The Herschend family started Elmwood Management, their family office, in 2006 as a way to facilitate shared, cooperative investing. The purpose of the office has remained the same since then — there are no concierge services, though the office connects family members to a range of advisory services — but its form has evolved.
Today, Chris and Austin Herschend, first cousins once removed, serve as managing directors of Elmwood, which serves about 60 family members from more than 20 households, representing four generations. Those same households collectively own the family’s operating business, Herschend Enterprises. Operating companies within Herschend Enterprises include Herschend Family Entertainment (Dollywood Parks & Resorts, Silver Dollar City, Adventure Aquarium, Newport Aquarium, Kentucky Kingdom, and Wild Adventures), Herschend Live (Harlem Globetrotters), Herschend Entertainment Studios (Splash & Bubbles and Chuggington) and Herschend Adventure Holdings LLC (Pink Adventure Tours). The family also set up the Neighbor Company to oversee its philanthropy.
Chris and Austin Herschend discuss what they have learned from the evolution of their family office’s investments and structure.
Lower the barriers to exit
Chris Herschend: We serve every household in our family, managing a substantial portion of their invested capital. It’s totally optional: This has been an important assumption in the way we built it.
We made a mistake when we first formed all this: We required everybody to stay in for the first five years. Over time, that proved to be very unpopular, for all the reasons you would imagine. We lifted those restrictions, and we’ve found that the level of engagement with our services is much higher. When we lowered the barriers to exit, we increased buy-in. People seem to feel that we’re all in it together.
We’ve really worked hard to say, “We do what a lot of people today do. We think we do it better; we think there are a lot of advantages. But it’s completely optional.” Our model is not dependent on having every single household in.
Hire professionals
Austin Herschend: We primarily started Elmwood as a way to invest together. That function — shared, cooperative investing — we’ve been doing since 2006. It evolved to the current state in about 2018, when we built a company with staff. Today we have a staff of five people and several key partners. The primary purpose remains the same.
The change in 2018 was aimed at improving efficiency, performance and service. We felt like we could match performance more efficiently with much higher levels of service than we had gotten.
We had a volunteer-only army at that point, with Chris doing the lion’s share of the work. We said, “If we’re going to do this and do it right, we need to stand up a full company and start adding bodies.”
Customize the investment structure
Austin Herschend: We used to have a single fund, one size fits all. We just navigated to having four separate funds: public equity, private equity, fixed income and real assets (which is primarily real estate right now). Inside those buckets, we make industry-standard investments — no direct investments at this point.
This new fund structure will allow for customization. We want to be able to serve a wide range of investors — we have newborns through age 92. Long-term, as AUM grows, we want to continue diversification. We’re structured in a way that we could add a fifth or sixth fund — maybe split public equity into domestic and international, for example. We’re evolving slowly.
The operating company is the sole direct private investment
Chris Herschend: We don’t do direct investments. Those are enormously time-consuming to screen and vet. We are staying lean and simple and fast right now as we’re still scaling. It’s something we may do down the road.
We also make investments that are unrelated to the operating business. We didn’t want to double down on family entertainment.
Embrace change
Chris Herschend: The decision to go with the four funds was driven by changes in the family’s needs: We are aging, the family is more experienced and sophisticated about investing now than 10 years ago, and we’ve been blessed with growth. Nothing lasts forever — everything needs to be refreshed. People change, the macro environment changes, our needs change, the technology and tools change. We try to build simple systems that serve us well and can be changed later. That sounds like we’re “feet planted firmly in midair” all the time, but it is not.
Austin Herschend: Be willing to take it all apart and put it back together. Our original structure goes back 15 or 20 years. We completely blew it up and said we’re going to do it ourselves. We’ve now taken the investing part apart and put it back together. If you start trying to get it perfect right out of the gate, it can be overwhelming. We’ve got family members that have given us the slack to continue to improve it.
