There's an entire world of investing
you've never heard of, but the rich use
it to make themselves filthy rich. Today
we're breaking down 15 investments rich
people make that you've never heard of.
Welcome to A Lux, the place where future
billionaires come to get inspired.
Number 15, citizenship as a tax asset.
Ever wondered why half the prime real
estate in London sits empty at night
>> [music]
>> while their owners are somewhere in the
islands for half the year? Well, the
rich buy passports and use them as a
tool. A passport [music] is either a tax
instrument or a hedge against anarchy.
The country printed on your passport
determines whether you keep 53% of your
income or 96% [music]
The wealthy treat citizenship as an
investment decision because that's
exactly what it is. So, they're on the
move. For decades, [music] the UK's
non-dom regime allowed foreign wealth to
live in London while shielding overseas
income. That door has now mostly closed,
which is exactly the point. The rich
constantly migrate to wherever the
newest tax regime is favorable. When it
changed last year, London's rich fled to
Milan, Italy, Montenegro, Dubai, Malta,
or other jurisdictions with tax
certainty, lower income or capital gains
exposure, and wealth-friendly residence
regimes. Young millionaires are choosing
Thailand or places where their few
million dollars allow for a
billionaire's lifestyle. Although their
day-to-day life doesn't change, the tax
code does.
>> [music]
>> In the United States, the play is called
Act 60. Move yourself and your business
to Puerto Rico. Spend 183 days a year
there. Federal capital gains tax on
[music] new investments drops from 23.8%
to zero or at most 4%, mainly corporate
tax. Y'all are laughing at Jake and
Logan Paul, but they made the right
financial play and moved. John Paulson
moved. Brock Pierce moved. Entire
neighborhoods of crypto founders
relocated together. A founder making $20
million on an exit [music] pays $4.7
million to the IRS in San Francisco, but
would pay zero in San Juan. Most people
never consider that the country printed
on the passport is negotiable. The rich
move assets overseas through trusts
[music] and other limited liability
companies in jurisdictions where
governments can't touch it, effectively
never going broke again. If you have
heritage in a different country than the
one you were born in, check to see what
kind of privileges you might be leaving
on the table. The lesson here, [music]
you can buy your way to safety and
family prosperity if you really want to.
Number 14, building infinite return
machines through real estate layers.
Now, this concept breaks the brain of
every retail investor who hears it for
the first time. The wealthy don't
measure real estate returns in
percentages. They measure returns by
whether they have any of their own money
left in the deal. The first level play,
to buy [music] a distressed commercial
property for $2 million with $400,000
down. Renovate it, [music] raise the
rent over 24 months. The property is now
worth $3 million based on the new
income. Walk back to [music] the bank,
cash out, refinance. The bank gives you
75% of the new value. That's $2.25
million. Use it to pay off the original
$1.6 million loan. Pull the remaining
$650,000 in cash. That cash isn't taxed
because borrowed money isn't income. The
IRS doesn't tax loans. You still own the
building, the building still produces
monthly cash flow, and you have zero
dollars of your own money left in the
deal. Any return from this point forward
is technically infinite. You can do this
with cheap properties even if you're not
wealthy and put in sweat equity to
increase the value until you build your
net worth. [music] Then, you start using
the systems designed for the rich. Stack
a second level move. The rich buy that
property inside a federally designed
opportunity zone. The capital gains you
use to acquire it get deferred for
[music] years. Hold it for 10 years and
the capital gains on the appreciation
are eliminated entirely. Not deferred,
erased. Yep, this is a loophole. [music]
Now that you're super rich, you want to
buy something that you'll hold forever
with the most stable kind of tenant
ever. That's the third level. Buy
property that the government or other
governments rent from you. Think an
embassy building, some sort of public
service office, or in the case of the
United States government, [music] a
literal cave inside of a mountain in
Boyers, Pennsylvania where they keep
documents of everyone who retired. The
government [music] rents it from a
private owner for 13.5
million dollars a year.
