The difficulty of preserving private capital

By Felix Salmon
May 28, 2009

Most of the attention being paid to yesterday’s Ira Sohn conference seems to concentrate on David Einhorn, with his quite compelling idea that a triple-A rating is a curse, and that therefore Moody’s, whose highest praise is to bestow a triple-A rating on a company, is in for a world of pain.

But looking at Mike O’Rourke’s summary of the conference (embedded below), I was struck by comments from Paul Singer, of Elliott Associates:

Singer discussed the rule of law. He noted it is devilishly hard to preserve private capital for a long time. Rule of law is a necessary but not sufficient condition. The color of money can change over time.

This is very true. An enormous number of families have become dynastically wealthy over the centuries; precious few have managed to remain so over many generations, even if they implement harsh and unfair rules like giving substantially everything to the first-born son.

The families which have done very well over the course of centuries — the Hapsburgs, perhaps, or the Rothschilds — carry more than a whiff of helping to write the rules of the game themselves, as opposed to leaving themselves open to the caprice of others. And for all the thought experiments saying “if you put $1 in a bank account paying 1% interest in the year X, it would be worth $Y today”, the fact is that in most cases Y is zero — your money would have been taken from you, in one way or another, by now.

That probably helps explain, at least in part, why Paul Singer and his ilk spend extremely large amounts of money on political lobbying. But it should also be sobering to anybody who thinks that a passive buy-and-hold investment strategy will work over the really long term — not only into your own retirement, but even unto your children’s and grandchildren’s retirement. If you have that kind of time horizon, a whole new set of geopolitical risks starts coming into play — all empires fall, after all, and being in one of those empires when it’s falling can be extremely hazardous to your wealth. Which is maybe why family offices can spend two years searching for exactly the right person to hire.


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As well as the Rothschilds have done in preserving and growing their wealth over centuries, it’s interesting to note that only two of the five Rothschild branches have lasted at all, the English and the French. The other 3–the Italian, Austrian, and the German–died out rather quickly.

Your point about the sobering reality of buy and hold is well-taken, but as always there are counterexamples: The Antinori family of Italy tends the same vineyards its ancestors did during the time of the Medici. And the Fuggerei housing settlement in Germany, originally endowed by Alex Fugger nearly 500 years ago, still draws much of its income from forestry holdings initiated in the 17th century.

I know Paul Singer a little, and although he doesn’t have the highest returns of the speakers at the conference, to him alone would I have entrusted super long-term capital in, say, Paris in 1811, or Vienna in 1913, or Budapest in 1940, or . . . New York in 2009.

Posted by Nadav Manham | Report as abusive

I should note that the Grosvenor family (the Dukes of Westminster) have been wealthy, in one form or another, since the Battle of Hastings. Their ancestor crossed the Channel with William the Conqueror, and among the original family were the chief huntsman to William. (Hence the name Grosvenor, i.e. le Gros Veneur, or The Great/Fat Hunter)

I note that the Duke of Westminster is currently the richest non-expatriate Briton, topping the Sunday Times Rich List.

Posted by Myles SG | Report as abusive

In fact, Hugh Lupus le Gros Veneur was the nephew of William the Conqueror. He is also the originator of the Cheshire cat, it being a degeneration of his heraldry.

Posted by Myles SG | Report as abusive

Felix, how about giving Zero Hedge a hat tip – after all that is where you took the Sohn conference notes from.

Posted by observer | Report as abusive

The Grosvenor family is descended from Raoul Le Veneur who shot the arrow that pierced King Harold’s eye during the Battle of Hastings and saved William the Conqueror’s life. There are many names including: Fenner, Venner, Vennor, Le Venables, Le Gros Veneur that are derivatives of the name. The name, Le Gros Veneur, meant the great hunter and not fat hunter because of the skill involved with the longbow. I am an ancestor of this family.
Susan Fenner Latshaw

Posted by Susan Fenner Latshaw | Report as abusive