Family Office Governance & Investment Strategy | Stephan Gerwert (PwC)

Arthur Andrew Bavelas (00:01.776)
Hello, welcome everybody to another episode of Arthur's Round Table. Super grateful for the Family Office Insights community and of course others tuning in and sharing this. We've been doing several of these lately and we really appreciate you everybody paying attention and we're super grateful for that. Today we have somebody from a different part of the world.

different than usual, although we do have some international guests, of course. And I would just grateful to have Stephen Gerbert saying that with probably the wrong way, but from Switzerland. So Germany, sorry. But yeah. And so really grateful for you to be here today, Stephen, and talk about your, your journey and then.

Stephan Gerwert (00:45.198)
Germany

Arthur Andrew Bavelas (00:59.446)
your role in the family office community and what you see evolving and your experiences in that regard. So, super appreciate it.

Stephan Gerwert (01:10.626)
No, likewise, Arthur. It's great that someone put us in touch and here we are. We've had a great... Colton, yes. We can say hi to Colton. Yeah, I've had a good chat with Colton as well. It's good to be connected with more US peers, so to say, and people in the family office space globally. I think the...

Arthur Andrew Bavelas (01:17.55)
He was Colton. Yeah, shout out to Colton.

Stephan Gerwert (01:37.279)
How do you say, at least in Germany, we have the saying like the only people that are being hurt by a network, so to say, is the ones that don't have one, right? So you can have too much network, too many people that you know. So very glad to be here and thanks for the invitation. By way of introduction, as you said, German national living in Germany right now, Düsseldorf, but married to a US woman.

Arthur Andrew Bavelas (01:46.244)
Ready?

Stephan Gerwert (02:05.102)
I have close, so to say, cultural ties to the US in that sense. So my background really has been advising ultra-network individuals, families, family offices for the past roughly 18 years now. And I would consider and call myself what many like headhunters in the US use as a term, and that is an expert generalist in the family office space.

So my background has really been advising those families from various angles. You could say I've been working at a bank, at a single family office, at a FinTech catering to that clientele. I had my own startup catering to the clientele and now at PwC in Germany in my current role as what I get to call myself head of family office services. Basically, I've really seen all angles and

I've been dealing with that clientele for the past 18 years, I stated, and yeah, that gives me a...

Arthur Andrew Bavelas (03:09.168)
Mostly in Europe, yes?

Stephan Gerwert (03:11.938)
Yeah, mostly, mostly only in Europe. Yes. Germany and Switzerland, those were the only working countries that I visited. So all other countries are, are leisure and travel, which, which we all sure do like to do. But yeah, so very European perspective, very German and Swiss perspective that I can offer. Obviously I'm in touch now with many of my US colleagues as well.

at PWC in the US, so I get more insights also in that, but predominantly German speaking perspective here.

Arthur Andrew Bavelas (03:48.512)
We talked a little bit, and we can touch on it now or a little later, of the differences between the behavior of people considering to construct a family office in Germany, for example, in contrast to those that do it into the US. But let's first talk about, if it's okay with you, what you're finding resonates.

what your role causes you to be exposed to and what resonates ultimately with people who want to take a bite out of the apple and go ahead and construct something with the help of PWC, for example.

Stephan Gerwert (04:33.934)
Yeah, so the topics that most often land on my desk is people that do not yet have a family office structure and they're thinking about starting their own family office. Either they currently are served by a multi-family office or they have an embedded family office, so they have...

it as part of their corporate business, their family business. And oftentimes they just notice in the embedded family office context, wow, governance really is not a strong suit in that set up, right? You have so much conflict of interest for the people that advise you, maybe not the best know-how in the areas you need.

And then they want to just professionalize themselves and are thinking about a single family office setup. And others that are served by a multifamily office sometimes do have just not a good fit between what the multifamily office offers, maybe also the culture of the multifamily office and what they need. And then they are thinking about their own setup.

So PWC really is then a good place to go to get independent advice, holistic advice as we like to say, because there's so much expertise in so many areas. So what I mostly do then is be the strategic advisor on things like governance, what I just mentioned, the operational setup, the IT setup.

the selection of the partners to a vendor selection process that's professional and so forth, up to maybe even think about what the best team structure would look like. It's not like we go out and hire them, right? We're not in the headhunting business, but we can suggest what's necessary. yeah, so that's most of the topics actually compared to when a...

Stephan Gerwert (06:42.574)
an established single family office comes to us, it's mostly with a very specific need. They are established in most cases, they run a professional setup, and then they have specific needs. For example, they need a new reporting tool and they don't want to look at the 150 tools out there, but they need a partner to do that. Or they have a...

investment process and everything and it all works fine, but they want it to be professionalized. So we go in and help them build a potentially better risk management process. Or as currently they come with a very specific tax need, like a family that wants to set up shop in Singapore, currently only in Germany. How do you do that? Right. And in most cases we come in as a project type.

management team, so to say, right? Do our job and then we're out again and hopefully they are better off after.

Arthur Andrew Bavelas (07:49.06)
Yeah. So there's a couple of things there I think would be interesting to talk about. One is the embedded family office. One that is using, for example, personnel and resources of an operating company, usually as a result of not being ready to split that off or the temptation to use current resources so you don't.

spend money on things that could be done by somebody already in the operating company and it's clear that there are potential conflicts there but is that generally they're just not ready to do it or is it a combination of all that where it's just easier to let current staff that you know take care of that stuff, your CFO or general counsel that sort of thing.

Stephan Gerwert (08:40.718)
Yeah, exactly. You already answered it basically. it's, as you know, the most important, how would you say it, the most important currency that we have in the family office space is trust, right? And so trust outweighs oftentimes most other things. So you already have trust in your CFO that runs the business or in your head of treasury or your head of tax in the family business.