Number 13, roll-ups. The wealthy have an
unfair advantage because they know money
math. Lesson, more businesses put
together are worth more than the sum of
the individual parts. We call these
roll-ups. A roll-up is when you
systematically acquire small businesses
in the same industry, combine them into
one larger entity, put the same logo and
systems on all of them, and then sell
the bigger entity for a multiple that no
individual business could earn alone.
From HVAC to pest control to pool
cleaning to any kind of clinic or
service business. So here's how the math
works. A single company doing 1 million
a year sells for two to three times
earnings. Let's say 2 million. 10
companies combined doing 10 million
combined sell for eight to 10 times
[music] earnings. So that's 80 to 100
million dollars. Just by combining them,
you get four or five times more money.
The lesson here, [music]
there's so much money in the market that
big players are willing to pay a premium
if you do the lower to mid-level work.
So here's how you can apply this without
being filthy rich in the first place.
[music] Most of these businesses are
owned by baby boomers in their late 60s
ready to retire. They don't want to sell
to a stranger. They'll often finance the
deal themselves, taking payments over 5
to 7 years from the cash flow of the
business they sold you. So, find a
business with a fax machine, get a
simple website up, make the subscription
available online, add tech to run it
more efficiently, and then run local ads
to grow it. Once you do it with one
business, see if there are others you
can buy locally. Here's an example. You
can buy a $1.5 million pool service
company with $200,000 down and a note
from the seller. [music]
Three of those run well, becomes a
regional brand worth 10 times what you
paid. The rich [music] do this at a
higher level because they don't want to
waste time with smaller businesses, so
there's an opportunity for you right
here.
Number 12. Captive [music] insurance
companies. Now, this is where things get
a little bit strange. The wealthy don't
just buy insurance. They own insurance
companies,
>> [music]
>> and they use those companies to do
things that would be illegal for normal
investors to do directly. You start your
own private insurance company, usually
domiciled in Bermuda or the Caymans or
Vermont. It's called a captive. [music]
It's only client is your other
businesses. Your manufacturing company
pays premiums [music] to your captive.
Your real estate holdings pay premiums
to your captive. Your e-commerce
operation pays premiums to your captive.
Three things happen at once. The
premiums your operating businesses pay
are fully deductible. Your taxable
income drops. The premiums received by
the captive aren't taxed as ordinary
income. They sit as reserves, growing
tax deferred for years, sometimes
decades. [music] And while that money
sits there, the captive is allowed to
invest it
>> [music]
>> in stocks, in real estate, in private
equity, in life insurance policies on
other people. This is the structure that
built Berkshire Hathaway. Warren Buffett
didn't get rich by picking stocks.
[music] No, he got rich because the
insurance companies he bought generated
billions of dollars in float, premiums
collected but not yet paid out, [music]
that he was allowed to invest while he
sat there. Berkshire's float is now over
$170 billion.
That's 170 billion of other people's
money compounding inside of a tax
deferred wrapper that Buffett used to
invest [music]
however he wanted. And you can build a
smaller version of this. Captive
insurance is available to business
owners with as little as $500,000 a year
in premiums spread across their
operations. The layered play is that
once your captive has reserves, it can
buy other insurance contracts [music] or
settlements. So, here's a small example.
You purchase existing life insurance
policies from elderly people who no
longer want them. Why would anyone do
this? Well, you can buy a settlement for
10% to 35% of the total death [music]
benefit. That's why hedge funds love
these. You pay them more than the
insurance company would pay to cancel
the policy, but [music] less than the
death benefit. Your captive pays the
ongoing premiums. Your captive collects
the full death benefit when the policy
matures. To be able to buy them, you
need to own an insurance company in the
first place. So, what started out as a
tax vehicle [music]
now owns highly profitable insurance
policies on other people's lives.
>> [music]
>> This is what higher-level wealth
managers do for you and your friends.
Now, there are levels to all of the
plays mentioned in this video that help
you to compound faster no matter how
much money you have to start.
