<table><tr><th>From:</th><th>David Stern</th></tr><tr><td>Sent:</td><td>Saturday, March 31, 2012 12:14 PM</td></tr><tr><td>To:</td><td>Jeffrey Epstein</td></tr><tr><td>Subject:</td><td>Fwd: Friday Letter: Too tough to crack</td></tr></table>

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Skoll will be in Istanbul. Will =ntroduce you

From:

Sent: Saturday, March 31, =012 1:42 AM To: V-Nee Yeh Subject: Friday Letter: =oo tough to crack

=omment

With $4.6 trillion between them, the world's billionaires are bigger =han the entire hedge fund industry put together, but ultra high-net-worths =nd family offices are probably never going to be hugely important to =und sponsors. =o:p>

Much has been published about the =ombined wealth of the world's billionaires and family offices, but is this =roup ever really going to be a huge attraction to fund =anagers?

This week, Capricorn Investment =roup, a Palo Alto- and New York-based private investment vehicle of eBay =o-founder Jeffrey Skoll and other families, rolled into London and =ssentially said that it does not love private equity real estate funds. Instead of committing to =nother commingled blind-pool fund, Capricorn was in town to announce a =ommitment to a European club investment vehicle to be managed by a new firm, =amily Office Real Estate Partnership. =o:p>

At the event, Stephen George, the =ery smart and likeable co-founder and chief investment officer of =apricorn, went on to say that family offices were "yearning" for a new =odel - a "more direct model that one couldn't get in a fund." He also =oted that the global financial crisis had "revealed issues" in the fund model, =nd in real estate funds in particular,

with "lots of fees" and a lack =f transparency. He added that the industry had become =93product-erised," leading to a change in the basic dynamic of what investors are =tying to accomplish with such investments. =0:p>

Of course, George wasn't =ecessarily trying to speak on behalf of every family office on the planet. The =hing is, even if family offices en masse are anti-private equity real =state funds, the fund industry may not shed a =ear.

Yes, there are at least 6,0O0 =amily offices around the world, and perhaps as many as 10,000. And yes, it =eems undeniable that the combined wealth of billionaires is colossal. =ccording to Forbes magazine, there are 1,126 such people in the world with =4.6 trillion between them — that's larger than the entire hedge fund =ndustry, which has $2 trillion in =ssets.

In addition, it is true that family offices are capable of writing out some very large cheques to real =state funds. Those that want to be in funds don't mind taking a call =rom a manager or placement agent, and they can be less cumbersome than tome institutions. For example, there may be just one guy in charge of investment decisions for the family office, making the =ecision-making process clean cut if he likes the =trategy.

Nevertheless, in reality, it is =are for a fund sponsor to base its fundraising around family offices. The =ponsors know that family offices tend to have a different agenda to =nstitutional investors, and they are a guarded and difficult group to get in with =n the first place.

Also, the notion that their =ollective heft can be harnessed in some significant way by fund managers seems = tall order. There's little chance that many of the family offices within =hat capital pool of $4.6 trillion share a collective approach, given the individuality inherent in the notion of a family office in the first =lace.

There is a right way to approach =hem and a wrong way, but the average size of cheques these guys write, at =he end of the day, might not even make all the effort worth it, especially as =he family office can be so much more demanding when it comes to the =evel and frequency of communication and information required from the =anager.

For these reasons and more besides, =und sponsors should continue to target the institutional market, even if =hat has become just as demanding.

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