And then it's very easy to approach those people and ask, hey, I have private issues as well. Why don't you help me with that? And those people will, like in general, they will never say no, right? Maybe they should, but they never do for various reasons. I probably would act the same way, right? It's an honor to be asked to also take care of private matters.

Arthur Andrew Bavelas (09:37.518)
And although you want to keep your job, there's like, may not really have a choice, right?

Stephan Gerwert (09:40.374)
Yeah, I don't think they would fire them if they would say no. But yeah, I think it's an honor. And so it's the trust that makes people ask the people they know, and they then take on the job. And oftentimes then after short to medium term, everybody just realizes it works okay, but it probably could be better.

in many ways and shapes and forms, Yeah, it's convenience, trust that it's natural.

Arthur Andrew Bavelas (10:14.734)
Yeah. And then when you're asked to, because there's a lot of activity, isn't there, Steven, in the selection of the tech stack and the reporting and there's companies that have raised a lot of money to build that out and there's historic companies that have.

like at a par and so forth and I'm picking on them because people know this is public information that are sort of accepted de facto utilities is the ability for you to help somebody do that, not only customized by the fact pattern, but because you've already done a lot of the work at looking at them for others. does that give you a big advantage?

Stephan Gerwert (11:06.926)
I would say so. mean, once you know the space to some extent, right? And obviously right now I would know the space. Obviously I know Adepar as well. Who doesn't in the space? They were probably the first mover or definitely developed the fastest and the biggest.

I mostly know the space here in the German speaking part. know some of the US systems as well. I think it helps to already come with a long slash short list that is not 150 companies long, but maybe then let's say 15.

And then you can drill it down, right? So sure, it helps before you go out and do it all yourself. I think they can get an edge with PwC or probably other advisors too, right? It's not just us who offer those kind of services.

Arthur Andrew Bavelas (12:08.75)
Right. Have you seen the, in your part of the world, the activity that private equity is throwing a lot of money at these companies to build businesses? the experiencing that there as well?

Stephan Gerwert (12:22.222)
saying, the US is always leading in terms of how much capital is thrown at companies. So yes, we do that as well. And many of those successful reporting and software tool providers, they have raised capital from private equity too, but not even close to in terms of the dimension and volume like someone like Adipar.

I mean, you probably know like a tool Mastro that we work closely with as well, also in the US. And I think they raised one of the biggest ones that I have come across. So to say in an international context, I 50 million or so, but I would guess that other part it has raised hundreds of millions, right?

Arthur Andrew Bavelas (13:08.74)
Yeah. So you may not want to answer this, but I'm curious about the question is it, it's, it feels as if there's more capacity than there is customers for these companies. I mean, I'm just, I could be absolutely wrong about that, but it seems like a lot of people are chasing

this building this infrastructure out for just a handful of available potential customers. Do you, again, you don't have to answer this because you might have some.

Stephan Gerwert (13:47.534)
Good question. I don't have insights, obviously, into their numbers, right? But I agree that with some of them, you wonder if it can be profitable or not. I would guess that some of them out there are not yet profitable because they're still very much, I mean, they're software products. Software as a service, they're still in the growth phase, right?

I just recently talked to, again, a person looking at like a family office who is typical. They are still reporting with Excel, right? Microsoft Excel is the biggest competitor still to all of those reporting tools out there. It really is.

Arthur Andrew Bavelas (14:29.326)
It really is, isn't it? It's like, okay, we know to build formulas. We can find the gremlins if we need to, right? We don't have to hire PWC and pay them a lot of money to go from one thing to another,

Stephan Gerwert (14:35.694)
Yeah. Yeah. It still is. And to be honest, for some...

It might still be a fair and good enough tool, right? Not everybody, let's be clear, needs a sophisticated software as a service like reporting tool. And you have to know the downsides. And that's what I was just getting to. Like you have to understand that when you select a tool and you start working with that tool for let's say two or three, whatever, five years, switching costs are incredibly high.

So you better pick the right tool because you're pretty much stuck with it, right? They all tell you, you get your data out and I'm sure you do. The question is in what form and will you ever be able to get it in somewhere else? And that's, that's something people don't really, sometimes I have a feeling really grass, how important that decision is. And secondly, and that's what I wanted to come to.

in the beginning, like talking to that family office that is looking for a tool, I very much highlighted the point that they should definitely be looking into like who owns that reporting tool, like who's the shareholder, what might be their best interest, so to say. I mean, they can tell you all they want about data security and no one looks at your data, but can you actually prove it?

Like I couldn't, right? Not for certainty, just to play the devil's advocate. And very importantly, are they profitable? Yes or no. And if they're not, who's paying for their runway? And when might that capital stop being paid? And that's super important to consider. Otherwise, again, you invest time and resources into a solution.

Stephan Gerwert (16:36.502)
And let's say two years down the road, or maybe even five years, doesn't matter. Like for a family office, it's a short amount of time. They go insolvent and out of business, you have gained nothing. Only work. So.

Arthur Andrew Bavelas (16:49.028)
You're already underwater. Not only not gain nothing, you're underwater, right?

Stephan Gerwert (16:53.154)
Yeah. Yeah. So many people don't really challenge that. And surprisingly, what I have heard them from family offices also, when you mentioned that they're like, yeah, we asked them these questions already and they are not willing to give us that data. And I'm like, well, that's the first red flag. they're not willing to share that, then I wouldn't continue talking to them. Right.

Arthur Andrew Bavelas (17:14.874)
and

And I think it's, I have some compassion for the companies that are trying to sell that service because it's a daunting task to go in as a family office executive, for example, to consider doing that. Like what's the ROI? How long is it going to take us? It's like building a house, right? You say it's going to be

two years and you $4 million and it ends up being four years and $8 million, right? You just go down the list. It's all not to be hyperbolic and use a hyperbolic world word, but it's always more expensive and always takes longer, right? Yeah.

Stephan Gerwert (17:50.732)
You draw.