>> [music]
>> We break down each one of these
structures inside the ALUX app with the
exact playbook for which one to apply at
your current net worth level. We bring
in the wealth managers of some of
America's richest families to share with
our insider members [music] exactly how
they structure everything. If you want
the privileged access without having a
$20 million net worth,
>> [music]
>> go to alux.com/app right now and take
our app for a test drive. That's
alux.com/app. [music]
Number 11. Direct indexing with tax loss
harvesting. You know what an index fund
is. You buy the S&P 500 through
Vanguard. You own a slice of all 500
companies. You [music] wait. The market
goes up and over time you make money.
But the wealthy don't buy index funds.
They build their own. Direct indexing
means buying all 500 underlying stocks
individually inside a managed account
instead of one fund that holds all 500.
The cost difference is small. The tax
difference [music]
is enormous. In any given year, even
when the S&P 500 goes up 20%, hundreds
of individual stocks inside that index
go down. When you own the fund, those
losses don't matter. The fund hides
them. [music]
You only see the net result. When you
own the stocks directly, you sell the
losers and book the losses on your tax
return. Then immediately rebalance into
similar positions. You harvested the
loss without changing your market
exposure. Those harvested losses offset
capital gains from anywhere else in your
life. Your real estate sales, your
business exit,
>> [music]
>> your private equity returns. The wealthy
aren't necessarily optimizing for higher
returns. They're optimizing for the same
returns with less tax friction. Over a
decade, this generates an extra 1 to 2%
after-tax return per year. On a $20
million portfolio, that's 300 to
$600,000 a year in tax savings. [music]
Compounding forever.
Direct indexing used to require $5
million minimums. Now, by the way, there
are services out there that automate
this with entry points around $100,000.
>> [music]
>> Like Freck, Wealthfront, Parametric,
Public, and more, but they don't sponsor
the video, so that's about the only
shout-outs they get. Ask your wealth
manager how they're loss harvesting,
because you can DCA into the S&P 500 on
your own, so make them earn their
commission.
Number 10. They're in the fuel business.
Whatever the fuel of the moment is.
The wealthiest energy investors on Earth
have never touched a barrel of oil. They
don't drill, they don't refine, they
don't run gas stations. They own the
pipes, the rights to use the pipes, or
trade the commodity digitally. Crazy
right? Energy infrastructure,
think [music] pipelines or storage, are
the toll roads of the global economy.
Every barrel of oil, every cubic foot of
gas that moves from where it's produced
to where it's consumed pays a fee to
whoever owns the infrastructure it
travels through. The companies owning
these pipes don't care if oil is at $40
or 140. They care about volume. As long
as the energy keeps flowing, they keep
collecting tolls. Pipeline operators
routinely pay 7 to 10% dividend yields
with contracts locked in for 15 to 25
years. That's the surface play. The
deeper move is the energy trading
itself. Vitol, Trafigura, Glencore.
Names you've probably never heard of,
but they're among the largest privately
held companies on Earth. Vitol alone
made between 10 to 15 billion dollars in
profit last year. [music] They buy
energy in one location and sell it in
another. They own the contracts, the
ships, the storage, the relationships.
They never touch [music] the molecule,
they just own the right to move it. So,
here's a valuable lesson for you. The
wealthy don't own the thing. They own
the flow. They own the contract. They
own the access. [music] We'll teach you
how to do this with real estate at
number five because it is more
accessible, but think about it. When you
own the pipes, you don't need the
underlying market to go up. You just
need it to move, and markets always
move.
Number nine. Freeports and whisper
markets. Now, we promise this is not a
Masterworks plug. We won't even mention
them, okay? But, for [music] the rich, a
10 million dollar Picasso isn't a
painting. It's something they store
value in. When a billionaire buys a
major piece at Sotheby's or Christie's,
they often don't take it home, not at
all. They ship it directly to a building
called a free port. Hyper-secure,
climate-controlled, located in a
tax-free zone. The famous ones sit in
Geneva, Singapore, or Luxembourg.
Because the artwork hasn't technically
entered any country's economy, no sales
tax is charged. No import duty, no
capital gains tax until the piece is
eventually sold and physically moved.
