How Family Offices Are Making Money with AI

“This is the most incredible tech I’ve ever seen.”

My friend John is a long-time wealth manager who recently made the move to Chief Investment Officer of a Family Office.

In Spring of 2023 we were on a video call and I wanted him to check out the incredible tool I was using - ChatGPT Plus.

Once I explained Code Interpreter to him, he went down a rabbit hole about how AI will transform financial analysis, business operations, tax profile optimization and dozens of other critical elements of his life’s work.

John bought a ChatGPT Plus subscription that weekend.

Then he hired my company RevSystems for AI development work and started creating his own internal applications.

For everything.

Literal Wealth Systems.

In this article we’re going to explore the different systems he leverages — specifically focused on the financial benefits, the operational advantages, etc..

For a deeper dive on the technology itself, look for a post on my other publication, Life in the Singularity.

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A System For Scanning

Purpose: To identify new investment opportunities across various markets and sectors.

Imagine eyes scanning the globe, sifting through mountains of data like a diamond prospector, unearthing nuggets of potential. News whispers, satellite images tell their silent stories, financial reports unfold their secrets.

My first creation, the Scanning System, uses the keen sense of AI to sniff out promising opportunities across oceans and asset classes. It's a tireless sentinel, keeping you abreast of hidden gems nestled amongst the market's babble.

The benefits?

Time liberated.

No more scouring endless reports or drowning in newsfeeds. This system identifies potential with laser focus, freeing you to analyze and strategize. It's like having a tireless analyst whispering promising whispers in your ear, pointing you towards uncharted frontiers.

• Data Sources: Market news, financial reports, regulatory filings, permits, research papers, social media, satellite imagery, alternative data feeds.

• AI Techniques:

  • Natural Language Processing (NLP) to analyze text and extract insights.

  • Computer Vision to analyze images and videos for trends and patterns.

  • Anomaly Detection to identify unusual activity or potential disruptions.

  • Recommender Systems to suggest opportunities based on past preferences and portfolio composition.

• Outputs: A prioritized list of potential investment targets with summaries and supporting data.

Key Features:

• Data Aggregation: Integrates data from multiple sources, including market trends, financial news, industry reports, and social media insights.

• AI-Powered Analysis: Uses machine learning to analyze market data and predict emerging trends.

• Customizable Filters: Allows the CIO to set specific parameters or areas of interest (e.g., tech startups, renewable energy).

• Alert System: Provides timely alerts on potential opportunities based on predefined criteria.

• Visual Dashboards: Offers user-friendly interfaces with graphs and charts for quick understanding of the data.

Benefits:

• Comprehensive Market Insight: By aggregating data from a multitude of sources, this system provides a panoramic view of the market, ensuring that no viable opportunity goes unnoticed.

• Timeliness: The real-time data feed and alert system keep the CIO ahead of the curve, enabling swift action on emerging opportunities.

• Customization and Relevance: The ability to set specific search parameters ensures that the system surfaces opportunities that are most relevant to the family office's investment strategy.

• Data-Driven Approach: Leveraging AI for market analysis removes biases and provides a more objective basis for identifying potential investments.

A System for Investigating

Purpose: To conduct in-depth analysis and due diligence on potential investment opportunities.

But every promising glint isn't gold.

That's where the Investigating System steps in, a Sherlock Holmes with AI-powered magnifying glass. It burrows deep into each opportunity, unearthing its strengths and vulnerabilities. Financial models predict potential returns, while sentiment analysis gauges the whispers of the market. The system even interviews experts, weaving a tapestry of data and insights to present a complete picture.

Benefits?

Due diligence on steroids.

No more flying blind, chasing shadows. This system illuminates every nook and cranny, revealing the true nature of the beast. It provides the ammo you need to make informed decisions, not leaps of faith.

• Data Sources: Public databases, company filings, industry reports, competitor data, expert interviews, API calls to background check services, internal data.

• AI Techniques:

  • Sentiment Analysis to gauge market and expert opinions.

  • Question Answering to extract specific information from unstructured data.

  • Financial Modeling to simulate returns and risks.

  • Explainable AI to provide transparent rationale for the analysis.

• Outputs: Detailed reports on each opportunity and principals, including strengths, weaknesses, risks, and potential impact on the portfolio.

Key Features:

• Detailed Analysis Tools: Incorporates tools for financial modeling, risk assessment, and scenario analysis.

• Background Checks: Automated background checks on companies and key personnel.

• Sentiment Analysis: Uses natural language processing to gauge public and market sentiment about a company or sector.

• Competitive Analysis: AI-driven comparison with competitors and industry benchmarks.

• Regulatory Compliance Check: Ensures potential investments comply with relevant regulations and standards.