Stephan Gerwert (18:01.74)
Especially in IT. The house comparison is great, but especially in IT projects you see it time and time

Arthur Andrew Bavelas (18:09.88)
Yeah. Do you think that, you said it, but Excel actually works, right?

Stephan Gerwert (18:19.918)
Yeah, so again, for some Excel, might still be the solution or just much simpler solutions, so to say, right? So some have gone over and just basically started to use Microsoft Power BI dashboards to help them with reporting. It's still more sophisticated than Excel, but not even close to as sophisticated and also that expensive.

and you're not dependent compared to other tools. And another interesting mention here. I recently talked to someone and he said, so it's not my thought, he said like, he wonders in the age of AI and potentially AI agents and everything, how important will the reporting tools still be in a couple of years time?

So he predicted, and he runs his own AI shop, so to say, so he knows more of the subject matter than I do. He said like,

What does the family or the family office actually need? You don't need a reporting stack. You don't need all those functionalities. At a certain point in time, you have a certain question about your portfolio. Maybe exposure, maybe performance, maybe liquidity requirements, capital calls, documents, you name it. So he said, like, all you need is a data pool, a data lake of all your data.

It doesn't need to be structured. It doesn't need to be a nice dashboard. But when you ask a question into, so to say that pool via AI and you're like, I need that right now. And the answer comes back in that, in that second. I don't need the tool anymore. Like no one actually wants to have a complicated tool and you click through 10 different menu buttons and everything. So he predicted the.

Stephan Gerwert (20:22.466)
the downfall of many of those very hyped software tools.

Arthur Andrew Bavelas (20:28.174)
Yeah, I don't mind mentioning my friend Ray Denunzio has also been predicting that it's going to be easier to extract unstructured data. so, you know, right now we're witnessing a massive, I just think about what's going on. just, even day to day, we use these tools instead of Google, we use ChatGTP to tell us something.

Stephan Gerwert (20:38.306)
Yeah, for sure.

Arthur Andrew Bavelas (20:54.572)
and it, is not only instantaneous, it's reasonably accurate for, for its purpose. Right. And then, you get a layer down and you build a little security and you build some, guardrails around it. You build your own LLM. So you're all your data isn't going out and helping build the big LLMs, which is exceptionally exponentially more expensive than building your own little. I mean, this.

I think it might have hop scotched right over, know, jumped over a lot of the reporting layers. I agree with your friend and Ray. And it's, it's just absolutely mind boggling to be alive during this time to see how advanced this stuff is because even in the simplest use case, it's like, what you just did what in seconds, right? It just, it's incredible.

Stephan Gerwert (21:49.166)
Yeah. And then talking about the investment space reporting is one, but it'll go further, right? Like Claude just released their wealth management, so to say, like agent and stuff. like even my dad, my dad is 70 plus and he plays around with GPT, right? And in terms of portfolio advice and he's like, I don't need my advisor anymore. Right? Like maybe that goes a little far, but

Arthur Andrew Bavelas (22:01.075)
Yeah.

Stephan Gerwert (22:18.656)
I mean, and he's right, right? When you start playing around with it, maybe even more serious and you really understand the prompting and everything, it is crazy. And let's face it, those tools are not getting worse. They will only get better.

Arthur Andrew Bavelas (22:32.816)
Yeah, my simple example, like we traveled in Europe last year.

our relatives and people we met. Everybody doesn't use Google anymore. They just use ChatGTP to do everything. And as often as the case, you guys over there are ahead of us in many ways for some things, Just a little example, but nobody was using Google. Everybody's using ChatGTP.

Stephan Gerwert (22:56.162)
Yeah.

Stephan Gerwert (23:02.732)
I would have said the opposite. Interesting, interesting.

Arthur Andrew Bavelas (23:06.512)
Yeah, it was really, really, it was Greece and Italy. I don't know if that has anything to do with it, but yeah, it's just so fascinating.

Stephan Gerwert (23:14.508)
Yeah, but if you allow, mean, open conversation, right? So talking about all these trends, how, and you obviously, and the community that you have built, what do you see is the biggest shift, so to say, in general, like that has taken place with those families in the, let's say, last 12 months or?

Is it, is it a lot that they're thinking about AI and actually implementing it? Is it the reporting topic? Is it governance? it, for example, I've heard a podcast recently and the guy said something interesting too. He said, and that's another question that US families are more than ever before looking outside of the US now for investments. And just like looking at the US.

And also the fall of the US dollar at least last year, not in the long-term, but last year. They try to diversify more than they did before. Is that something you would see in your network? Because I know that from European side, we always have been heavy US investors, heavily diversified all over the place. But whenever I talk to the US family offices, they're like, well, I'm invested in the US. Where else should I be?

Arthur Andrew Bavelas (24:23.855)
Yes.

Arthur Andrew Bavelas (24:39.46)
Yeah, I think what's driving it, I wouldn't call it a trend, but you find more people open to investing in areas where they don't have some sort of background in history, geographically, especially where you have governance, you you can count on some governance because that biggest thing is the governance issue, right? You couldn't invest in India.

comfortably unless you had background there because the courts are backed up 400 years, right? It's just it's impossible, right? but what's happening is the the $300,000 a year analyst that would even Analyze a deal in the US has been replaced in large part like the guy that led that four-person analyst team is now the only person that's left

because he can employ agents to do, you know, even in a short period of time, even in the last 18 months, it just went from, okay, we're not sure this works to like, wow, it really works. So I think that the thing that I've seen, although, like I said, I don't think it's a trend yet is that people are willing to go outside of their geographic comfort zone because they can employ these. Analyst agents in a way that's.

can surface the red flags earlier. And so I think that's part of it. Also, are, my position is clear. I think America's back stronger than ever and will be for a long time. Largely because we dodged a bullet from getting pulled down into the further abyss that we are in by the immigration and wasting money.