The art sits there, [music]
appreciating.
Yes, they sit in ports hidden from view.
And off-topic here, rich people
commission high-level replicas of the
art they keep in these ports to be
displayed in their homes because the
originals are way too valuable to have
in person.
>> [music]
>> The real magic comes next. The owner
walks into Sotheby's Financial, Athena
Art Finance, or one of a half dozen
specialty lenders and uses that Picasso
as collateral for a low-interest line of
credit. Up to 50% of the artwork's value
at interest rates that would make a
mortgage banker weep. That is actually
how these auction houses make most of
their money, not from the commissions on
the sale. So, here's how the rich run
this play. Buy the Picasso at 10
million. The Picasso sits in Geneva.
Five years later, the Picasso is worth
14 million. Zero in taxes paid. Borrow 5
million against it at 4% interest. Use
that 5 million to buy more art [music]
or invest in a private company or fund
the next deal without ever having to
sell the Picasso. The art isn't [music]
the asset. The art is the collateral.
The asset is the access to capital that
the art unlocks. And there's a deeper
layer on the art market, maybe for
another video, but here's a glimpse. The
serious players don't even buy at the
public auctions you read about in the
news. No, there's a private market that
operates 60 days before the public sale.
Trusted clients of Sotheby's and
Christie's are quietly shown the lots.
They place private bids. Trades happen
at insider prices. The piece never
appears on the auction floor. The art
world that you see in the news is
actually the retail show. The real deals
happen in Switzerland at the Geneva
Freeport.
Number eight, litigation finance. In
2012, the wrestler Hulk Hogan sued the
website Gawker for invasion of privacy,
and he won $140 million.
Gawker was driven into bankruptcy and
shut down forever. What the public
didn't know during that trial is that
Hogan wasn't paying his own lawyers. The
lawsuit was secretly funded by
billionaire Peter Thiel, who had his own
grudge against Gawker dating back nearly
a decade. Thiel invested roughly $10
million in Hogan's legal team. He
recovered nothing publicly. He destroyed
a company he hated, and he pioneered a
category of investment that's now a $20
billion industry. Litigation finance.
Fund somebody else's lawsuit in exchange
for a cut of the eventual settlement.
The mechanism is this. A plaintiff has a
strong legal case but can't afford the
years of legal fees needed to fight a
deep-pocketed corporation. A litigation
finance fund reviews the case, decides
if the odds favor a win, [music]
and then writes a check. They cover the
legal costs. If the plaintiff wins, the
funder takes 30 to 50% of the
settlement. If the [music] plaintiff
loses, the funder loses their
investment. Burford Capital, the largest
fund doing this, reports they win
roughly 90% of the cases they fund. They
double their money on average. The
returns are completely uncorrelated with
the stock market, with interest rates,
with the economy. A lawsuit's outcome
depends on legal merits, not on whether
the feds cut rates next quarter. That's
why every AI update is disrupting the
industry so much. Based on training
data, you should have a clear
understanding of how the outcome will
play out. This is one of the cleanest,
non-correlated income streams in modern
finance, but almost nobody outside of
institutional investors knows it even
exists as an asset class.
Number seven, whole life insurance as
private banking.
Now, the rich don't use life insurance
like the middle class or the poor. The
few who can afford life insurance. No,
there is a specific type of whole life
policy overfunded with maximum cash
value and minimum death benefit that
functions as a private bank with
extraordinary tax advantages. You pay
premiums into the policy. The cash value
inside grows at a guaranteed rate plus
dividends from the insurance company,
completely tax deferred. After a few
years, the policy has substantial cash
value. But now for the unusual part. You
can borrow against your own cash value
at any time for any reason without
selling anything. The insurance company
lends you the money at 4 to 5% interest
using your policy as collateral. The
borrowed money isn't taxable income, it
is a loan. And while you're using that
borrowed money to invest in real estate,
fund a business, or buy another deal,
the original cash value inside the
policy continues to grow as if you'd
never touched it. The same dollar is
working in two places at once. This is
how Walt Disney funded the original
Disneyland in the 1950s when banks
turned him down. He borrowed against his
life insurance policy. Ray Kroc, the
founder of McDonald's, funded early
McDonald's expansion the same way. J.C.
