Understanding The Benefits Of High-Growth Lending With Paul Squarcia, Founding Partner, One Charles Private Wealth

by | May 2, 2023 | Podcast | 0 comments

The 7 in 7 Show with Zack Ellison | Paul Squarcia | High Growth Lending
 

Listen to the podcast here

Paul Squarcia is a founding partner at One Charles Private Wealth. Paul is a financial advisor in Hingham, Massachusetts, with 22 years of experience in the field. Today, he joins us to help us understand the benefits of high-growth lending.

In this episode, Zack and Paul also discuss:

  1. The Dangers of Overweighted Investments
  2. The Invisible Workload: Why Execution Is The Backbone of Your Business
  3. The Role of Curiosity in Modern Financial Advising
  4. Investing in the Future

Understanding The Benefits Of High-Growth Lending With Paul Squarcia, Founding Partner, One Charles Private Wealth

Introduction To Paul Schwarza And His Firm

Welcome to the show. I have with me one of my favorite people from the RIA space and one of the best wealth advisors out there, Paul Squarcia, who is the Founder of One Charles, which is based outside of my hometown of Boston. I’m excited to have Paul on because we share a lot of similar thoughts on the industry and similar DNA in terms of how we look at the investing universe and how we think about treating clients.

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It’s a real privilege to have you on, Paul. Thank you for joining.

Thank you for having me.

Before we get into the seven investing questions, I wanted to give everybody some background on yourself. If you could let us know how you got here and how you became a wealth advisor, that’d be really helpful.

Thanks. I started back in the industry in 2000 with Merrill Lynch. I am coming up on about 24 years in the business. I spent fifteen years at Merrill Lynch. In 2015, I transitioned down and started my own firm as a fiduciary or as an RIA. That was the motivation for starting my own firm, which was to be able to do more for clients.

I grew up a little bit in the healthcare industry and worked for a large pharmaceutical back in the ‘90s. One of the challenges we had with the medicine that was being prescribed was half the people stopped taking it in the first 60 to 90 days. We branded this circle of care approach, if you will, and wealth management. The goal was to make people more compliant, if you will, to follow the playbook of optimal financial planning and optimal investing.

I got into the business because I saw the opportunity of the gap between really good and bad financial planning. Starting our own firm allowed us to dive deeper into insurance planning, property, and casualty insurance as well as owning the risk as a fiduciary and being able to offer more choices for clients. That’s why we started One Charles Private Wealth.

Behavioral Finance And Client Psychology

You hit on something there in terms of investing through the cycle in the sense that a lot of people do the wrong thing at exactly the wrong time. They buy at the highs and then they panic and sell at the lows. This is not one of our seven questions, but I’m curious how you deal with that type of psychology which often leads people in the wrong direction.

We’re in the business of behavioral finance. As Mr. Buffet said, “Buy fear, sell greed.” It’s a hard thing to do when emotions get in the way. We try to spend a lot of time on the front end, interviewing clients to make sure it’s a good fit. It’s truly a partnership between us and our clients. We let people know that we’re going to have good times and bad and that we try to segment the money for short-term risk, midterm risk, and then longer-term risk. If people can identify with that, they know they’ll always have enough to get through the tougher times. It’s really coaching people up and making sure that it’s a good fit. We try to tell people, “The further you are away from your money, the better off you are.” It’s easier said than done, but that’s the process at the beginning, to make sure it’s a good fit.

The further you are away from your money, the better off you are. Share on X

We talked offline about how being a good wealth advisor often means being your friend, a coach, and somewhat of a psychologist in a way. What are the other things that make up a good wealth advisor and that provide differentiation?

If I had to think about what differentiates optimal and not optimal advisors, people who have a passion no matter what business you’re in work better if you can find people who like what they do, can demonstrate a high level of curiosity, and constantly looking for opportunities, whether it’s mispriced assets or different solutions from a tax standpoint. It’s continuously surging for solutions for your clients.

As it plays out, there are different tools that we can use that create some illiquidity for clients that we want to make sure they’re comfortable with. If they can’t touch things for 1, 2, or 3 years, that adds a little bit of stability so that money’s not coming in and out during distress times. If that’s intentional, we tell them that it’s not underhanded at all. We’ll get into this a little bit more, but that’s one of the benefits of alternative investments. It’s a little more patient capital than maybe the S&P 500 or traditional equities.