Stephan Gerwert (26:05.71)
Hmm.

Stephan Gerwert (26:20.769)
I agree.

Arthur Andrew Bavelas (26:35.022)
But it also, the sentiment in the US is super strong now. I you have the extremes of the political spectrum. There's always been the loud voices on either side, they're loud, but they're not big. And so I think the US is back in a big way and there's good chi, right? There's good feeling about what's going on here. And so...

Stephan Gerwert (26:40.046)
you

Stephan Gerwert (27:05.431)
Okay, see you.

Arthur Andrew Bavelas (27:05.488)
What you said earlier, I think before our conversation is, what's going on now? Trump has to worry about the price of oil because he's been bragging about that, right? It impacts everything. But aside from that, everything's heading in the right direction, inflation and so forth. So anyway, yeah, like I said, I don't think it's a trend, but it's happening.

Stephan Gerwert (27:29.198)
So you see the AI trend for sure, but you still see a very strong focus on US assets, but AI helps.

Arthur Andrew Bavelas (27:35.972)
Yeah. Yeah. It's the you, you folks have governance, right? So Europe has governance. You can count on some sort of resolution there that won't take you the rest of your lifetime. If something goes off the rails, right? and ours is not perfect either, but it's there, you know, the, the, works. You can,

bring people to court and rescue some of your assets if you have to, right? So governance is important. As it is in your experience with the family offices, right?

Stephan Gerwert (28:15.111)
yeah, yeah, very much so. Although oftentimes it feels like it's still an area of improvement for many. Because oftentimes a family office, a family office surprisingly, in my experience, people don't, especially when they start a family office, they don't perceive it to be a business. For them, it's something different oftentimes, you know?

And so they don't approach it like a business, meaning they don't have a very detailed, let's say, business plan in many ways, right? They oftentimes don't put in all these governance, let's say, rails and committees and everything that they would have if it were a business. simple things like in a business, yes, you have your board that runs the show, right? And then you have an

an advisory board or some shareholder or whatever, that you have outside personnel that give you perspective for what you are actually doing. Oftentimes in the family office space, people are like, no, I don't need that or I don't want others to have to look inside because it's private, at least here Germany. You wonder like, wow, you would never do that in your family business. You act completely different.

because of the privacy issue. So I still think there's a lot of opportunity for improvement on the governance.

Arthur Andrew Bavelas (29:51.022)
I think there's a lot of opportunity for improvement, but I think the reason why, and we see it here as well, is that if you had an operating company and you ultimately sold it and it wasn't a public company, then you've always been in charge as the matriarch or patriarch, right? And so while you may have had an advisory board and a board of directors to help you grow the business,

Stephan Gerwert (30:11.384)
you

Arthur Andrew Bavelas (30:18.456)
The buck stopped with you. Like you made the last decisions, right? Had you built a business that went public, then you were more accustomed to having compensation committees and you know, people to weighing in and having, if you're public in the U S everything is public. Like there's no secrets. But if you didn't then, and you, that's how you amass the money to then have a family office. I think part of it's like, you want to have all that control.

Stephan Gerwert (30:22.67)
Yeah.

Arthur Andrew Bavelas (30:48.688)
and the disposition of the assets and who goes where. And of course, when it comes to family, all you have to do is watch succession and not experience like you and I have the real ugliness of what can be happening with families, right? And I think that's part.

Stephan Gerwert (31:04.556)
Yeah, No, I agree that there's a reason for everything. But also to your point, like...

And I read an interesting article on that recently as well. Like people, like the argument was that, especially what you said when the super successful, so to say, person, like maybe also in the investment world, let's say Ray Dalio or whatever, like they start their family office, but oftentimes whatever has made them successful.

And their thinking and their knowledge and everything doesn't really get transferred one-on-one into the family office. Right. I mean, I just used Ray Dalio as the first thing that came to mind. Right. I don't know about this setup, but he has a very strong opinion on many things. He has built a great company. And then oftentimes it gets lost along the way. And then they wonder why is my family office not...

Arthur Andrew Bavelas (31:52.804)
The perfect example because yeah, it's a great example. Yeah.

Stephan Gerwert (32:11.128)
you know, doing as well as I did before. And it's like, yeah, well, you haven't told them one-on-one what it is that you know and what it is that you want them to be doing, right? Yeah.

Arthur Andrew Bavelas (32:24.752)
Ray is actually a very good example because he did things with his principles and the way he operated his business, where everything was recorded and everybody was critiqued by your rec reports and other. It's really, you know, he changed a lot of things, right?

Stephan Gerwert (32:38.05)
Yeah, but I don't know.

Stephan Gerwert (32:47.16)
Yeah, I just used him as an example. It's just one guy I follow.

Arthur Andrew Bavelas (32:48.976)
Yeah. Interesting. Yeah. So what, let's talk a little bit more about AI. What do you have people been running to PDWC? I mean, let's face it. You guys are, you know, credible, right. And globally people have been running to you and saying it because stuff has been happening with AI so quickly.

They said, wait a minute, what are we missing here? Because if you're busy building your business and you still have an operating company, but you're doing your family office stuff, you might look around and say, you know, all this happened while I wasn't looking, right? Have you, can you share with us what you've been seeing people tapping into you guys for that?

Stephan Gerwert (33:44.264)
there, I must say I don't have a perfect answer for you, to be honest. and the simple reason is, that, as I said, my role here is, being either the strategic advisor in the family office space and on the topics I mentioned, but for very specific requests, AI being one of them more than obviously tags and stuff. I'm not the expert. We do have lots of experts on many things.

Arthur Andrew Bavelas (33:44.528)
Thank you.

Stephan Gerwert (34:13.71)
I then basically transfer them over, so to say, and others do the consulting. And I'm just there in the background as a relationship manager in that sense. But that someone came with a very clear AI-related question, it was only once that it was in a portfolio context. Like, you know, I have a big portfolio of holdings, direct investments.

