November 12, 2018
A Hawaiian home has just been sold after reducing the original asking price by 34%. This might sound like the 50th state of the Union is suffering from a property crash. However, the final sales price was still $46.1m – a record for a single-family home sold in Hawaii.
On checking this story out further, I expected to see a description of an extraordinarily large home owned by someone famous or entrepreneurial, or both. I was disappointed on all counts.
This $46.1m bought a nice piece of land (15 acres on the coast), some interesting architecture (Balinese inspired with a main house and four “pavilions”), incredible light with breathtaking views, and even a mural or two in the bathrooms (if you are into that sort of thing). Surprisingly though the place only had 6 bedrooms which suggests that the sellers, who completed the house in 2006, were not planning for large family gatherings or for large scale entertaining. In short, this was a property built for indulgence on a dramatic scale.
So, who could have afforded to give such full license to building their ideal home? It was an investment banker and his spouse. The banker spent his entire career at Morgan Stanley until a 2014 excursion into something called “litigation finance” (which apparently is designed to fund legal actions and defenses). Now I am probably getting too old, but I always thought that the fabulously wealthy were supposed to come from the ranks of the incredibly talented, or those with a willingness to take significant risk by committing personal capital to developing a business. The mercenaries paid to run businesses on behalf of others could do very nicely but ultimately it was those with skin in the game that benefited most.
Those days are long gone of course and nowhere is that more obvious that in finance. Being close to large flows of money seems to enable compensation levels that would be unthinkable in most walks of life. Taking a small percentage of a very large amount of money still generates a very large amount of money.
Please know that my issue with compensation in the finance sector is not driven by a sense of social justice. I am much more concerned about the corrupting effects of the access to such wealth. Just this last week Goldman Sachs was reported as being strongly implicated in a very large financial fraud involving a Malaysian sovereign debt wealth fund. Only a couple of months ago whistle blowers at Wells Fargo revealed longstanding problems with the bank’s dealings with its wealth management clients. It is no surprise that the compensation structure for advisors is seen as being key to these problems.
So where does this leave us? First you have probably just missed the possibility of buying your dream home in Hawaii. Second be careful, and suspicious, about the financial motivations of anybody who gives you advice on what to do with your money.