Penney, the founder, used the strategy
to keep his company alive after the
Great Depression. The wealthy use their
own life insurance policies as private
financial systems that operate entirely
outside of the traditional banking
world. No credit checks, no application
denials, no tax events, just liquidity
on demand. But, the catch? The policy
has to be designed correctly by an
insurance specialist who knows this
strategy, not the agent at your local
Allstate office. And, this strategy
works on time horizons of 10 plus years.
Set one up correctly and you stop
borrowing money from banks. You start
borrowing it from yourself. Paying
interest to your own future estate.
Watching your cash value compound,
regardless of what the markets do.
Number [music] six, royalties, film,
music, and IP. Bob Dylan sold his music
catalog to Universal in 2020 for
approximately $300 million.
Bruce Springsteen sold his catalog to
Sony for $500 million. Justin Bieber
sold his catalog to Hipgnosis for $200
million at the age of 28. The buyers
were not fans. The buyers were
investment funds calculating exactly how
much money each song would generate
every time it's streamed on Spotify,
played in a movie soundtrack, got
covered at a wedding, or appeared in a
TikTok video. Forever. A royalty is the
right to be paid every time someone uses
something. As an asset class, royalties
have quietly become one of the most
aggressive growth plays in alternative
investing. Music royalties through
SongVest, Royalty Exchange, and A-Note
Music lets you buy fractional shares of
song catalogs. Yields run 8 to 12%
annually. Underlying catalogs appreciate
as streaming grows. Film and television
residuals work the same way. Studios
sell off back catalogs. [music]
Investors collect every time a Seinfeld
rerun airs or a James Bond movie streams
on a new platform. Seinfeld [music]
syndication rights have generated over
$3 billion in residual revenue across
decades. Pharmaceutical royalties are
the largest and well-known version of
this. Funds like Royalty Pharma buy
royalty streams on FDA-approved drugs.
They don't develop the drugs, they don't
manufacture them. No, they collect a
percentage of every prescription filled
until the patent expires. And patent
royalties extend beyond medicine. The
chips inside your phone or laptop now
generate royalty payments to dozens of
patent holders every time a device is
sold. For the video editors out there,
the H.264 video codec licensing pool
generates hundreds of millions a year
for the small group of companies that
own the patents. [music]
The underlying logic,
you didn't write the song. You didn't
invent the drug. You didn't film the
show. You didn't design the chip. You
just bought the right to get paid every
time somebody else uses it. This is the
closest thing to legal ownership of
other people's work that exists. It's
also why T-Pain hasn't put out a song in
a decade, but you're not ready for that
one yet.
Number five, buying other people's debt.
Tax liens and distressed notes. A quiet
auction happens twice a year in almost
every county in America. The county
lists every property where the owner has
fallen behind on property taxes.
Investors show up, sometimes in person,
sometimes online, and bid for the right
to pay the tax bill on somebody else's
behalf. The winning bidder pays the
county the overdue tax. In return, they
receive a tax lien certificate against
the property. The homeowner now owes the
bidder, not the county. What makes this
an investment is the interest rate is
set by state law. Florida pays up to 18%
annually. Iowa pays 24%. Illinois pays
36%. Returns guaranteed by the state
government, secured by real estate. When
the homeowner pays their back taxes,
most do eventually, the bidder collects
the original amount plus interest.
Government-mandated yield on a debt
secured by physical property. If the
homeowner doesn't pay within the
redemption period, usually 1 to 3 years,
[music]
the bidder begins foreclosure
proceedings. Sometimes they acquire a
$200,000 small house for whatever back
taxes they paid, often 5 to 20,000.