And how can I just better use AI to monitor reports, do governance issues, like get information, send out information, you know, how can I improve that? But other than that, there wasn't actually like a very clear AI question. And to be honest, when I have my family office roundtables here in Germany that we do.

I often ask the question, please raise your hand, who has a very clear AI strategy already? Like, you know, not just playing around with it, but really thinking what can we substitute, maybe who can we substitute with AI as harsh as it sounds, or what can we actually do that brings value and be strategic about it? I would say maximum one in 10 of those hands goes up, maximum. So.

Arthur Andrew Bavelas (35:36.748)
Is it? Do you? Yeah, it's happened to. Yeah.

Stephan Gerwert (35:39.608)
So they all figure out with it, but a real strategy that they don't have. Most, most don't.

Arthur Andrew Bavelas (35:45.914)
Yeah.

It's really interesting to see that one of the first public expressions of replacing employees with AI agents just happened this past week with Jack Dorsey firing half his company and coming right out and saying, look, we could have done this slowly over time, but I don't want to pretend we've

You know, what you were doing is largely been replaced by AI agents. so here's some, you know, several months and some money and, know, and of course he's not the typical CEO of a tech company. He's always done a little things, a little wonky and I'm not, it's not a criticism. It's just an observation. Uh, but it's, happening.

Stephan Gerwert (36:41.294)
It's happening and I definitely recommend a book on that subject. A very, very inspiring read. It's called The Last Economy and it was written by a guy called, I just looked it up here in parallel, Emad Mostak, founder of Stability AI.

He's a very interesting fellow to listen to when you're interested about where AI can go. he could be one you can bring on the show. I heard a podcast with him on another podcast, a big fan of podcasts in general, and that was very inspiring. And he mentioned the book. I read it. must confess I read it in part, and then it got too complicated, like, distinctly because of...

Arthur Andrew Bavelas (37:31.949)
Yeah.

Stephan Gerwert (37:34.176)
like economic connections and like how he views the world and how he thinks we should change in measuring GDP. Because in the new world now with AI, it does not work anymore. it's very inspiring, but very complex, complex ideas. So I also used an AI to like, you know, summarize it and tell it to me, like you would explain it to like a tech.

Arthur Andrew Bavelas (37:48.974)
That's interesting.

Arthur Andrew Bavelas (38:01.156)
Yeah, isn't that awesome? That's so awesome.

Stephan Gerwert (38:05.326)
Very inspiring and he's super critical and he says like wait for exactly what you were talking about the layoffs they might not start now because the companies they are still growing in the top line so they don't like their expenses they have always been there it's fine as long as they're growing he says the problem will start

when they're not growing and when you might have a recession. And then the natural layoffs kick in and he said, what will happen is that they will not be hired back.

Arthur Andrew Bavelas (38:39.246)
And they'll use that inflection point as an excuse to lay off more than they otherwise would, right? That makes sense. Yeah, I read something.

Stephan Gerwert (38:43.264)
Exactly. But I'm scared. I'm scared about that too, to be honest. I'm an advisor. What is it that I do, right? I bring advice, like the knowledge that I have. Technically, AI knows more about it right now, so to say. They have a broader knowledge. It's really...

Like I think I have a four year old daughter. think I will tell you her to study philosophy and psychology, right? Like what makes us humans, you know, we're human to be able to talk to people, to build up a network, you know, to build relationships, to not be shy, better extrovert than introvert, you know, but this, this is a crazy, crazy time indeed.

Arthur Andrew Bavelas (39:36.336)
I read something last night, which was a summary of Mark Andreessen on somebody's podcast. And it was really well done. might've been AI, but it doesn't matter. thought it was easy to consume and made sense that somebody summarized his podcast. But he was saying, for example, that are your daughter, my granddaughter.

Stephan Gerwert (40:04.728)
Yes.

Arthur Andrew Bavelas (40:05.262)
will have the advantage that, we use the example of Alexander the Great was tutored by Aristotle, right? And so he had the best education and arguably succeeded with, if you want to call it success, because of that, in that our children and grandchildren will have access to the best opportunity to learn.

Stephan Gerwert (40:18.606)
Hmm.

Arthur Andrew Bavelas (40:35.086)
than has ever been known in the past, right? And so, one of his predictions was there will be billion dollar solopreneurs who come in and see the opportunity where their skill set is going to go away, but then they pivot and learn to use the H-

Stephan Gerwert (40:38.819)
Huh.

Stephan Gerwert (40:49.528)
Mm-hmm. I forgot.

Arthur Andrew Bavelas (41:04.826)
Do the coding and then learn agents how to express that in marketing and promotion and know, et cetera, et cetera. Just go from there and you could be a billion dollar company by yourself, right? it's kind of fascinating. Yeah.

Stephan Gerwert (41:18.296)
Yeah, for sure. It'll happen. It'll happen in one way or another. And I agree with your point. I would have needed better tutors, so to say, especially in school and high school for learning and certain certain subjects. So I think that will help you. The question is, are you still

How do you stay motivated to learn when knowledge itself is almost not so important anymore? Like how do you, you you meet the tutor, yes, but if AI, if they always know more than you do and they know it all perfect, you cannot compete, right? So it's really.

Arthur Andrew Bavelas (42:13.498)
cannot repeat what AI can't do, although it's demonstrated. I mean, this is just my opinion, but it means nothing. Is that while the AIs seemingly have personalities,

you know, sitting down at the pub and having a beer with a friend and having a true real life interaction is not going to happen even if they have. Andreessen said that the 160 IQ is probably the max that the mean of the human condition can have and that AI is going to be 200, 300, right? And so

It might not be interesting to communicate with if you have 150 IQ to somebody who's got 300, right? It's not going to be too much fun. Yeah.

