As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewing Michael W. Sonnenfeldt.
Michael W. Sonnenfeldt is the Founder & Chairman of TIGER 21, a peer membership organization for high-net-worth wealth creators and preservers, and author of Think Bigger: And 39 Other Winning Strategies from Successful Entrepreneurs. Through his private investment company, MUUS & Company, he has holdings in alternative energy technologies, event-driven life sciences, real estate, and a range of venture and private equity investments. In 1980, he conceived the transformation of the Harborside Financial Center in Jersey City, New Jersey, the largest U.S. commercial renovation at the time.
Thank you for joining us! Can you tell us the “backstory” about what brought you to the finance industry?
I founded TIGER 21 over two decades ago with a group of six entrepreneurs in New York City who had all sold their businesses, as our first Members. Each of the original Members already enjoyed a major liquidity event, and I sensed there was a need to create a peer membership organization, which could help us navigate the opportunities and challenges that accompany the responsibilities to preserve and grow significant wealth for first-generation creators of wealth. Today, TIGER 21 has over 750 Members in 31 markets that meet in 67 Groups each month. They collectively manage their own personal assets of over $75 billion. Members are roughly as successful on a comparative basis as a major league athlete — about 1 in 10,000. What we think is unique about our experience is the way in which Members explore issues of wealth preservation with issues of estate planning, philanthropy, children and family through the confidential connections they build with fellow peers who bring relevant experiences and best practices for each other to learn from.
Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?
Around 1990, I was introduced by a friend to a start-up company called Solar Outdoor Lighting (SOL) and when I visited them I was so fascinated that you could actually create light by hooking a solar panel up to the battery that would power a street or a parking lot light that I was blown away. While these lights were quite expensive and in the early stages, it seemed like they had an extraordinary future. My friend told me they needed some initial financial support and so I bought 5% of the company. A few months later they needed more support, and I bought another 5% and over the next decade because I kept that company afloat, which is how I ended up owning 90% of the business.
In certain unique situations, the economics of solar lighting were compelling. If you wanted to put a light on the top of a mountain, would you rather pay $1,000 for an electric-powered light and $10 million to bring a power line up the mountain or pay $5,000 for a wireless solar powered light? I knew that the closer the light was to existing powerlines the harder it was to justify the premium for the solar-powered street light, but I assumed that over time, solar power would get cheaper and cheaper and climate concerns were starting to grow.
Solar power did get cheaper by a factor of 10! However, what I didn’t expect was that electricity prices would not grow, and in those early years no one could have predicted how efficient LED lights would become. With the new LED lights, in many cases it was easier just to replace the existing street light with a new LED light rather than converting the light to a solar-powered street light because the LED used a very small fraction of the energy, which provided enough cost savings to pay for the replacement LED. But I kept the company alive for 25 years of straight losses. Eventually, I found a Canadian public company that was in a related business of Solar LED signaling, like marine buoys, obstruction lighting and runway lighting. I was able to merge the two businesses together and recruit a first-class CEO to run what would become the combined business.
From 2012 to 2017, the stock of Carmanah Technologies went from $.90 per share to $7.35 per share, which was the final price I received before the company was taken private. The market capitalization of the company went from $6 million to over $140 million. During those five years I was able to make a handsome profit and recoup all of the losses I had incurred at SOL for 25 years. Many people thought Carmanah’s success was an “overnight sensation,” but actually it was a “30-year overnight sensation.” My take away is that if you believe in something strongly enough, and are confident you on the right track, there’s an awful good chance that eventually, if you have the staying power and the will and discipline to stay the course it will turn out OK. With Carmanah and before that, SOL, I was able to do well by doing good because the satisfaction of the ultimate financial success was matched by my satisfaction in helping a solar company grow and contribute alternative energy lighting to the world over.
Are you working on any exciting new projects now? How do you think that will help people?