Benefits:

• In-Depth Analysis: This system delves deep into each opportunity, providing a thorough understanding of the risks and rewards.

• Efficiency: Automation in background checks and regulatory compliance saves time and resources, allowing the CIO to focus on strategic decision-making.

• Sentiment Insights: Understanding public and market sentiment offers an additional layer of due diligence, often uncovering intangible factors that might impact an investment's viability.

• Comparative Perspective: AI-driven competitive analysis gives a clear picture of how a potential investment stacks up against its peers.

A System for Deciding

Purpose: To assist in making informed investment decisions by acting as a virtual council of advisors.

Now, imagine a boardroom filled with the keenest minds – experts in finance, ethics, and foresight. My Deciding System brings that to life, a virtual council of AI advisors trained on financial lore and your family's investment philosophy. They engage in a simulated debate, dissecting the opportunity, highlighting risks, and exploring scenarios. You, the conductor, listen to their arguments, weigh the possibilities, and finally, make the call.

Benefits?

No more gut feelings or echo chambers.

This system exposes blind spots, challenges assumptions, and provides diverse perspectives.

• Components:

  • Large Language Models (LLMs) trained on financial data, investment best practices, and the family's investment philosophy.

  • Scenario Planning tools to explore potential outcomes of different investment choices.

  • Optimization algorithms to recommend the best allocation based on risk tolerance and return goals.

• Process:

  • CIO presents the opportunity and desired outcome.

  • LLMs discuss the opportunity, identifying potential benefits, risks, and ethical considerations.

  • CIO weighs the arguments and makes a final decision.

• Outputs: A documented decision-making process with insights from the AI "advisors".

Key Features:

• LLM Integration: Leverages large language models to provide diverse perspectives on investment decisions.

• Scenario Simulation: Allows for the simulation of various investment outcomes based on different market conditions.

• Collaborative Platform: Enables the CIO to consult with real advisors, integrating their inputs with AI-generated insights.

• Historical Data Analysis: Reviews past investment decisions and outcomes for learning and improvement.

A System for Monitoring

Purpose: To continuously monitor the performance and health of current investments and overall wealth.

But the journey doesn't end with a signature.

The Monitoring System is your ever-watchful guard, tracking your portfolio's pulse, sniffing out potential risks, and suggesting tweaks to your strategy. It analyzes market movements, monitors regulatory changes, and even keeps an eye on competitor activity.

Benefits?

Serenity amidst the chaos.

This system provides insights on autopilot, freeing your mind to focus on the bigger picture. It's like having a real-time radar, detecting threats before they materialize, ensuring your wealth navigates the choppy waters with agility.

• Data Sources: Market data, transaction data, news, internal reports, regulatory updates.

• AI Techniques:

  • Real-time Portfolio Monitoring and Performance Attribution.

  • Predictive Analytics to identify potential risks and opportunities.

  • Algorithmic Trading to execute pre-defined investment strategies.

  • Automated Reporting and Insights.

• Outputs: Customizable dashboards with visualizations and actionable alerts.

Key Features:

• Real-Time Analytics: Tracks the performance of investments in real-time, offering insights into trends and anomalies.

• Alerts and Notifications: Sends notifications about significant events or changes in the portfolio.

• Operational Health Checks: Regularly assesses the operational aspects of businesses in the portfolio (e.g., sales, supply chain).

• Wealth Command Center: A centralized dashboard showing an overview of total assets, liabilities, and net worth.

• Customizable Reports: Generates tailored reports for different aspects of the portfolio, useful for strategic planning.

How these Systems Cooperate

Now, the magic truly unfolds when these systems dance together.

The Scanner throws potential partners on the dance floor, the Investigator waltzes with each, revealing their intricacies. The Deciding Council then joins the tango, crafting strategies based on the rhythm of insights. Finally, the Monitor becomes the choreographer, keeping the dance flowing smoothly, adjusting steps as the market's music changes.

The benefits?

Synergy.

Imagine efficiency multiplied, time redeemed, and decisions bathed in the light of comprehensive data. Imagine navigating the market not as a lone wolf, but as a maestro, conducting an orchestra of AI, each instrument enhancing the melody of your wealth.

The four systems are interconnected, allowing for a smooth transition from identifying an opportunity (Scanning) to analyzing it (Investigating), making a decision (Deciding), and then continuously monitoring it (Monitoring).

Insights and data flow seamlessly between the systems.

These tools have given John incredible operating leverage.

He has a lean team of 3 professionals, and they manage $1.5B across a dozen asset classes including operating companies and passive income vehicles.

These are design concepts and mechanics that you can integrate as components into your broader Wealth System.