Prince: What did you do before running Karlin?
Cohen: I have spent my entire 20-plus-year career in investing and finance, first as a Wall Street investment banker and derivatives specialist at Lazard Frères, and then in a role similar to my current one for another Forbes 400 member for almost a decade. Prior to that, I received my undergraduate degree in engineering and master's degree in finance, so I always like to understand quantitative inputs and problem solving.
Prince: Where do you see the family office model evolving to?
Cohen: I have been doing this-managing the portfolios of ultra-wealthy individuals-in one form or another for most of my career. I've seen a dramatic change in the last few years as more and more successful families have become disenchanted with both the traditional outsourced private banking model and the performance of their portfolios.
There is a growing movement to bring in Wall Street-trained talent to properly handle money management and risk controls, and to take a much more active investment role. In other words, large family offices are beginning to be run like institutional-quality businesses under the management of experienced financial professionals. Frankly, my response is, "What took so long?" The era of passive management or, in many cases, poor-quality active management-often by the principal, or the principal's lawyer, accounting firm and other wealth advisors with all of their inherent conflicts of interest-while not over, is slowly fading away.
If I were a Forbes 400 member and not an experienced investment professional, the first thing I'd do is hire a team like we have built here. I would look in the mirror and say, "The skills and talents that enabled me to build my wealth in the first place are not those that will allow me to maintain and grow that wealth. I need to bring in state-of-the-art capabilities to manage my wealth." And we know, for better or worse, that Wall Street has attracted the best and brightest from our universities in the past 20 years. That means I'd have to bring that talent in-house or I'd pretty much be walking into a gunfight with only a knife. And if I brought those capabilities in-house, I'd feel pretty confident that my risk-adjusted net returns would exceed what I could earn by just investing myself, relying exclusively on often conflict-ridden private wealth advisors, or by spreading my wealth among a cast of outside managers.
Prince: How has performance been at Karlin?
Cohen: We don't disclose specific returns and timing, but, in broad strokes, we have been very fortunate over the last six years to produce superior risk-adjusted returns. We are blessed with a flexible mandate and, as a result, have been able to significantly outperform the vast majority of institutional investment benchmarks, broad or narrow, with much less volatility. Recently, a consultant looked over our risk-adjusted return results and said that we were in the very top of the top deciles in the institutional investment universe. For example, our returns have been multiples above the equity market, hedge fund indexes, and traditional private bank benchmark, after fees and expenses. And all this during the most chaotic investment environment in over 80 years, marked by the Lehman bankruptcy, the Bear Stearns collapse, the Bernie Madoff and Stanford Companies frauds, the stock price collapse, and over 60% declines in the stock prices of major financial institutions like Citigroup, Wachovia, Bank of America and Merrill Lynch.
How have we done this? Complementing the approach I just described, we try to stay within ourselves, within our "wheelhouse." We know what we know and we know what we don't. We don't try to run all asset classes in house. We go outside when it can be done better. We have been very fortunate in attracting excellent team members to our platform, which not only has powered our investment performance, but also makes it a nice place to work. We pride ourselves on the collegial environment and we are all pursuing excellence together.
Don't get me wrong-we have made plenty of mistakes, too. But we notch more wins than losses, and we feel very fortunate.