[music]
Either outcome is profitable. The
patient investor wins on yield, the
aggressive one wins property. Now, this
is a $14 billion yearly market in the
US. Most of the largest buyers are
family offices and specialty hedge funds
because [music] they take the time to
learn this and have no problem being
patient. One of our upcoming app experts
will teach our members exactly how he
does this with distressed notes. He buys
defaulted mortgages from the banks at 50
[music] to 70 cents on the dollar,
renegotiate with the borrower at
favorable terms, or foreclose the
property. The same mechanism. The
wealthy understand something the average
viewer doesn't. When someone defaults on
a debt, that debt becomes available for
purchase by someone who can afford to
wait at a massive discount. And by the
way, you can access all of the
frameworks from our app experts where
they coach you exactly on how to do
these kinds of deals with a yearly
membership at elux.com/app.
Number four, government-backed cash
flow, Section 8.
Now, the most reliable rent payer in the
United States is the federal government.
Most people associate Section 8 housing
with low-tier rentals and charity, but
most people are wrong. Section 8 is one
of the highest cash flow real estate
plays in the country, and the wealthy
figured this out three decades ago. The
[music] mechanism is this. A landlord
owns a property in a qualifying
neighborhood. A tenant who qualifies for
Section 8 vouchers moves in. That tenant
pays a small portion of the rent based
on income, usually about 30%. The
remaining [music] 70 to 100% gets paid
directly into the landlord by HUD, the
Federal Department of Housing and Urban
Development. The check arrives on the
first of every month. Every month,
regardless of recession, layoff wave,
inflation crisis, or pandemic. The US
Treasury doesn't miss rent payments. The
math? In markets like Cleveland,
Memphis, Indianapolis, or Birmingham,
you can buy a Section 8 eligible duplex
for $80,000 to $150,000.
HUD's fair market rent in those markets
often pays $1,800 to $2,400 a month.
That's a cash on cash return of 18 to
25% annually, backed by the federal
government. Investors running this play
at scale own portfolios of 50 to several
hundred Section 8 units. Grant Cardone
has spoken openly about it. Multifamily
syndicators in lower cost markets
quietly run portfolios that are 60 to
80% voucher backed. By the way, there is
a scam happening right now in the US
that if you're a property owner via
Zillow, Redfin, or other platforms,
>> [music]
>> you might get a message of someone
asking, "Do you accept Section 8
tenants?" Now, your first instinct here
might be to say no, because you're
looking for a different kind of tenant
when you're renting out your second
home. But, it's illegal to discriminate
here, so answer yes or don't answer at
all, because if you say no publicly,
you'll get sued for discrimination and
they'll ask you to settle out of court.
Number three, pre-IPO secondaries.
By the time you can buy a company on the
public stock market, the right people
have already 100x their money. 20 years
ago, a successful tech company would IPO
after about four years. Investors in the
public market participated in most of
the company's growth. Today though,
successful companies stay private for 10
to 12 years. SpaceX, Anthropic,
Databricks, Anduril, OpenAI, all
private, all worth billions, maybe maybe
even trillions. None of them are
available through a public brokerage
account. The retail investor who buys at
the IPO is buying at the exit price for
the people who actually built wealth.
So, [music] how do you buy shares in
these companies before they go public?
Well, the mechanism here is called
pre-IPO secondaries. So, early
employees, ex-founders, and early
investors of these private companies
often want liquidity before the eventual
IPO. They have shares worth millions,
but they can't spend paper. Specialty
platforms or funds match these sellers
with accredited investors who want to
buy. Minimums [music]
are typically 10 to 25,000.
Now, you've got to be an accredited
investor to get access to this, [music]
but Naval's USV C gives you access to
the allocation for as low as 500 bucks.
Now, here's a real example. SpaceX
shares traded on secondary markets in
2020 [music] at a $46 billion company
valuation. Today, the company is getting
ready to IPO somewhere between 800
billion and 1.4 trillion dollars in
valuation. Yes, qualifying as an
accredited investor is why the upper
middle class and rich have an unfair
advantage over regular people, and this
should change. It's mind-boggling that
you can bet on sports or prediction
markets, but you can't take part in the
biggest wealth creation vehicle around.
