like the private credit space. We've been able to execute on a number of transactions over the last, geez, longer than the fund has been in existence. So pre-2019, where we've done a lot of innovative things in private credit. And these are generally opportunities where we're the sole capital and handling the underwrite for the investment. So this is not typically syndicated private credit. So private credit, it's kind of like ice cream. It just gets mixed in the big bowl and there's lots of different flavors to it. So I know private credit's taken some licks recently, but we've had really good scenarios in private credit.

3:27And I think that will continue to to offer opportunity in the future. Other than that, I mean, for us, we tend to be more recipients of deal flow coming in. And so what we look at and what we do are often, they're really, they're really predicated or directed by our network of relationships that are delivering us deal flow and offering us opportunity to look at deal flow with them. So we have in the past done thematic things where we picked a specific theme and sort of gone at it. But that's really in the last seven years, that's really been only one specific theme that we've done that on. Otherwise, we're recipients of deal flow and we evaluate it as it comes in.

4:10One of the hardest things about not being thematic is that you're being influenced by the inbound deal flow. You're getting fed these narratives from these highly sophisticated parties trying to convince you that this is the next big thing. How do you stay disciplined having an inbound process versus being very thematically focused? Yeah, that's a great question. So I look at it slightly differently. I feel like when you're getting deal flow from families, it's a very different and more curated and unique, quite frankly, deal flow than when you're getting it from the institutional world. And so there's opportunities, by the way, in both.

4:45So it's not a discredit to institutional world. But really what we find is that we find families who often are coming to us with ideas, whether they be public, private debt, equity. I mean, it spans a broad spectrum, but they're coming to us and often inviting us versus pitching us. And so it's a, hey, I'm looking at this or, hey, I've invested in this or, hey, we're considering an investment in this. Would you guys like to roll up your sleeves and look at this with us? And so it's a very it's a very different kind of atmosphere. And I think that what I've found is that, you know, our funnel is really quite narrow, actually.

5:21So a lot of people will tell you they look at 3 ,000 deals a year to get to their whatever 10 that they choose. Our funnel is much more curated. And so it is a narrower funnel. And so we still do far fewer deals, obviously, than we see. But what we do find is that, you know, there's quite a bit of, I say, sort of interaction and cooperation, quite frankly, that goes on with a lot of these deals. And I find that really healthy because I like the pushback. I like to, listen, my goal every day is to work around the smartest people. And I want to feel like, you know, everybody around me is a lot smarter than I am.

5:54That's what the hope is. So, you know, I'm out there looking to learn. And I think we bring value to our partners and have found that, you know, a number of them we've done repeat deals with too, which is great. I've seen this many times, these family offices investing with each other and essentially creating almost this consortium. Is that just because the opportunities are too big? Is there other factors? Why are other family offices bringing you opportunities? It's twofold. Oftentimes, yeah, it's a family deciding that they want to hedge their bets, if you will, and bring in other capital. It's also an acceptance, I'll call it, of what family's value is and what they can bring and what they lack.

6:34So if you have a family that's a specialist in healthcare and they're looking at a healthcare deal, they may know the science around the healthcare opportunity and the business metrics and the competitors and the marketing opportunity angles and whatnot, but they may have less sophistication on the capital stack side. And so they may not be as comfortable on how to structure the deal or if a certain level of leverage is sort of prudent or whatnot, or how to manage maybe the physical side, the real estate side of that healthcare development. And it's not to say that they're newbies in this. It's just to say that I find a lot of families are accepting and open to bringing in other specialists and ideas from others on the outside.

7:15And so for us, at least, that's been effective. And, you know, you see some of the biggest, wealthiest families in the world often co-investing. So I don't think it's a capital, a lack of capital thing. I think it's more of a, you know, kind of, hey, two plus two equals 10 or whatever. It's this non-zero-sum way of both evaluating the deal and perhaps having some economies of scale in terms of negotiating firms. Yeah, exactly. And the other side is, you know, in the institutional world is quite competitive, right? You know, if you have a fund that is, you know, out, you know, performing another fund, that the opportunity for them to gather assets and greater AUM around their performance can be notable.