TIGER 21 recently shifted to an all-virtual environment in response to COVID-19 to meet the current and evolving needs of our Members, and in many ways is connecting the community together like never before. We have also introduced Virtual Network Group Meetings on topics of interest to subsets of our Members. As a result, Members are now leveraging the TIGER 21 network in new ways that will prepare them for what’s ahead.
A key area of focus is philanthropy and I recently participated in a virtual COVID-19 TIGER 21 Philanthropy Roundtable so that Members could share with one another how they are effectively helping their own communities as well as find ways to collaborate on specific Member-wide efforts. The discussion was so fruitful that we will continue to meet with one another so that we can benefit from our collective intelligence and reach.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
TIGER 21 has a network of some of the most successful and extraordinary people in the world, so I am able to take inspiration from our Members, many of whom have exited their last business at the top of their game. I have also benefited from multiple mentors over the years, but one stands out above the rest. When I was 25 years old, I found my partner and mentor for my first real estate deal who happened to be more than twice my age, David Fromer. After 18 months, we put together the $25 million in financing needed to acquire the Harborside Terminal (as 50/50 partners), which had been the largest building in the world when it was built in 1929. It quickly became America’s largest commercial renovation project. Thanks to David’s attributes as a mentor, I learned about real estate development, the ins and outs of New Jersey politics, and life in general — perceptions I might have never discovered over an entire career. After we sold Harborside in 1986, David and I pursued our own independent businesses, but we often invested in each other’s ventures. For the next 25 years, until he passed away in 2010 at age 86, David remained my best friend, a father figure, and my most influential mentor.
As you know the stock market and the economy in general have become extremely volatile and uncertain. Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?
When you have economic dislocation it will be hard to know when the economy will be back. This isn’t going to be a “trip and get back up” scenario. Our Members meet monthly, and many of our Groups for two or four times a month, and discuss opportunities of interest. Most of our Members think that the likelihood of going back to normal is gone forever, but there will be a new normal. It will be different, especially for industries focused on crowds such as airlines, entertainment, and restaurants.
Technology stocks such as the FAANGs continue to be favorites of many Members. Tech stocks have held up quite well during this period and some of them will be able to have an outside role in the reformation of the economy. Members tend not to be stock pickers and keep little more than 20% in public equity. There has been no greater shift, with the trend continuing through Q4 2019, than Members’ shift to private equity — now commanding 24%, or almost 2.5 times the allocation of 10%, from a decade ago. In recent years, a small portion of this increase was allocated to venture capital, which has captivated many Members’ interest. Technology investing starts with private equity or venture capital. As the economy shakes out, there will be a lot of good companies with bad balance sheets, which were created by the credit problems and the downturn. Our Members will tend to stay on the small- to mid-size companies where they can invest directly and make a difference.
However, the overarching principle, which many Members want to focus on is to ensure they have enough cash to weather almost any storm. As a result, cash has become king for Members positioning for a worst-case scenario. Reductions in valuation of a portfolio are less important than ensuring enough cash so forced liquidations are not forced at exactly the wrong time. With some of our Members they are pushing for even more liquidity where the assets they are liquidating might have less potential than the deals Members are expecting to find if things deteriorate even further. In other words, one foot is on the brake — attempting to be really cautious and conservative and make sure there is enough cash to weather a further deteriorating situation, while the other foot is ready to step on the gas, very selectively, if an opportunity is simply spectacular and maybe even the deal of a lifetime because many of our Members have seen these kinds of opportunities in past decades, and seized them.
Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?
Members aren’t packing up and selling, but it is hard to characterize anything as an investment opportunity right now. They are still expressing a long-term view with a valley to go through. The lesson is trying not to panic and to find where the best opportunity is to stay safe and buy only at extraordinarily attractive prices, but always keeping in mind things may get far worse before they get better
A number of Members keep a ‘Christmas List’ together — for companies they want to invest in, but wanted to wait for a cheaper price.. Members often discuss those companies that historically have been best in class, but have been unusually hard hit such as Delta Airlines, Disney or JP Morgan. There is no clear consensus within our Membership about when to buy these assets, but they are frequently seen as bellwethers of sentiment, and the sense is they will eventually return to successful paths, so they are closely watched bellwether stocks.