Number two, the Veek loophole, sports
team ownership. Steve Ballmer paid $2
billion for the Los Angeles Clippers
back in 2014. The team is now worth
approximately 5.5 billion. He's tripled
his money on the trophy alone, but
that's not why he bought it. He bought
the Clippers because of a tax mechanism
so absurd that when you first hear about
it, you'll think you've misunderstood.
So, this mechanism is called the roster
depreciation allowance, pioneered in the
1970s by a baseball owner named Bill
Veeck, hence the name. So, the rule
states that when you buy a professional
sports franchise, you're allowed to
claim the human players on that team as
assets that wear out over time, just
like factory machinery or company
vehicles. You can therefore depreciate
the players on paper as [music] if they
were machines. So, under the current US
tax law, an owner can deduct the entire
purchase price of the team, including
the value attributed to the players,
against personal income over 15 years.
>> [music]
>> Steve Ballmer paid $2 billion for the
Clippers. Over 15 years, he's been able
to deduct roughly that entire $2 billion
against his personal income from
Microsoft stock dividends, from any
business he runs, from any capital gain
he realizes. Roughly $130 million per
year of deductions, reducing his federal
tax bill by potentially [music] $50
million a year. Meanwhile, the team
generates real income from broadcast
deals, [music] ticket sales,
sponsorships, and merchandise. The
franchise value appreciates because
professional [music] sports valuations
have outpaced the S&P 500 for the past
25 [music] years. Now you understand why
owners are willing to spend so much
money on big-name players.
>> [music]
>> The wealthiest sports team owner in
America is simultaneously making money
from the team's operations, watching the
team's market value triple over a
decade, and paying almost zero federal
income tax on hundreds of millions of
dollars of unrelated personal income
because the depreciating players
generate [music] paper losses that
offset everything else. The Clippers
aren't Steve Ballmer's trophy. No, they
are his tax shelter. Every NBA owner,
every NFL owner, every MLB owner,
they're all running this structure.
[music]
The rule has been examined by Congress
multiple times, and it's survived every
challenge. Sports lobbying is among the
most effective political spending in
America. The roster [music] depreciation
allowance is the single most valuable
line in that lobbying budget. Remember
this the next time you're watching the
game.
And a number one, GP stakes. Now you
know what private equity [music] is.
Well, the investors pooled their money
into a fund. The firm running the fund
uses that money to buy companies, grow
them, and sell them years later for a
profit. The investors are called limited
partners or LPs. The firm running the
show is called the general partner or
GP. So for decades, the wealthiest
people on Earth were all happy being
LPs. They wrote [music] big checks,
waited 7 to 10 years, and collected
returns that beat the public market.
Then they noticed something. The people
making the most consistent, [music]
safest, and highest returns in the
entire ecosystem weren't the LPs. They
weren't the founders of the companies
being bought. They were the firms
managing the money. The general partners
themselves got extremely rich. So the
wealthy stopped just investing in
private equity funds. Instead, they
started buying ownership stakes in the
private equity firms that run the funds.
This is called the GP stake. When an
ultra-wealthy investor or sovereign
wealth fund [music] buys a GP stake,
usually 10 to 30% of the management
company, they unlock [music] three
streams of income that LPs never see.
First, guaranteed management fees.
Private equity firms charge two and 20.
A 2% annual fee on every dollar they
manage, plus [music] 20% of the profits
when investments succeed. The 2% fee is
contractual. It gets paid every year
regardless of performance. A firm
managing $10 billion collects $200
million in guaranteed cash flow annually
just to keep the lights on. A GP stake
owner gets a direct cut of that locked
in revenue. Second, carried interest.
The 20% performance fee on every
successful [music] exit. A GP stake
owner doesn't have to pick which
investments will succeed. They get a
percentage of every winning deal across
every fund the firm manages. They
collect a toll on every winner. Now,
third is immunity to time. When you
invest in a normal private equity fund
as an LP, your money is locked up for
years before you ever see returns. In
the industry, we call this a J-curve.