7:56And so it is a competitive atmosphere. Families are different. They're not competing one family office versus another to outgrow the other. Of course, they want to do as well as possible, but they are, in my experience, more collaborative. And quite frankly, family office folks tend to come to the office looking to preserve their wealth and maintain that wealth in the office. Institutional investors are paid to invest. You oftentimes look at your investments through this lens of how quickly can we lose our capital or I guess this credit lens. Does that only apply to credit? And if not, why not?

8:32Yeah. So this is just something that is sort of our North Star. I mean, we look at every investment that we do and we approach each investment with how quickly can we get hurt? We have done investments where we have accepted the possibility, I'll call it, that we could lose 100 % of our invested dollars. A lot of times when we look at investments and stress test them, we look at them as a, hey, what's a dire, dire scenario? What could really go wrong here? How quickly could it go wrong? And when or if it does, what is our possibility for an exit? What would that look like? How would we be impacted?

9:07And how would we kind of plan for the worst? So we're really in the business of preserving capital, quite frankly, at the end of the day. Obviously, we want it to grow and perform as well as possible. But if you don't lose at first, you have a lot better chance of making it in the future. And so for us, we're really, really very focused on the downside. And then vis-a-vis your second part of the question, which is, you know, how do you think about, you know, credit versus equity? And is it only for credit that we wear a credit lens? I think of it as this way. If you could invest in credit and have alpha from that is more akin to an equity investment, that's the best scenario.

9:45If you have credit like protections and equity like upside. And so for us, we don't we don't differentiate between, you know, a direct investment in a commodity or credit or real estate or equity or public or private. We look at everything as what's the possibility that, you know, things don't go the way we are forecasting them to go and when or if that were to happen, you know, what's our plan of attack, if you will. You love these mid-duration investments, these one to five year investments. Why do you see an opportunity there? So the only way I know not to lose money in an investment is to not do the investment.

10:24And so, you know, you can, if you don't do the investment, you're not going to lose, have the prospect of losing capital. So the best way in our view on managing this risk is to minimize or for minimize duration. So if you're going to do an investment, not only what do you see as the life cycle and process on how that plays out, but what is the, you know, a lot of people won't look at something that, for instance, matures in a year or 18 months or is it likely to exit in 18 months because it's sort of they won't get enough moik and they'll be more, you know, they'll spend more time on it than they want, that kind of thing.

11:00and they're looking for multiples. For us, we kind of erase the limited duration side. So we have a done investment that was only six months. So we will look at things that may only go a few months, but our focus is on what is the risk adjusted return. And therefore, if you want to moderate risk in our mind, an easy way, I think to do that sort of at a very macro level is to minimize your duration exposure. And we have a joke around the office. We say there's a hundred year storm in the macro world every two years. And so, you know, COVID or a war here or interest rate spikes, it could be anything.

11:39You can't predict them. They're going to happen. And you just have to be, you know, sort of in a position where you're hopefully, you know, rotating through an investment or whatnot to take advantage of that. Double click on that. A lot of investors, they don't want to have this, let's say, 100 % return in a year and a half because then they have to redeploy the investment. I would call that laziness. Other people might call that something else. You don't have that incentive. What makes you different and why don't you care about that? Well, it's funny. Yeah, it's a good, because we've done a bunch in private credit where we've generated very high returns, but over shorter periods of time, maybe one to two years.

12:17And we have gotten pushback from people that we've talked to about, hey, but you're not compounding the dollars enough. Well, you're right. You're not in that example. But if you can layer these and you have confidence that your deal flow is repeatable, then actually, whether you invest in something that goes and generates 15 % for 10 years or generates 15 % a year for 10 years, other than transaction costs and tax and a few things like that, it sort of doesn't matter to us. And sometimes what we see is in the benefits of that shorter duration, in my opinion, outweigh what I'll call the risks of longer term exposure.

12:55That's a philosophy we have. You know, for instance, we were able to take advantage of when Russia went over the border into Ukraine. Now, almost four years ago, there was an initial sort of dislocation in the public credit markets and things really sort of seized up and there was some some gapped down trading. And we were looking at some securities that we were able to purchase at a handsome discount because of that dislocation. And this was something that, you know, again, we have a finite amount of capital. So our opportunity, I'll call it, to rotate capital and to be in and out of things gives us the benefit, I'll call it, of when there is a dislocation, having capital ready to move and take advantage of that dislocation and sort of make those macro shocks your friend if you can.

