#writing Family Offices are among the classes today that are best suited for the complexity and rapid change we are experiencing and represent a $65T market opportunity. As technological innovation has accelerated the pace of change and wrought new efficiencies we face an increasingly complex world that a smaller and smaller subset of society actually understands. The institutions we have built are increasingly struggling in the complexity of today's world. This is the natural cycle of change which concentrates wealth and power in the hands of the best-equipped minority to tackle the needs of the day. We are at the point in that cycle where the existing power and wealth structures are increasingly being threatened by their growing ineffectiveness. Refs: - George Friedman --- Back in November we briefly explored the fallibility of experts in domains that move like the financial markets. This week we are going to revisit the topic of expertise and attack it from a different angle. There is a natural force that concentrates wealth and power in the hands of the "best" which we will term experts; and the effect of this force can be seen in a variety of ways in society. Technocrats increasingly hold powerful government positions in agencies like the Federal Reserve, FDA, CDC, and so on. The children of former star athletes increasingly populate the ranks of professional athletes. Two generations of the Bush family occupied the White House and the Clintons have been a force in the democratic party for over twenty years. Finally, we have seen an expansion in the ranks of billionaires and family offices rise up to be formidable forces in the financial markets and global economy. The original Greek meaning of the word aristocracy meant "rule of the best" but we tend to associate the word with its more recent and corrupted version of hereditary rule. The Greeks contrasted aristocracy favorably with monarchy while we hold aristocracy in low regard relative to democracy. While there are favorable characteristics of an aristocracy in terms of centralization of decision making and efficiency in the administration of society those qualities are derived from a narrow focus which can prove to be rigid and inflexible towards change. Recently, we have seen this rigidity and inflexibility manifest and play a critical role in major global events. The assumption by economists and Wall Street experts that housing prices rarely dropped and when they did it was in isolated and manageable ways missed the accumulation of risks leading up to the global financial crisis. **The systems we have built to manage society are increasing struggling with the complex reality of today’s world.** George Friedman recently wrote a terrific article about what he calls the institutional cycle and how after WWII the federal government organized itself around experts: > But the inherent weakness of expertise is that it is narrowly focused. It can solve a problem without grasping the broader consequences of the solution. > > […] > > There was no one with power to step back to see the unintended consequences. There was rarely control over experts who saw only the problem they were trained to solve, rather than the consequences of a plan that needed modification. > > George Friedman, _[Fishing for the Fourth Institutional Cycle](https://geopoliticalfutures.com/fishing-for-the-fourth-institutional-cycle/)_ In aristocratic times there is a proclivity to assign causes to the actions of individuals or small groups of the rich and powerful. We see this frequently on CNBC with the various expert talking heads who come on to "trace out the smallest causes with sagacity, and frequently leave the greatest unperceived."[^1] Market outcomes are increasingly determined by the FOMC these days rather than the price setting mechanism of the market; or perhaps the market has freely chosen to submit itself to the FOMC. In fact we have seen market outcomes overtly managed by the Fed, Congress, and the White House over the past 15-years in response to various crises. It is often not clear who is actually running the asylum these days. The motivations for these policies and the causes of these crises are beyond the scope of this investigation but it can be said generally that **the more we try to narrowly manage outcomes the more unintended consequences result which ultimately confound our intentions**. It should be clear to the casual observer that the institutional structures that have been put in place to solve problems are increasingly unable to deal with today’s complex realities. The historical model shows that the aristocracy is the last to realize when things had changed and is often the target of revolutions. Today, however, it seems that the tables have turned. It is the our modern aristocrats who are the agents of change. The Silicon Valley Tech Titans are one such class of aristocrats who are now frequently being hauled before impotent congressional committees to explain their actions, or inactions, and apologize to the public which leads to little policy action but satiates the outrage of the elected officials. All the while technological change is accelerating while the old guard is busy defending their outdated structures. The calls to regulate AI emerged just a quickly as the technology came into the public consciousness. One can't help but to wonder if it is the Tech Titans in the orchestra pit while it is the politicians and financiers who are in the boxes failing to grasp how the world they once knew is already gone. They exaggerate the influence of individuals and their companies which betrays their tyrannical belief that the individual is more powerful than the multitude. >You preachers of equality, the tyrant-mania of impotence clamors thus out of you for equality: your most secret ambitions to be tyrants thus shroud themselves with words of virtue. > >-Friedrich Nietzsche, _The Portable Nietzsche_ The expert's narrow focus prevents them from seeing the connections between events or it reveals a belief that they do not exist. The failure of the intelligence agencies to recognize the 9/11 plot is a perfect example of this failure to connect the dots and see the bigger picture. In business clients and investors frequently seek out the largest and most well-established company in an industry because they should represent the safest bet. However, these companies are often the least efficient and innovative as they are more beholden to the legacy of their own success than they are to their clients and investors. There is a natural cycle to the rise and fall of the systems by which we choose to order society. I recently remarked how [Capitalism is being challenged](https://cedarshillgroup.substack.com/p/chg-issue-137-capital-ism) and how after the GFC I thought we would see a move away from Keynesian economic policies. Keynesianism was the solution which delivered us from the Great Depression however it sowed the seeds of the GFC and failed to deal with the aftermath. The constant throughout is [complexity](https://publish.obsidian.md/cedarshillgroup/Concepts/Complexity); and as we have said before complexity cannot be destroyed, only transformed. When the current system can no longer tame the complexity a new solution must emerge beginning a new cycle. We are in that final phase today where our solutions are increasingly falling short and while the new solution is yet to be found it’s shape is starting to be carved from the complex reality of today's world. The markets are always in a state of change but sometimes the smaller changes mask a larger change taking place under the surface. Apollo's CEO Marc Rowan recently remarked on the $65T private wealth market and how it could come to dominate the institutional market in size as those investors become increasingly sophisticated. I believe that wealthy families and their professional family offices are on the front lines of the institutional and social change that began when the GFC shifted into a social crisis. This is evident in the increasing wealth inequality and the role they play in that great divide, but they are also increasingly the only ones willing to underwrite the risks necessary for the advancement of our species (ex. SpaceX, Blue Origin, Virgin Galactic). The arguments against them center around the threat to existing power structures and their ability to regulate and manage the activity of citizens. The real issue is the inability of our current system to handle the complexity of today’s rapidly changing world. Those that can move fast and adapt are best suited for a changing reality while those that cling to outdated structures and focus their efforts on wielding the world to their view of it will find their efforts ineffective. Of the different classes in society today, few are as well-suited to embrace this change than family offices. [^1]: Alexis de Tocqueville, *Democracy In America*, p.602