By Steve Garmhausen
Michael Paulus, the onetime president of advisor reporting and analytics platform Addepar, now leads a wealth management business himself. And he says that in the age of AI, a tech background is a huge differentiator: "How are you supposed to evaluate AI if you're a 55-year-old advisor who still gets their emails printed out?"
Paulus became a billionaire thanks to the $2.4 billion sale of insurance tech platform Assurance IQ in 2019. We went on to form a family office and in 2024 opened it to outside investors under the name PCM Encore. Speaking with Barron's Advisor, Paulus, who is also a former partner in investment firm Andreessen Horowitz, talks about the value of access to private investments. Although he has been involved in recent high-profile tech deals including Anthropic, OpenAI, SpaceX, and Neuralink, he may be just as excited about PCM's buyout of a pest-control business. He explains the advantage of starting a registered investment advisory firm with his own considerable capital. And he touts an unusual partnership between his Aspen, Colo.-based firm and Morgan Stanley.
Why did you originally form a family office? I started my career building Addepar, building software for RIAs and family offices and wealth managers. Through that I had gotten to meet hundreds of different firms and seen what worked and what didn't, and what I liked about each. From that, and from selling Assurance IQ, I was in the position to say, "How could we take what I learned from the industry and apply it to manage these assets?" The first reason I made my own family office is that I think the best, uncommon investment opportunities don't necessarily scale. A lot of the big platforms can get you into the Blackstones, and there's a lot of good managers there. But I also think there's a great opportunity to roll up your sleeves and find smaller, more exceptional opportunities. For me, that has been in multifamily real estate, lower-middle-market private equity, buying pest control companies, youth sports brands, residential services businesses, and things like that.
I also wanted long-term alignment. It felt like the wealth management industry was either owned by private equity or part of a big public company, and I wanted something that had an intergenerational mandate and that would be employee-owned, and a family office does that well. And finally, I felt taxes were probably the biggest single way to outperform the market without taking on additional risk. And that meant having a fully integrated tax business. That was really the foundation: uncommon opportunities, along with this deep tax integration.
How would you describe your investment approach? I view the world through a technology growth mind-set, so when I do private investments, I'm always thinking, where can we improve the business with technology? Take the pest-control business. [PCM Encore bought Hawx Smart Pest Control, based in Ogden, Utah.] You think pest control, how can that be a technology business? But we have an app that allows our salespeople to sell more effectively. We have an app that tells our technicians exactly what to do for each house, and that gives you a digital report of what we do. I'm a technologist and a product person at heart, but I grew up on a farm, and I'm probably like a value-oriented, more risk-averse investor, and I've been an interesting kind of hybrid.
You grew up on a farm? Yeah, I grew up on a berry farm in the northern part of Washington state. I think what it has done for me is, a lot of my investment thesis is outside California and New York. Pest control is a good example. It isn't a sexy thing if you're in Northern California or New York. But man, if you're in Houston, Dallas, Atlanta, or Baton Rouge, it's an enormous issue. It's the same with a lot of the businesses that we're in.
What was the moment when you decided to turn your family office into a multifamily office? My father-in-law, the founder and longtime CEO of Logitech, came to me and said, "I've been watching what you've been doing, and I am not happy with my bankers, and would you manage my money?" I joked that there's no upside to managing your father-in-law's money. But I took him on, and I really enjoyed it. I realized that creativity was something that I loved. Having visited a lot of family offices, sometimes they can be kind of depressing places. They're small, there are not necessarily growth opportunities for employees, and they're not always getting the best talent. So I decided I want to have the best talent for myself. I don't want a one-person tax department; I want the best. I want a bigger private investing team. I want excellent planners. I want to be able to go deeper for myself. That was when I said, "Let's become a true multifamily office." In 2024 we filed with the SEC and formalized the business.
What do you think are PCM Encore's differentiators? We started with uncommon opportunities and tax-aware uncommon opportunities. So we are directly building real estate with a strategic partner. Residential real estate is inflation resistant, it's resilient in downturns, you get 130% of your investment back in depreciation [Tax write-offs on certain real estate investments can offset or exceed invested cash.]. So it checks all these boxes. And we built out that expertise so we could find unique private deals. And then we invited other folks on. A lot of times with people who are new to the industry, if you don't start with capital, you're really starting as a salesperson. And the first function is, how do I attract other clients to me? Today the vast majority of my time is still on the actual investment side. A lot of businesses, I think, have it in reverse, in that they're kind of sales organizations, with a vanilla offering to the client.
The second is, we're giving every client a truly customized portfolio. We're doing sophisticated tax transition work. Where I think a lot of the industry, if you're either public or you're owned by a private-equity firm, you're trying to drive to these efficiencies. They stress profit margin, and that can lead to three to four model portfolios. I think having the tax integration from day one has been huge, and we've been able to integrate that as a core part of the offering.
Firms talk about tax planning, but they don't give tax advice, they don't do tax compliance. I think that's really challenging. What's the point of doing real estate deals if I can't 100% explain to you how it's going to work within your taxes, where we're going to use this depreciation, how to tie it all together. And then I think the asset classes matter, too. If you look at a lot of the great managers from the '80s, the opportunity was in trying to outrun the stock market. You see a lot of RIAs that are still trying to pick stocks, or that are constructing bond ladders. And I think in this day and age, with tax-loss harvesting with excellent managers like the Pimcos of the world on the [separately managed account] side, you could really say, "Look, I'm going to go into a very low-cost direct index fund, and we're going to outperform the market significantly on an after-tax basis, and almost certainly outperform any active manager." On the fixed-income side, it's basically a commodity that we can outsource to people who are very good at it.
When you think about those asset classes where I can get exceptional returns and create a resilient portfolio and find noncorrelated assets, they're in private markets. We were built from the ground up with that orientation. And because of my entrepreneurial background, I can have a conversation with someone selling their business, and there's an emotional component, like, what do you do for your kids' trust? How do you think about growth in a portfolio versus going to cash flows? These are financial questions, but they're also emotional questions. There are professional advisors who can give very good advice, but it hits differently when it comes from a peer. And I think the ownership matters. Being fiduciary, noncommissioned, employee-owned allows us to unequivocally put clients first, and that's a benefit that most managers just don't have. It's a luxury, and it's only possible because you come into it from a family office with a big pool of your own capital.
A big chunk of PCM's identity has to do with investments. How much are you leaning into other family office services, including concierge services? Our identity is around investment and tax. We've chosen to custody with Morgan Stanley, which is a little bit unusual for an RIA. We do that because the customer service that you receive is exceptional. Every time a client calls, they're going to know the person on a first-name basis. Morgan Stanley has a ton of those concierge services, art advisors, and everything in sight.
What is your fee model? We typically have an all-in-one, asset-based fee, and as part of that, you're allocated a significant amount of our resources. On the tax compliance side for more complex cases there would be an additional fee. We do offer a fixed-fee CIO service for those clients where it may only make sense for us to directly manage a small part of the balance sheet. We don't look at our proprietary investments as an income engine. We don't take any commissions or placement fees. Depending on our partner on the private side, there might be fees associated with investments.
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