13:43And perhaps I was a little bit harsh. A lot of institutional investors also have underlying LPs that don't want the capital back. I've been shocked, frankly, shocked a lot of times. If you deliver 1.4x in three months, that's actually a bad outcome for LPs. It's kind of blows my mind. Support for today's episode comes from Square, the all-in-one way for business owners to take payments, book appointments, manage staff, and keep everything running in one place. Whether you're selling lattes, cutting hair, running a boutique, or managing a service business, Square helps you run your business without running yourself into the ground.

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15:23How do you see a line falling in the footsteps of these great investors? My first entree I'll call it to investing was in the early 90s when I started out in New York. And I had the benefit of being around a lot of the earlier hedge fund sort of pioneers as they were investing. And what I recognized was at the time they were really focused on this absolute return sort of opportunistic style of investing. And so they would adjust where they were sort of pointing their guns at any given time and might be in publics one day, privates, equity, debt, currencies, commodities. You know, they were they were looking at where opportunity existed.

16:01And I just always that always appealed to me personally. I thought it was the smartest way to invest. And so. Our business model has evolved into, you know, formalizing, I'll call formalizing that. And I think for families, that's a really, you know, smart strategy. And it's where I dedicate my capital personally. But I think it's also just something that, you know, I always sort of laugh. You can pick the best real estate manager investor, but it could just be a bad vintage or period to be investing in real estate. And so you spend all your time assessing and evaluating the top real estate manager.

16:36You pick that firm or individual, and then you just happen to get a bad vintage. And so through no sort of fault of your own, you may not perform as you had underwritten your performance to be because of the vintage versus the manager. And so for us, this opportunistic being able to pivot, play in different parts of the cap structure of a business or be in the public markets when things in the private markets look more expensive or vice versa, to us just makes sense. And so far, knock on wood, it's proven accurate. What are you doing that other family offices and other investors are onto it? That's a good question.

17:10It's hard to know what others aren't doing. What I can speak to more clearly, obviously, is what we've focused on. And we focused on, you know, things that are, you know, that, again, writing to the downside, understanding what our sort of risk tolerances are has really benefited us. And we've had some very steady returns, I would say. We've had some things, of course, that haven't worked out as we'd hoped. But by far, a majority of what we've invested in has been, you know, successful. And really the best part, I would say, of our track record is that where we have emphasized the most of our capital has been also the most successful.

17:52So it's not only where are you investing and, you know, did you pick the right company or the wrong business or the right equity or debt security, but also when you pick those opportunities, have you sized them correctly, right? And so for us, that's a big element of the risk reward, right? If you dip your toe in something and it doesn't work out, that's sort of fine. But you go in in a big way and it doesn't work out, that obviously hurts your performance a lot more. Do you see your portfolio as the riskier part of an overall larger portfolio that you're not controlling? Or are you just are you trying to replicate an entire portfolio for a family?

18:26I would say we are good at replicating an alternative's portfolio. So, you know, if somebody has exposure and wants exposure, municipal bonds, for instance, we're not a good solution for that as a comp. But yes, if you're looking, I would say, in the broad alternatives category now, I should say that we're not doing venture-oriented stuff. We're not doing early stage, I don't know, real estate development where there's permitting risk and construction costs overrun risk and material prices and things like that that are difficult to underwrite. We're really focused, as you noted, on the mid-duration, but on things that are more in an alternative capacity, one to five years of exposure and where we can sort of seek out a theme and poor business opportunity that we see coming in from, again, from our network and helping to sort of articulate that into a successful investment.

19:22And why not venture? I understand why you wouldn't do early stage real estate development. might be a very niche skill. Why not get a exposure to venture? I have done some venture in my career, but in my mind, venture is a very specialized, I view it as a specialized category. I think the people that are good at it are very good and people should go with sort of the best there. I think that for us to feel like we could be the best in the venture category would be much more challenging. And so not only is it a duration issue, but it's something that with a rifle, approach because we're doing two to four deals a year, it's a much more challenging sort of underwrite and investment prospect for us.

20:06We had an interesting conversation last time on your views on uranium and nuclear. Why do you feel like the time has come for those two energy sectors? And what are you looking for specifically in that space in terms of investment? The AI boom and theme of growth in AI consumption, energy consumption is, I believe, real. It's obviously well played out in the media and in the financial media. The uranium category is an interesting category to me. I've had some background in mining, not in uranium, but in other commodities. You know, been underground many times, seen mines up close, sort of had an opportunity to understand that industry a bit.