You only see your money at the end. But,
a GP stake bypasses this entirely.
Because the stake earns from top-line
firm revenue, distributions begin almost
immediately. So, here's the hierarchy.
Buying stocks is sitting at a blackjack
table. The casino has a small
statistical edge. You have a chance to
win, but most people don't. Investing in
a private equity fund as an LP is like a
high roller in a VIP room. You can take
a cut of that action in that one room.
You depend on which guests show up. But,
buying a GP stake is literally buying a
percentage of the casino itself. You
collect a fee on every hand played in
every room across every floor. When
markets crash, the management fees keep
flowing because they're contractually
locked in for 6 years. When markets
boom, the carried interest pours in on
top. Every time you see a gargantuan
estate with helipads [music]
and super yachts, it's one of the people
running the general partnership fund,
and most of you have never heard of
them. They own pieces of private equity
firms that you've also never heard of.
Sovereign wealth funds from Abu Dhabi,
Saudi Arabia, and Singapore have
collectively invested over $100 billion
in GP stakes in the past 10 years.
Because they can't throw money at them
quicker. This is the [music] deepest
version of the rich getting richer. The
wealthiest people on Earth no longer
want to play the game. They no longer
want to own the team. They want to own
the league. They want to be the house.
Now, this is a completely different
financial universe, and why most people
subscribe to our channel. So, let's do a
quick recap before the bonus. [music]
15, citizenship. Your passport is an
investment instrument. Hedge your
future. 14, infinite returns. There are
layers to real estate that you weren't
aware of before. 13, roll-ups. More
businesses together, strong. 12, [music]
captive insurance. Hold your own float.
11, direct indexing allows you to
harvest losses that compound. 10, the
fuel. You don't need to touch it to get
rich. Nine, free ports and whisper
markets showed that the rich still
operate behind closed doors.
Eight, litigation finance. Talk to AI,
fund the lawsuit, get paid.
Seven, your life insurance is your own
bank.
Six, royalties. Get paid every time
someone uses something.
Five, [music] tax liens. You can buy
other people's debt, collect it, or sell
their stuff for profit.
Four, Section 8 properties are the most
reliable tenant in America.
Three, pre-IPO secondaries. 100 X's are
done before the IPO happens.
Two, buying a sports [music] team allows
you to depreciate the players so you pay
no tax. And one, GP stakes. Stop playing
and buy the casino. So, which one of
these shocked you the most and deserves
a deep dive video? Let us know in the
comments and we'll publish it midweek.
And since this is a Sunday motivational,
here is your bonus.
Stud fees. Yep, you heard us right.
Studs can get you paid millions of
dollars in fees and we're talking about
horses here. And we actually just
discovered this ourselves fairly
recently. When a top-tier racehorse,
like American Pharoah or Galileo,
retires, they don't go to a pasture or
get turned into glue like we assumed.
They're actually syndicated the same way
Seinfeld was syndicated, meaning their
ownership is split into shares, Often 40
to 50 shares and sold to wealthy
investors and breeding farms. Those
investors then get a cut of the horse's
stud fee every time it successfully
breeds. And it's insanely profitable. A
top stallion can breed with 100 to 200
mares in a single year. They just they
go to town. And here's the best part.
Every stud fee is $200,000 per cover.
The absolute legends charge 400 to
500,000 dollars per doing the deed. That
single horse is generating 20 million
dollars a year in pure cash flow without
ever setting foot on a racetrack again,
living it's best life. The legendary
horse Galileo reportedly brought in an
estimated 60 to 80 million dollars
annually at his peak. He lived to be 23
and generated well over 300 million
dollars in lifetime stud fees alone.
What the ever we even talking about
here? Okay, there's no way you thought
we would end this with horse semen when
you started watching this video. But if
you made it all the way to this point,
then I guess we're pretty good friends.
We know this was a long one, so write
the word friend in the comments. That
way we know the real ones are watching
all the way to the end. Thank you for
your friendship, A Luxer. We do not take
it for granted.