Do you find that a lot of clients are impatient?

Investment Principles And Execution Challenges

Yeah. You have more success on the front end when you detail what the level of return needs to be. We assign them a number based on the objectives that they’ve laid out for us. It might be, “Your number is at an annualized rate of return at 6%,” figuring in the wedding, figuring in the college, or figuring in the addition to the home or a second home.

If we manage their number and we continue to achieve that number, then even when you have a challenging year coming off of 3 or 4 good ones, you can show them that everything is okay. The comfort and clarity come from the data. You have to do the work to make sure people understand what the goal is here. The more understanding there is, the less likely they are to interfere with the big plan.

I know you guys do a lot of customization for each client because that’s the key. It’s to meet each client’s unique needs. In general, are there core investment principles that you abide by for almost all clients?

Yeah. You never ever want to be overweighted in any particular investment. I’m pretty matter-of-fact about it when we’re interviewing people. This is a tough business. If you get it right 50% of the time, you’re pretty good at it. We’re pretty humble. We’ve certainly got it wrong in the past. The wins you have should outweigh the losses. You want to be measured with every investment you make so that if something does go wrong, it’s not detrimental to somebody’s plan that we’re managing. The importance of weeding investments appropriately, rebalancing, and staying away from concentrated situations is imperative.

The 7 in 7 Show with Zack Ellison | Paul Squarcia | High Growth Lending

High Growth Lending: It’s important to carefully weed out investments, and sometimes that means avoiding concentrated situations.

What keeps you up at night?

There are a lot of good ideas that come across your desk. It is making sure we follow the process and the due diligence and getting buy-in from our custodian, our investment committee, and the vendors that we work with on what’s appropriate. Even when you identify a good idea, it really comes down to execution. This business is about execution.

This business is about execution. You need to just dot your I's and cross your T's. Share on X

Did you get the trade-off? Did you get it off at the right price? Is it weighted properly? Did you get the right CUSIP from Fidelity? Did you have the right capital call? Did the capital call go to a bank that might be in distress situations? You need to dot Is and cross Ts. We spend a lot of time thinking about the dotting Is on crossing Ts at execution because there are a lot of moving pieces that the retail investor probably doesn’t even think about. What probably keeps us up the most is delivering what we say we’re going to do.

I agree with you on that execution. It is not seen by most, but it’s probably the most time-consuming certainly. There are so many things that can go wrong in the many processes that we’re running each day. There’s so much reliance on outside vendors to a large degree as well. Nobody’s an I. We’re all interconnected with so many other service providers and people that we have to rely on. You and I have talked offline about how frustrating it can be when vendors or others that you rely on let you down, but we can’t do everybody’s job for them.

We own the responsibility and conversations we’ve had. We’re really not in a position to make excuses. We need to make sure it gets done right. It can be frustrating, but it’s also in your circle of influence eventually if you’re persistent about staying on top of people.

Alternative Investments And Their Role In Portfolio Construction

That’s one of the ways from what I’ve seen where wealth managers and RIAs can really differentiate themselves is through strong execution, great planning on the front end, customized solutions, and also having access to interesting alternative investment data that their peers might not have. I wanted to turn to that.

In terms of alternative investments, I know you’ve been a thought leader in the RIA space certainly. You’re not just a thought leader, but somebody who’s actioned a lot of really good ideas. I wanted to get your sense of how you think about alternative investments broadly for high net worth and ultra-high net worth and how it fits into the portfolio construction process.

What we focus on when it comes to alternatives is keeping it simple and talking to people so it’s understandable not in the typical jargon that a lot of financial advisors use or the industry uses. One of the things that we could do as a fiduciary here at One Charles, which we couldn’t do at a wirehouse when I was back in that environment, was buy Bitcoin for people. We did that at the beginning of 2016.

