Introduction
Dear Readers,
We hope you're having a great summer so far!
July and August are supposed to be the quieter months in the financial industry - and yet, we found ourselves plenty busy, from our small summer social event at the start of the month, to client meetings and quarterly reporting, to preparing the materials for our next round of Q2 quarterly reviews in August.
The month also gave us a timely real-world illustration of something we wrote about in Thoughts on Thematic Investing earlier in July. After skyrocketing in the first half of the year, the Philadelphia Semiconductor Index shed more than 20% from its peak in just three weeks, driven by mounting questions whether the AI infrastructure buildout can justify the valuations it has commanded. Space stocks told a similar story: SpaceX's much-anticipated IPO in June drew enormous attention, only for the stock to fall further after an aborted Starship test flight amid choppy post-IPO trading.
Both are a good reminder of what we argued in the piece - a compelling theme is not the same as a compelling investment, and timing matters more than most investors want to admit. Especially as we find ourselves late in our current economic cycle, we keep on reminding investors that a few additional percentages in gain might not be worth taking the risk that we see in some parts of the markets. (As always, if you’re looking for a critical review of your current positioning, don’t hesitate to reach out.)
Enjoy your summer!
All the best,
Jan & the Cape May team
What’s new with Cape May?
Tamara sent out her quarterly tax newsletter last week, this time focused on succession planning. This is a topic that has come up constantly in our client conversations over the past few months.
The newsletter covers three main areas:
The key instruments for tax-efficient wealth transfer, ranging from usufruct (Nießbrauch) structures and direct gifting to family partnerships (Familien-KG) and family foundations (Familienstiftungen), including a practical example of how a Nießbrauch can reduce the taxable value of a gift by more than a third
The ongoing reform debate, specifically the SPD's FairErben proposal and the ifo Institute's alternative model, and what either scenario would mean in practice for families currently planning a transfer
The "succession folder" (Nachfolgemappe) - a practical checklist covering everything from asset overviews and powers of attorney to digital assets and the family conversation that most people keep putting off
If you'd like to be added to the distribution list, reach out.
How we served our clients this month
A few highlights from the last weeks:
Hosted a workshop for a client and their family officer, covering discussions such as high-level investment frameworks (such as our beloved Aspirational Investor Framework!), strategic asset allocation, AI hedges, and the proper use of alternative investments
Prepared a client’s quarterly reporting, highlighting potential areas of simplification and cost reduction in a portfolio managed by one of their private banks
Assisted a client in weighting the pro’s and con’s of purchasing a private residence with or without a mortgage or alternative debt offerings, and supported them in divesting some of their portfolio to help finance the expected down payment
Worked closely with a family in setting up a family investment company, as well as a complex asset transfer from parents to their children under consideration of personal preferences and quantitative implications
Reviewed a client’s insurance policies together with our good friend Sebastian, taking into account tax implications of keeping or unwinding said policies, resulting in a winddown of one investment-oriented policy in favor of a managed account
Supported a family officer in reviewing a portfolio previously managed by a departed colleague, outlining opportunities for simplification and cost reduction, leading to an RFP with existing and additional bank partners for certain building blocks
Critically reviewed an affluent entrepreneur’s investment portfolio under consideration of income requirements as well as cash needs for new projects, highlighting areas of simplification and diversification in their public portfolio as well as liquidity options outside an outright sale of assets
Finalized a client’s investment in a fund of hedge funds, supporting them along the way in onboarding-related questions as well as alignment with their tax advisor on open questions around tax treatment
Reworked our internal target return models to properly serve clients in additional jurisdictions outside Germany, such as Spain or Malta (we’re getting more and more international! 🌐)
As always, if any of the above resonates with your situation, don't hesitate to reach out.
Cape May in the News
After her debut on the Finanzfluss podcast, Svea joined the “For Professional Investors Only” podcast by Das Investment and private banking magazin. In the episode How Capital Is Taking Over Sports – and Where It Hits a Wall, she discussed how private equity is reshaping entire sports leagues (from Formula One to football and tennis), why valuations continue to climb, and where German football in particular is drawing the line.
Jan's piece “When investors misunderstand semi-liquid funds” appeared in the print edition of private banking magazin in July. (You can read the online version in German here.) He addresses one of the most common objections he hears from investors that evergreen funds are “untouchable” precisely because you can't get the apparently ‘promised’ liquidity option during a downturn. His argument is that this concern, while not entirely wrong, reflects a fundamental misunderstanding of how semi-liquid funds should be used in the first place - just because a product offers periodic liquidity doesn't mean it should serve as your liquidity buffer.
If you have a podcast, a blog, or another type of publication that you think would benefit from our views and network, don't hesitate to reach out.
Cape May Wealth Weekly
In July, we covered a number of topics:
In Thoughts on Thematic Investing, we asked whether investing around a specific theme (e.g. AI, semiconductors, space) is a “flavor of the month” or a legitimate strategy. Our answer: it depends almost entirely on timing, depth of expertise, and how you size it within a broader portfolio.
In Four Common Mistakes in Your Wealth Projection, we walked through the errors we see most often when clients model their long-term return requirements - from mistaking net worth for investable capital, to underestimating living expenses, to leaving taxes and inflation out of the calculation entirely.
In What’s Your Alpha, we revisited one of our most-read (and personal favorite!) pieces - the question of where you as an investor can actually generate outperformance, and where you are better off simply accepting a beta-oriented return and moving on.
In In Defense of Average, the natural follow-up to the below, we made the case for beta-oriented investing across liquid and illiquid asset classes, and argued that for most investors, “average” private equity or bond returns are not a consolation prize, but a perfectly sensible outcome.
And as always, if there's something you'd like us to dig into that we haven't covered yet, we'd love to hear it.
Final Remarks (and Asks)
We are taking a short creative break from Cape May Wealth Weekly over the next couple of weeks, but that doesn't mean your inbox will go quiet. We have a few guest authors lined up with perspectives we think are worth your time - so stay tuned.
In the meantime, reader questions and topic suggestions remain one of our best sources of inspiration. Some of our most-read articles started as a single question from someone in this community. If there's something you'd like us to explore in more detail, let us know.
Thanks for reading and enjoy the summer! 🏖
Cape May Wealth Advisors is a Berlin-based wealth management firm focused on helping affluent entrepreneurs find financial independence. If you are interested in learning more about how we can help you, reach out to us via email, and make sure to subscribe to our newsletter.