Stephan Gerwert (43:10.328)
Yeah. Oftentimes with the AI thing, there was this movie called Her. It's old. It's old, right? And you looked at it and you, and back then you thought like, that can probably happen at some point, right? But I sure did not think it would happen that fast because that movie is, I don't think 10 years old, right? So it sure happened fast. That AI got personality. It really talks back.

Arthur Andrew Bavelas (43:15.556)
I remember him. Yeah.

Arthur Andrew Bavelas (43:35.317)
It's really good.

Stephan Gerwert (43:40.334)
You can pick the voice you like and whatnot.

Arthur Andrew Bavelas (43:40.847)
Yes.

And I don't have an opinion because I certainly don't have enough information, but you know, just this week also, the U S department of war just bounced out anthropic and said, we're not agreeing to your terms of service. And the anthropics says, we're not going to let you spy on us citizens or whatever the argument is. And, know, in a, in a nanosecond, everything that they built

Stephan Gerwert (43:56.366)
Hmm.

Stephan Gerwert (44:10.2)
Yep.

Arthur Andrew Bavelas (44:12.014)
to work with the US government just got shut off. And then in the same day, in the same 24 hour period, chat GPT slides in with open AI and takes their place. when you're in the consulting business from transition people from one technology to another, that would have taken three years. It took one day, right?

Stephan Gerwert (44:34.03)
.

Yeah, but that leads me to another thought. We've just had our family office forum event here in Düsseldorf and Munich. And one of the questions I asked a family office representative, I asked, right, in today's day and age, I think resilience is important and agility to be able to, you know,

react fast to the world around you and how it is changing. And I asked like, do you think it's more, are you more or less agile when you insource a lot or when you outsource a lot? And that's the perfect example. Like I would have argued, and he was of a different opinion slightly. I would have said the more you outsource, the more agile you are because it's exactly what you just said.

Arthur Andrew Bavelas (45:20.741)
question.

Stephan Gerwert (45:34.67)
It's plug and play, right? I have this service program, like one day I have PWC, then they do something maybe not so great, then I pick the next one and vice versa. And the same in the software space and so forth. So if you build a lot of in-house personnel and expertise, it's much harder to replace that, right? Especially in countries like Germany, or you mentioned France and Italy. have very good people.

Arthur Andrew Bavelas (46:00.068)
because of the liberal laws? Yeah, right. Yeah, that's super interesting.

Stephan Gerwert (46:02.846)
different label laws and all of it, but also because people are not, and I even see it in companies like PwC and others that I've worked for before. You still have a lot of knowledge up here with all of your employees, right? Not everything is not even close to everything is documented in a perfect way. So when you go out the door, a lot goes with you.

Arthur Andrew Bavelas (46:31.344)
Goes with you, yeah.

Stephan Gerwert (46:32.334)
And this whole hiring, so to say, what that costs you as an opportunity cost to find the right person again, things like that, like tremendous. Never factored in. Never factored in.

Arthur Andrew Bavelas (46:46.544)
Well, not only does the knowledge go out the door, the relationships go out the door.

Stephan Gerwert (46:51.694)
Even more so, yeah. So I'm a big fan of in the single family office world and obviously you have to distinguish probably between, let's say, again, someone in the US, you have bigger wealth in general, like we in Germany, like in Germany if you have a family office.

that is a billion plus, it's already a very substantial family office, right? I yes, we also do have our billionaires that have two digit billions in wealth, but not even close to three digits, so to say, the billions. So if you have a very, very substantial wealth, I think it might make sense to insource more because you can also, again, always...

It's easier from a cost perspective, right? But even for a family office with a billion plus, I think as long as it's not two digit billion, so to say, I think you can keep the structure still somewhat lean. And you don't necessarily have to have like 40 people in house at some point, right? Like many do. And then you have a lot of HR topics.

And oftentimes it doesn't get factored in the cost.

Arthur Andrew Bavelas (48:17.136)
So what was the counter opinion for the person who suggested keeping it in control?

Stephan Gerwert (48:24.227)
Thanks

Yeah. Yeah, he was really about, and many feel that control, yes, to some, but oftentimes it's really privacy. It's really just like, you know what, it's such private affairs and matters. We don't want to outsource that. And while I get all of it,

I would argue that depending on who you are working with, the legal contract that you have with them and the compliance that a company like PwC has on me as an employee is 10 times higher than any compliance in any family office. So I would argue that I'm much more bound by secret, you know, by how do you say?

Arthur Andrew Bavelas (49:18.32)
Privacy, yeah, yeah, yeah

Stephan Gerwert (49:19.352)
privacy than many, many family office employees. And the damage that I could bring potentially to a brand like PwC if I do something wrong is so much bigger. So I'm so much more aware of it and PwC is so much more aware of it. I have to do two compliance trainings a year, sometimes three, sometimes four hours of training. I don't know if...

family offices do a lot of compliance training, depends on the size, maybe.

Arthur Andrew Bavelas (49:52.174)
Well, it's, it's, it's, think it's what you said. It's that PWC has a lot more to lose by you doing something stupid. Right. And so they're, they're even more attentive to making sure that that doesn't happen because they're a target. Like if, even if you're, even if you didn't do anything wrong, they still have to defend themselves. If somebody suggests that you do, right.

Stephan Gerwert (50:02.126)
now.

Stephan Gerwert (50:18.958)
Yeah. Yeah. Yeah. And another thing you should remember as a family office, like bigger corporations, they have a bigger checkbook, so to say, right? So if something went wrong, especially in the US, you can potentially sue them, right?

Arthur Andrew Bavelas (50:31.375)
Yeah.

Stephan Gerwert (50:37.59)
And that's a benefit that you couldn't do with an employee, right? He then walks out the door, but you cannot sue Stefan for mishap in a family office. Like, yeah, try it. There's nothing to sue for.

