D.F.A. #20: Veteran Investor and Art Collector Jeffrey Horvitz & The Official Launch Of Fundingstack
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Sometimes I meet investors over email that are absolutely fascinating. It’s such a cool thing. One of the greatest things about running a team like Lead Zeppelin and working with great private equity and venture capital investors all day is that you get to encounter amazing investors all the time, and you often meet them via email. I ran into famed art collector and private equity investor Jeffrey Horvitz in an email exchange a few weeks ago.
We both share a love of the old French Masters (Poussin, Lorrain, Fouqet, and more) as well as Japanese art. Here’s a really cool interview that focuses on his work in private equity and art. This is one of the most interesting interviews I’ve ever done, and it really shows you the type of mind that inspires someone to build an art collection and become a brilliant investor. Read on, and enjoy!
You were an early pioneer in publishing research on tax-efficient investing and portfolio management techniques. What key insights would you highlight for accredited investors today around asset location, tax planning, etc?
All that matters is “purchasing power”, i.e., what you have after fees and expenses, taxes, inflation, and consumption. Think of the government as your involuntary “partner”, so that what you have to invest is net of unrealized gain tax, “as if liquidated”.
The math I developed and published in 2003 showed that tax deferral is essentially the same as the carried interest in a private equity fund and tax loss harvesting is essentially the same as an interest free loan from the government, like depreciation and its recapture.
Most managers grossly overstate the value of their tax alpha by ignoring this framework when reporting after-tax performance.
2. You’ve noted private equity has limitations around tax deferral and loss harvesting due to long holding periods. What are some better suited asset classes you point clients to for tax optimization?
I have shown that the amount of investable assets needed for an ongoing private equity type program (PE, VC, RE) is north of $200 million, assuming no more than 30% in these types of assets, and a minimum of 3 5-year commitments per year at $5 million each.
For most people, especially without qualified staff, this is impossible, so I suggest passive, very low fee, public stocks, that are tax-managed to minimize gain recognition. For normal ranges of investment return deferral only becomes material at about 8 – 10 years, so it is not worth paying for shorter deferrals.
3. You have one of the most significant private collections of French drawings, paintings and sculptures from 1600-1850. Can you share the vision behind building such an impressive collection and exhibitions program?
I had been an art dealer of modern art in Los Angeles in the 1970s. In 1983, after closing my gallery I had the modest goal of buying maybe six old master drawings a year. Forty years later the collection is likely the largest survey of French drawings, paintings, and sculpture of 1600 to 1850 in the Americas, public or private, and it’s formed to remediate the much narrower focus of American museums on just the most currently famous few artists in each century. It is an ongoing activity intended for the public domain.
4. You have built an extensive collection of post-war Japanese ceramics considered one of the finest internationally. What originally drew your interest in that area and how has your collecting strategy evolved as you’ve expanded holdings over the years?
My wife, Carol, loves 3-D art and particularly Asian art, so she drew me into this, at first with very modest ambitions in 2008. Today she oversees exhibitions, loans, and gifts to more than 30 museums from our vast collection of more than 1000 Japanese contemporary ceramics. It is wildly popular with museum audiences even if they have no prior knowledge of it. Like the French collection, this has a public purpose.
5. You have an interesting backstory, nearly completing a PhD in Psychology at UCLA before pivoting into art and investments. What prompted that transition and how did it shape your perspectives in wealth management today?
My first graduate degree was in sociology of psychiatry at U.Penn and was based on two years as a researcher in psychiatric hospitals, , but I did not write my dissertation for a Ph.D. My first job offer was to be assistant director of mental health research at Temple University – but I declined. I was recruited by UCLA in the psychology department for one of the earliest computer centers for social science research, which was my area of expertise. My second graduate degree was my work on part of what is now behavioral finance. I did not write my Ph.D. dissertation for that either as I fell into being a full-time art dealer. The main thing I imported into wealth management was understanding and interpreting data and inferential statistics which is the language of modern finance theory.
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