Are there alternative investments that you think more people should look more deeply at?
Some of our Members are looking at setting up a SPAC (special purpose acquisition company) to buy distressed assets such as hotels. They are evaluating the distressed credit market to determine where to invest. This is an area that is really played through private equity and private hedge funds, but many Members feel the risk-reward ratio of the best distressed credit funds is almost unique just as markets bottom out although typically there are even more bankruptcies and defaults after a market bottoms than before, so “there is time.” Additionally, TIGER 21 is hosting expert speaker webinars on a weekly basis for Members and a recent one was on the topic of “The Case for Gold in Uncertain Times.” Some Members are looking at investing in precious metals as a way to protect against instability in the stock market.
Can you please give us your favorite ”Life Lesson Quote”? Can you share how that was relevant to you in your life?
My business partner and mentor, David, always told me that “the deal of a lifetime crosses your desk every week, you just have to be ready willing and able when it arrives.”
It is too easy to fall into the trap of believing opportunities have dried up. Some fail to see opportunities at the top of the market and some fail to see them even at the bottom. David’s fundamental belief was that there are always opportunities if you keep your eyes open and you are in a position to seize them, which has colored my approach to investing for 30 years. Right now, in response to the COVID-19 pandemic and the financial threat, we are repositioning our portfolio by raising cash, liquidating investments we no longer have confidence in, and ensuring we have enough cash to weather almost any potential storm. We have not said “our window is closed,” but rather that the bar is simply much higher. If we can identify opportunities where the risks can reasonably be quantified, and the upside is truly extraordinary, we are still considering new deals. In 1991, at the low point of the then Real Estate crisis, the real estate markets had largely seized up. Business activity crawled at such a slow pace people felt that another depression was upon us. We bought a portfolio of defaulted loans from the Resolution Trust Corporation. They had taken over failed banks, protected the depositors, and then resold the banks loans at a huge discount to “get the market moving again.” We bought a portfolio of 79 loans originally worth multiple hundreds of millions of dollars for 16 cents on the dollar. We were the high bidder! In hindsight, it WAS the deal of a lifetime because we ultimately recovered multiples of our investment after many years and a lot of hard work, but taking that risk took more courage than I have today. I was in a wealth creation phase of my life, then, and could stomach greater risks. Today, I am in a wealth preservation phase, and never want to risk so much that if I am wrong I could lose a significant portion of my wealth from a single mistake, but I am still looking for great deals with outsized returns where I think I have a competitive advantage and can afford to take the risk.
If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be?
To help society get through this difficult period, protecting loved ones and our communities needs to be the top concern. Toward this end, we have targeted to give a dramatic increase in our charitable donations this year. To make this real and immediate, our family is targeting 20 new gifts each week for the next 10 weeks, which we hope will represent the peak of the COVID-19 crisis, and if it continues beyond June, we will probably double up again. This pace forces us to be exploring many different areas, from women’s domestic violence shelters, which are overflowing by the crisis, to helping farmers get food to markets that have been totally disrupted. The core issue is to support frontline workers who are risking their lives to allow society to function along with workers who have been laid off. The bottom line is that although we are shut in and sheltering in place, we are doubling our efforts to reach out and support others in need to try to help as many people as possible to get through the terrible challenges we still have ahead of us.
Many of our Members are making similar commitments and similar efforts, and we are inspiring others to do the same so that we can individually and collaboratively fund solutions to make an immediate impact on COVID-19 relief. One of the most common insights Members share on calls and in Meetings is how this crisis is bringing people together when realizing that we are all at risk together and we are going to have to work together in new coordinated ways to live through the pandemic and hopefully, eventually put the economic toll behind us.