There’s a lot there, but if you keep it simple, it’s a supply-and-demand thing. You’ve seen the amount of monetary easing that has gone on during COVID. A lot of dollars have been printed and we’re seeing inflation. If you understand the monetary policy of Bitcoin and explain it in simple terms to people like that, then they tend to get it. We did take a 2% position across Bitcoin as a hedge against what’s playing out.

We do stuff with professional sports teams through a manager of ours. Of the top 100 TV shows, 92 of them are live sporting events. That’s easy for a retail client to understand. It has been easier to explain ARI and what they do given what’s going on with SBB. We try to oversimplify that, like why somebody would pay 15% for money. When you tell them they’re only lending it to companies that are growing at 80%, 90%, or 100%, they tend to understand why that’s a better mechanism to fund growth than maybe diluting the company at valuations that might be distressed given what’s going on with tech.

It’s about keeping it simple. That’s the fun part of this business. I have some very smart people who are way smarter than me who say, “I don’t even need a financial advisor except for one reason.” That’s because of the access that you get to some of these investments, the opportunity, like how you and I met a couple of years ago, how we got to know each other, the dance, the due diligence, the asking of questions, and getting comfortable with one another is the intimacy that we have with our managers.

The 7 in 7 Show with Zack Ellison | Paul Squarcia | High Growth Lending

High Growth Lending: The fun part of this business is surrounding yourself with people who are much smarter than you.

We don’t have to guess what’s going on. We can pick up the phone. I know if I call you, you pick it up in two rings. That’s what our clients hire us for. It is access to great advisors and having abundant communication, transparency, and clarity. There’s a great opportunity set out there to increase the likelihood of success for our clients by working in that alternative investment space.

You nailed it in terms of the relationship formation that occurs and how that takes years in most cases. A lot of people can miss that. They don’t realize how much work goes into this before the actual investment decision is made. Certainly at one Charles, it’s not that you’re seeing the shiny object and investing in it. You’re thinking about it thoughtfully and building that tight relationship with the managers, which differentiates you from a lot of RIAs that may be going with the generic hot take.

One thing we’ve talked about is the need to provide that access to alternative investments because the 60-40 portfolio, although it’s going to be the bore of most people’s portfolios and rightfully should be, there are so many other attractive investments out there. You named some of them. You got into Bitcoin well before everybody else. You probably made a 30x return on your investment. Even if there is some volatility in the prices, you’re still at 30x. That’s unbelievable. With access to sports franchises and venture debt, you’re doing things that most others aren’t and your clients are seeing the benefits from that.

I was going to ask you what you think about venture debt but you already answered that question. For our audience,  briefly, what has happened in venture debt is that Silicon Valley Bank which was the largest provider of venture debt failed. That has created a big gap in the funding universe. There’s a lot more demand for capital from startups than there is available supply.

If you think about Economics 101, when you have a lot more demand for something than there is supply, that creates opportunity. It created a great opportunity for all non-bank venture lenders. ARI is excited to be positioned to help out the startup community at this time and going forward. I wanted to ask you two more questions. One is what’s something you are thinking about on the investment side that you think most of the market is missing and is not thinking about?

There’s still a rational exuberance here. I saw something where in February 2024, tax collections in California were down 50%. In March 2024, they were down 80%. California is usually a leading indicator of earnings and what’s going to happen. You would expect some of the other states to start reporting a reduction in tax collections. I don’t think that has become prevalent yet.

To be down 50% or down 80%, that’s a big number. That’s going to show up in S&P 500 earnings. I don’t think people are talking enough about it. These are valuations based on a number that probably could go down 10%, 15%, or 20%. Maybe you have multiple compressions on that. When we were in COVID or ‘08, we got as low as 9% or 10% on the S&P as a multiple. We’re at 17%, so there’s a chance we could go down here. We are playing defense here. It’s execution, making sure everybody’s prepared for that environment.

People should be a little more cautious here. It’s going to be an interesting 18 to 24 months. You made a good point on the 60-40 traditional portfolio. I have a good friend in Tucson. We talk every day about the markets. He is a savant of the markets. The average rate of return of the 60-40 portfolio was about 5% over the last couple of years. You can almost get that in a treasury. As a financial advisor, if you’re going to be relevant, you better have a high level of curiosity and be searching out venture debt ideas, sports team ideas, or even a little bit of Bitcoin.