Arthur Andrew Bavelas (50:50.094)
Yeah, yes, you bring up a good point because a lot of people don't realize this or sort of go a blind eye to it is that in the US you can sue anybody for anything whether they did anything wrong or not. Right. And

Stephan Gerwert (51:04.898)
But most people outside find it funny to be honest.

Arthur Andrew Bavelas (51:08.309)
Yeah.

Yeah, you know, we have tort law problems, right? There's no question about it. But the idea that we have a, I'm going to talk about it in terms of another, an additional tool in our country that other countries don't have is just a threat of defending yourself against a suit. Could be hundreds of thousands of dollars.

And you may not have been because in the US the lawyers name everybody and then you have to respond right or you by default are guilty So it's really

Stephan Gerwert (51:52.066)
What the system is good for is an interesting investment opportunity and that's litigation finance.

Arthur Andrew Bavelas (51:58.564)
Yeah, no, we've been involved in that. Yeah, it's a good business.

Stephan Gerwert (52:03.864)
It's a good business. If you find the right partner, I've had here and there bad experiences, but in general it's good business.

Arthur Andrew Bavelas (52:12.312)
Yeah, yeah, there's been like a lot of places there's been a little sort of dicey people doing it, but.

Stephan Gerwert (52:20.366)
But maybe looking at the investment space, and I know that's one core focus of your network, what are the investment themes that you are currently seeing that see traction in the family office space?

Arthur Andrew Bavelas (52:35.994)
So there's something that is omnipresent. The family offices, independent of how they made their wealth, tend to want to be in the real estate asset class. Even if it's a small slice, even if it's not how they made their money, even if they, because you've got a hard asset, and the tax laws in the US, especially with the big

Stephan Gerwert (53:05.378)
Yeah, let's see.

Arthur Andrew Bavelas (53:05.594)
beautiful bill. I've made it even more interesting because you can basically defer taxes for a long time and have cash flow that's not taxable and have depreciation that's accelerated and 1031 exchanges. It's all just a wonderful asset class. And so people like that. And as a result,

you have to be really good at underwriting and selecting and not paying too much because you make money in real estate when you buy it, not when you sell it. So the real estate asset class is always very interesting to the community. And then of course, the trend, the things that trend like when cannabis was trending, when crypto was trending, when those tend to have some legs in terms of interest. And right now,

It's, there's, know, everything's AI. Okay. What's going on with AI? and there are people who are expressing that in a variety of ways. And of course, what we talked about, and I forgot to mention earlier, there's a fair amount of sitting on the sidelines with that because they're feeling the, you know,

People have short memories, when you lose a lot of money in the dot com bubble, you still have a lingering pain, right? And so they're feeling like this is something like that. May not be, but they're still thinking about it and looking at things and paying.

Stephan Gerwert (54:42.326)
And the banks are doing it currently as you know. But yeah, I'm a bit younger than you are, but I even experienced the dot com bubble as a teenager back then, starting my first investment, so to say. yeah, lost a good bit, gained a lot and lost ultimately because not getting out.

that leaves a mark, right?

Arthur Andrew Bavelas (55:13.164)
It does leave a mark. and it's hard to say where this is all going to land. Cause it was only a year ago where for, can just, an example that was, we experienced, in the community is somebody was building a platform where you could build an agent and you had to subscribe to that platform. And it would go out and seek the right, LLM to do the work.

Well, all that is worthless now, right? Because there's companies that you can build that layer for $20 a month instead of $1,000 a month, right? And so all of a sudden that company, while it had built a layer that was useful, it's no longer very interesting, for example. I mean, it's just a small example, but I think things are getting easier. Say it again.

Stephan Gerwert (56:08.376)
moves very fast. Yeah, no, no, I agree.

Arthur Andrew Bavelas (56:14.01)
Yeah.

Arthur Andrew Bavelas (56:18.33)
Yeah, but still.

Stephan Gerwert (56:18.55)
It's, I guess I have a fox, but I lost it.

Arthur Andrew Bavelas (56:23.632)
That's okay. Yeah, it'll come to you. I think it's a really exciting time to be alive. Like, it is just miraculous what's going on. Things are moving so fast. And we always talk about, I mean, there's endless amounts of people that yammer nonsense on, you know, social media and...

LinkedIn and so forth. But one thing that's consistently true is that you can have all the AI models you want, but if you don't have a relationship, the relationship exponentially causes the probability of success.

Stephan Gerwert (57:11.374)
you

Arthur Andrew Bavelas (57:11.404)
to increase, right? And we experienced it during COVID, didn't we? Like, even though we were sitting in our homes and doing everything on Zoom, you were able to have meaningful conversations with people that you met in person over the years. And that was enabled you to prosper that in an environment where you would have normally gone out and had a cocktail or gone to a meeting or dinner or whatever.

Stephan Gerwert (57:37.806)
Yeah, that's what we said in the beginning, the relationship part, you being able to socialize, so to say, and be a good human being and a nice person to talk to, so to say, has become even more important than the age of AI, so to say, right? Because what differentiates you to an AI agent at some point?

It's only going to be the human side of things, but that's why networks like what you have built and what so many others built are important. I think the challenge again becomes what I've always thought, like right now I'm not working for family office, but were I to work for a family office, it's always like the question.

Geez, I don't have so much time for everything. What do I focus on, right? Which networks, which peer groups, which people, there's so much, so many events to go to and you know where it's crazy. And it's a daunting task. So I think Colton, whom you mentioned in the beginning with his family, what's it called? Family office factory is doing

Arthur Andrew Bavelas (58:29.54)
Yeah.

Arthur Andrew Bavelas (58:39.44)
crazy

Arthur Andrew Bavelas (58:52.036)
Family factory, yeah, where he's listening to events. Yeah, he's kindly put a bunch of bars up. Well, we are. Yeah.

Stephan Gerwert (58:55.63)
transparency is key. I always also think about what we talked about, the vendor selection topic. It's not just in the IT and software space, it's the same with taxes, with legal advisors, with people that advise on family governance, with concierge services.

