McDonagh Family Office
While my parents were successful in their own rights, when I started working on Wall St in 2012 I did NOT need to worry about capital preservation just yet.
Dad served in the US Military including Desert Shield / Desert Storm, taught at the Naval War College and retired as a contractor who worked on F-35 and other programs. Mom owned a publishing company in Newport, Rhode Island before moving to NYC to become an executive at the NY Daily News who is currently enjoying her retirement.
I was blessed to see the lifting power of entrepreneurialism up close, and witness the incredible accomplishments that hard work and smart planning yield over time.
On Wall St I learned about people and the dynamics of money. And I learned that was the correct order of importance if you wanted to succeed anywhere.
I was responsible for analyzing the 'Revenue Quality' of private and public companies. With a small team we’d break apart each company’s revenue engine.
How they made money - the revenue engine includes all the strategy, tactics, logistics of revenue generation / expansion and retention.
This skillset (and the hard work of 3 other partners) is what lead to the formation of Throne Capital - a long/short equity value hedge fund with offices at 99 Wall Street.
Our team used Python NLP to read footnotes, comments and questions in investor presentations and quarterly filings to detect operator sentiment about financial trajectory and security. Then we conducted a machine reading of their financial statements to detect corresponding changes to cash flow and other operating dynamics.
While the strategy continues to perform well, Throne was dissolved in favor of establishing individual family offices.
McDonagh Family Office is unique in several ways — we are a fusion of finance and AI backgrounds and skillsets.
As a first-generation SFO, our focus is growth.
Most family offices are primarily focused on capital preservation. That means they have a balance sheet with various assets to collateralize against — using this leverage to acquire additional assets, such as income-generating properties, cash flowing companies and assets with anticipated price appreciation in excess of the margin cost.
You can see where “it takes money to make money” logic comes from as you study the advantages a large asset pool has.
As the assets get larger, the interest rates and total borrowing costs in general go dramatically down. This increases the net interest margin window considerably…
Quick Example - Net Interest Margin
If you have high borrowing costs, there is a very small window of profitable financial activity you can engage in with that borrowed capital.
If you borrow money from a rich friend for 15% per year… you need to find a way to deploy that cash and earn more than 15%… or else you are working for someone else.
But if you have $12M sitting in cash in a private bank, with $45M in securities in linked accounts… that bank will gladly lend you $4M, $5M easily.
Candidly if you gently insinuated your banking business was being “sought after”, you can secure 100% LTV (get a full $12M loan) at 1%.
Yes, you can borrow $12,000,000 and only have to pay $120K per year in interest.
Look at that chart.
Would you pay $120K per year to get to sink $12M into that gigantic price appreciation?
You’d have netted something like $18M on that single trade, just in the last 12-months.
Sure you can borrow at 25% and still make money when your investment goes up 252%… but I wanted the example to stand out in your mind.
Our Family Strategy
McDonagh Family Offices is active across multiple fronts.
Our team executes a direct investment strategy in technology companies — typically prior to Series-B, often seed.
Those investments sit inside one of three funds:
Capital Appreciation Fund
Current Income Fund
Bitcoin Fund
The Current Income Fund is where the Dividend-paying stock is accumulated.
We execute a share accumulation strategy with DRIP and then compound the portfolio’s yield further by adding 4 new positions each quarter:
3x quarterly payers
1x monthly payers
This adds new distribution dates each quarter and creates a constantly increasing stream of checks that are redeployed toward the DRIP cost (buying more shares) or opening up entirely new positions (the 4 new stocks).
By introducing three quarterly payers and one monthly payer into our portfolio every quarter, we not only enhance our income stream but also spread our risk across a broader spectrum of the market. This diversification is crucial, as it mitigates the impact of any single investment's underperformance on our overall portfolio.
“but Matt, isn’t Bitcoin a capital appreciation play?”
Bitcoin is that, and more. I am currently researching an extremely detailed article on why Bitcoin is the ultimate digital currency — this piece explains blockchain, we’re going to get into the math weeds first to lay a foundation and then take to orbit for a satellite view.
The Bitcoin article will be published on Life in the Singularity - subscribe now.
Our direct investment strategy in technology companies, particularly those at the precipice of groundbreaking innovations, allows us to participate in the journey of these enterprises from their nascent stages. Through our involvement, we aim to not only realize substantial capital appreciation but also to contribute to the technological advancements that shape our future.
Several of these companies leverage artificial intelligence — these tools are even being used to increase wealth building and management capabilities:
Our journey is one of constant evolution, as we remain dedicated to harnessing the potential of technology companies and maximizing the returns on our investments.
Through our strategic initiatives, our office not only aims to build wealth but also to contribute to the broader economic ecosystem, driving progress and innovation forward.
I hope this view into how we are working to build wealth and secure our family’s future has been useful — excited to write a follow-up on the financial-side of the Bitcoin story after the technology + math framework is established.
Lots to discuss.