As a financial advisor, to stay relevant, you should have a high level of curiosity and be actively seeking out venture opportunities. Share on X

You hit the nail on the head. If you look at it from basic economic supply and demand, there’s way more demand than there is supply for venture debt. There’s going to be way more demand for Bitcoin than there is supply because we know it’s a finite amount of tokens that will ever be mined. There are only 32 NFL franchises. There are only X amount of NBA teams. Keep it that simple. It’s supply and demand. That’s how you have to think about it.

Market Trends And Future Investment Themes

You nailed it. It’s as simple as that. It’s supply and then execution. If you get those right, you’re going to deliver pretty solid results through all types of cycles. The last question for you is in terms of themes going forward, and you already touched on some, is there anything that we should be thinking about broadly on the investing side over the next couple of years? One that I’m thinking about is the move into alternatives from RIAs. You’re a leader in that. Others are going to follow. What other themes are you thinking about in terms of the big picture?

The 7 in 7 Show with Zack Ellison | Paul Squarcia | High Growth Lending

The difficulty about using alternatives, and I’m not poo-pooing it, is that we have divorce, we deal with death, we deal with weddings, and we deal with taxes and a lot of the big institutions don’t have the same challenge. We do have a fair amount of traditional investments that we have to make on behalf of clients that maybe won’t have the same liquidity restrictions.

A theme for us going forward is energy. No matter what you read, there’s not enough supply. Demand will continue to go up given the world getting bigger and more economies coming online. That’s a theme. It’s whatever’s going to electrify the world, so copper, aluminum, and cobalt. Having a bent towards commodities with some gold is increasingly important.

For the same reason we’re talking about venture debt,  there are still opportunities around private credit. Managers can be very selective on who they lend money to. We’ve done a lot with some CLOs that have worked out great. You have to be very intentional and cautious. WBitcoin was a whole run for us, but it was weighted. It was a small part of somebody’s portfolio. We’re trying to hit singles and doubles, but those are some of the themes that we’re thinking about.

You mentioned 5 or 6 different alternatives that are all, in my view, going to perform pretty well. I almost never hear other RIAs talking about any of those, to be honest. It’s a point of differentiation for you certainly and for One Charles. It has been great having you on. I always learn something when I talk to you. I really appreciate your time. For anybody who wants to get in touch with Paul and learn more about One Charles Private Wealth, you can find him on LinkedIn or on the internet. You spend a lot of time down in Florida too, if I’m not mistaken.

We have an office down in Fort Lauderdale. We’re down there as well. We have a national footprint. We have as many clients out West and in New York and Florida as we do here in Massachusetts. We get around a little bit. We’re hungry. We’re motivated. We’re detail-oriented. We would always appreciate the opportunity to give somebody a second opinion. I really appreciate you having us on. Keep doing what you’re doing. It has afforded us a lot of new clients, frankly, by having access to this kind of manager. Thank you.

Thanks for coming on. Thanks, everybody, for tuning in to the show with me and our guest, Paul Squarcia. I’ll see you next time.

Have a good day.

 

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About Paul Squarcia

The 7 in 7 Show with Zack Ellison | Paul Squarcia | High Growth LendingPaul is the founder of One Charles Private Wealth. As a 15-year veteran of Merrill Lynch and the former Senior Resident Director for the Hyannis, MA complex, Paul led a staff of financial advisors in providing customized wealth management solutions for affluent individuals and their families, businesses and charitable organizations. Mr. Squarcia is known as a valuable resource for successful entrepreneurs and understands the complexities inherent in business ownership. By identifying opportunities and challenges and using the appropriate estate planning and money management strategies, Paul helps provide recommendations for the preservation and transfer of wealth to future generations.

Prior to Merrill Lynch, Paul spent 16 years in the corporate world. He held various positions in Business Development at State Street Global Advisors, Merck Company and Digitrace Care Services/Sleep Med. Mr. Squarcia currently serves on the board of trustees for the Boys and Girls Club of Cape Cod. Paul holds the following professional licenses: Series 7, 9, 10, 66, Life and Health Insurance, and Property and Casualty Insurance.

 

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