20:50And as I dug into the uranium story, it's the fuel stock for nuclear power. Nuclear power is the most sort of consistent baseline energy source out there that's available. It's also recently been categorized or labeled as green energy in parts of Europe and parts of Asia. So it actually is having a little bit of a, what I'll call a turnaround renaissance. There are some other elements, though, that speak really to the specifics of uranium. Fukushima, the nuclear disaster occurred in Japan in, I believe, 2011. At that time, or following that disaster, many, if not all, I can't recall now, but the nuclear power plants in Japan and many in Europe were shuttered.

21:32And this was done in a sort of press by these governments to to get away from nuclear specifically and to and to deemphasize nuclear energy around the risks. Little known to most of the people is that all of these facilities, these nuclear facilities had two to five years generally of uranium on property. This is fuel stock so that they had ready available fuel stock. When the disaster occurred, this fuel stock became therefore available into the spot market. And so the fuel stock became, you know, if you will, competitive with with the uranium mines out there. And so what that meant was that uranium prices came down significantly.

22:12And in addition, they had situations where there was so there's underinvestment. You had nuclear power, fewer nuclear power plants generating power. So you had less demand. And this sort of de-emphasis on nuclear growth in the future led to like a lot of pessimism in the market. And then you had globally, you had uranium mines under invest. And this has taken about a decade and a couple of years now to play out. But that uranium stock that was a competitor in the uranium spot market is largely gone and sold out. So these countries in Europe, some in Europe and in Japan, are reopening some of these previously closed nuclear power plants and talking about growing, actually, their nuclear power generation capacity.

22:56And you've had, you know, call it a decade of underinvestment in the mining category. The other issue with uranium is that because it's, you know, a fuel stock also for or an input for nuclear weapons, it's very heavily sort of monitored on a global basis. You can't just kind of go in your backyard and dig up a bunch of uranium. It's very like heavily licensed and monitored. So permitting of new mines, management of mine expansion, things like that take a long time. And so you have this kind of you have these colliding factors of less investment, higher regulation, the environmental issues, you know, this global oversight of where uranium is held, stocked and managed all kind of coming together around a backdrop where I believe nuclear will become will grow in the future.

23:42And certainly in China and India and places like that, they are growing their nuclear plant count. And I believe the U.S. will soon start looking to grow its nuclear capacity here. And I think there's, quite frankly, just going to be a requirement that, you know, power be, you know, growing power consumption is sort of a reality for all of us. And where is it going to come from? I think nuclear will be one piece of that puzzle. Over the next three or five years, which themes excite you the most in the alternative universe? I've been working on a sort of position paper memo recently. I believe that there's a reasonable chance that the U.S.

24:21puts into place yield curve control in the next three years, call it, during this administration's time in office. And that if yield curve control were to be put in place, you would have a knock on effect that would impact investments quite significantly, potentially. And so there's a lot of elements behind this, but, you know, just big picture in a simplistic kind of fashion, we have large federal deficits. We have a very large, you know, deficit to fund. And interest rates have obviously gone up significantly in the last couple of years. If the government were to bring the curve down, I think they would also steepen the curve, which means bring the short end of the curve down even more.

25:01But they could suppress the entire curve versus where it sits today. In an environment like that, if they then opened up banking regulations, particularly for the middle market banks here in the U.S., you would promote more lending into the sort of middle market. this would all fit very well with the administration's goal of opening up and broadening manufacturing in the United States, the whole reshoring play, everything that's gone on. You would depress, I believe, the value of the dollar versus foreign currencies, but this would actually be a net positive for exporters. And so now with the growth of reshoring and sort of on property, we'll call it manufacturing and whatnot, you'd have added opportunity to compete in the global export market.

25:46What does that mean for asset values and whatnot? I think that has the potential to benefit certainly asset-heavy companies. Any company that has substantial debt loads would get some relief. I think you'd have discount rates would obviously be lowered, so you'd have a potential for a trade-up, if you will, in the tech space and high growth equity category. I think in the specialized kind of credit world, whether it be private credit or even the syndicated credit markets, I think you'd find that those probably performed pretty well. Again, I think there would be the risk, certainly, of inflation.