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The family office that I oversee has a peculiar structure. In the 18-plus years since it was formed, the entity has received almost all its capital from the “surplus” earnings of the family members. Each adult member had his and her own IRA, simple IRA and/or 401(k) account managed by professional fiduciaries. The family office has received only the savings that exceeded the limits for the members’ tax-deductible retirement contributions. Initially, the members chose to fund the family office rather than make additional contributions to retirement accounts because they wanted to invest in a pair of tiny start-up businesses. The rapid and lucky success of one of those businesses has left the family office with a windfall from its sale; until this spring, there was reliable cash flow from the second business that averaged a 25% annual return on investment. Those cash flows ended abruptly with the COVID-19 shutdown of the U.S. travel and entertainment business. The two technically-skilled partners who run the business have made the extraordinary commitment to continue operations without any compensation, and they will receive any future cash flows from the revival of the business.

Even with that loss, the members of the family office find themselves in the position of Anthony Trollope’s characters in The Way We Live Now. The family members in their 30s are actively employed, and the amounts of their “surplus” savings continue to grow as their incomes continue to rise regardless of the general economic slump. The members in their 70s, who are retired, find themselves still making capital contributions to the family office because they are receiving mandatory distributions in excess of their living expenses.

As a result the members of the family office now find themselves wondering what to do with the cash. Should they double down on the same investments held in the index and professionally managed funds of their retirement accounts? Should they continue to leave the bulk of their funds where they are now – in U.S. Treasury securities, the modern equivalent of the consols that Trollope’s characters owned? The consols paid over three percent – 20-times what the two-year Treasury was paying when Jeffrey Gundlach offered his thoughts last week about the “most attractive part of the yield curve.”