It's you need an encyclopedia for all of that. It's unbelievable.

Arthur Andrew Bavelas (59:28.546)
Exactly.

Do you know the Info Tech people over there? And I think she's in Spain.

Stephan Gerwert (59:37.614)
Sven. Sven Borgman?

Arthur Andrew Bavelas (59:41.388)
Yeah, yeah they do. I've known her for a long time. She was with

Stephan Gerwert (59:44.099)
things.

Stephan Gerwert (59:48.686)
think so.

Arthur Andrew Bavelas (59:51.251)
a conference company but I'll make sure that if I send you a note after so because they do a pretty good job with the tech stuff too.

Stephan Gerwert (01:00:01.006)
Yeah. Yeah. It's an information overflow, right? I read a funny post on Excel, think, recently where some guys said, we have already reached singularity. And the reason is pretty simple. We use AI now to create, let's say, 5,000 word, whatever, article or post or whatever. And then others use AI to summarize it to 100 words.

Arthur Andrew Bavelas (01:00:05.861)
Yeah.

Arthur Andrew Bavelas (01:00:30.178)
Right.

Stephan Gerwert (01:00:30.894)
And I thought, yeah, that's so true. We have reached it. It's ridiculous. It's ridiculous.

Arthur Andrew Bavelas (01:00:37.424)
It's so true.

Arthur Andrew Bavelas (01:00:42.409)
There's a Dr. Seuss book. Do you know who Dr. Seuss is?

Stephan Gerwert (01:00:46.23)
Yeah, I read it to my daughter. It's amazing.

Arthur Andrew Bavelas (01:00:49.998)
So it's called the Sneetches. And it's kind of the same thing. So the Sneetches were a town where the upper crust elite Sneetches had an A on their chest. They were like these funny looking little animals. And all the lower class ones did not. And they always aspired to be...

Stephan Gerwert (01:00:54.904)
Don't know that word.

Arthur Andrew Bavelas (01:01:15.95)
the Sneetches with the A. So this really smart guy came into town and had a machine that would take the lower class Sneetches and put an A on their chest so they would become the elite. And so all the lower class Sneetches got an A on their chest and paid the guy to go through the machine to have that done. And then when the original Sneetches that had the A discovered that, they paid the same guy to take theirs off.

Stephan Gerwert (01:01:43.31)
Yeah

Arthur Andrew Bavelas (01:01:45.936)
So you create, it's kind of like the pharmaceutical business, You create the problem and then create the cure to the problem, right? So that's gonna get.

Stephan Gerwert (01:01:47.086)
Stephan Gerwert (01:01:56.654)
Yeah, that's a whole other story. Pharmaceutical and builds and everything, that's a whole, in general, the space in the US.

Arthur Andrew Bavelas (01:02:07.598)
Oof.

Arthur Andrew Bavelas (01:02:11.818)
yeah, it's crazy. Yeah. That's the, if you look at the two biggest advertisers on regular network television and cable television, it's always the car companies and the pharmaceutical companies. They have the biggest budgets. So what's that tell you? Yeah.

Stephan Gerwert (01:02:13.176)
compared to German.

Stephan Gerwert (01:02:34.21)
Yeah, we don't have that so much anymore, but I must admit I'm a big streamer, so to say, by now. I don't even watch regular television anymore. At least in Germany I'm out.

Arthur Andrew Bavelas (01:02:45.669)
Yeah.

It's really hard to watch.

Stephan Gerwert (01:02:52.258)
I consume news on other channels.

Arthur Andrew Bavelas (01:02:59.93)
Yeah, there's plenty of it. So Stephen, this has been amazing. Thank you for doing this. If it's okay with you, we should wait a couple months and do it again. See how quickly it changed.

Stephan Gerwert (01:03:08.162)
fun.

Stephan Gerwert (01:03:12.45)
Yes, there's too many topics to discuss. And we talked about that, obviously, for listeners, when you go over an hour at some point, then yeah, who has the time? I'm sure when you publish it, you can play it at one and a half times speed, and people rush through it. Yeah, it's a world of...

If someone solves that somehow, that's going to be a big thing. How to much better condense the really relevant information for you at some point for only what you need to know.

Arthur Andrew Bavelas (01:03:54.596)
Yeah, well, you gave a good example. We've taken a couple of the episodes and run it through and asked Grok or somebody, can't remember who we asked, to just summarize the tidbits and told it exactly how many to come out with, not which ones. And it just, it doesn't even have to listen to it. It just takes the transcript and in 30 seconds it says, okay, here's the most important points, right? Really wild.

Stephan Gerwert (01:04:11.148)
Yeah.

Stephan Gerwert (01:04:23.491)
Yeah, but it's still nicer talking to you, rather than if we would have done that by a chat or email.

Arthur Andrew Bavelas (01:04:26.928)
For sure, for sure. Well, I'm super grateful for you doing this and let's do it again soon. And then next time we'll talk a little bit more about your events that you do there with the network of family offices that you have and talk a little bit more about that. Great.

Stephan Gerwert (01:04:47.013)
How we try to make it interesting. think that's the challenge we both of us have, right? Like how do you make events interesting for a clientele that can buy everything and anything and gets invited to events on a weekly basis by literally everybody. There is a, it's a real challenge, but there is still some net.

Like events are still a necessity because especially as a family office, especially as a family office executive, if you have a smaller team, you cannot just live in your own, like in your own small bubble. You need that connection, that inspiration, that discussion, that learning peer group learning. Yeah, you need it.

Arthur Andrew Bavelas (01:05:36.452)
Yeah, you absolutely need it. Thanks for doing this again and big shout out to Colton also again. So, all right, we'll talk to you soon. Thank you everybody for joining in. Stephen. Bye bye.

Stephan Gerwert (01:05:44.344)
guys.

Thank you.