In the South Bay, where venture-backed startups and legacy firms churn out in-demand military and space technology, wealth is ballooning.

As some of the companies fronting the “new space economy” prepare to go public, fortune-building in Los Angeles’ reborn aerospace and defense sector could launch to new heights. Local money managers want to bring the resulting riches under their wings.

“We very successfully worked with a number of very big hitters, the biggest people in the industry,” said adviser Richard Jones of Merrill Private Wealth Management’s Century City-based Jones Zafari Group, which set up a team dedicated to serving South Bay professionals three years ago. “We’re at a very important time right now where we’re going to see this explode even further.”

The talk of the town is the Space Exploration Technologies Corp.’s highly anticipated initial public offering, slated to raise $75 billion. The satellite and artificial intelligence company aims to kick off public trading on June 12. 

Though the Elon Musk-founded firm, which does business as SpaceX, moved its headquarters to Starbase, Texas, in 2024, it maintains a substantial employee base in Hawthorne – its former homebase. And in the coastal strip
between El Segundo and Palos Verdes Estates, hundreds of its former engineers have spun
off defense and AI startups attracting billions
in funding.

For current and former employees of industry giants like SpaceX, which heavily incorporate equity compensation into pay packages, a blockbuster IPO can unlock massive wealth, said Michael Hatch, executive director of the Manhattan Beach Group at Morgan Stanley. 

“As these companies come and whenever lockups turn off, all of a sudden a whole wave of the population that has been very wealthy on paper is going to have liquidity,” said Hatch, whose team is bracing for growth after moving to the South Bay in 2018. “Unlike deals of the past … there’s massive swaths of executives at many levels who are going to become instantaneously wealthier than they ever wanted to be.”

Unique needs

L.A.’s defense tech sector – revived by a domestic manufacturing push, the rise of private spaceflight and heavy investment in autonomous systems – has in recent years drawn wealth management firms vying for valuable relationships with well-off founders and their employees. 

Jones’ team has added a dozen aerospace and defense clients with net worths of $25 million or more in the last couple of years, and the “the only reason, quite frankly, we probably don’t have a lot more clients at this point, is because they don’t have any money right now,” he said. 

Since most of the sector’s growing wealth is tied up in stock, manufacturing liquidity is a key part of the work advisers have done with defense tech clients – especially as companies stay private for longer, said Chris Cuvinan, J.P. Morgan Private Bank’s head of lending in Southern California.

“At J.P. Morgan, we have adapted with those times and are providing capital to employees to have this paper wealth sooner,” Cuvinan said, “and that allows them to have more flexibility on home purchases and on starting new ventures. That keeps that innovation flywheel working in the South Bay.”

Securities-backed lending is commonly used by major firms to help clients access cash for taxes, business opportunities and real estate without selling stocks or bonds. 

Beyond providing leverage, advisers strategize with asset-rich, cash-poor defense tech clients for trust and estate planning that works around their concentrated stock positions. A maneuver Jones’ team does “all day long” with clients – many of whom have upwards of 95% of their net worth tied up in privately held company shares – involves transferring stock into out-of-state trusts for their children.

“This way, they don’t need to sell the stock, but they’ve gotten the stock out of their estate at a relatively low valuation,” Jones said. “At some point in the future, when the company gets sold or goes public, that stock is going to be worth a whole lot, and they’ve already gotten it out of their estate. It’s a very, very powerful tool.”

Anticipating IPOs

Advisers hope they time they spent making inroads in South Bay’s tech communities will soon pay off, as prospective clients flood with new liquid wealth and investable assets. 

The Jones Zafari Group’s South Bay-focused contingent has been trying to “build positive karma” by doling out advice on issues like estate planning to prospective defense tech clients, of which it currently counts 30. 

“What we are hoping for (or) expecting is that once these folks are in a position where they’re about to get some liquidity, that they will remember all the good things we’ve done for them, and they’ll open accounts with us,” Jones said.

For several years, advisers in the Manhattan Beach Group have prepared for the public offerings of landmark companies with South Bay ties, Hatch said, “so that instantly, when it takes place, they become the perfect client as we onboard them.” Early pre-liquidity planning is “paramount” to take advantage of tax deferral or saving options, he said.

One popular pre-IPO strategy among Hatch’s stock-heavy clients has been the use of long-short investment strategies designed to generate losses that reduce the tax they owe.

“The biggest problem that a lot of these clients have is when they do have that big moment, it tends to be a moment of a lot of tax, a lot of capital gains, and so one of the major things that they’re looking to do is offset it,” Hatch said. 

Stock planning is also key in the run-up to a major liquidity event like an IPO, Jones said. His team has worked on pre-arranged trading plans, or 10b5-1s, for corporate insiders to let them gradually and automatically sell their stock in the future.

Advisers are also helping clients tap into qualified small business stock, a valuable sheltering tool that allows founders and employees to exclude large portions of capital gains from federal taxes.

South Bay money managers, like all advisers, help clients manage risk alongside growth. Explosive post-IPO wealth creation makes that balance more challenging and important, said Hatch, who sets up trusts, limited liability companies and insurance structures designed to shield client assets from potential “predators.” Future ex-spouses are the most common threat, he said.

Asset protection strategies encompass “all those little things that you can control to make sure that there aren’t people creeping in, and protecting and isolating those assets for the family,” Hatch said. “We try to set as many predator-creditor protections, and moats and fences around the client, and try to teach them that they’ll have a giant target on their back.”

Bill Dramis, team lead for J.P. Morgan’s South Bay Private Bank, said the greatest risk comes not from single-position, concentrated wealth, but from a lack of guidance through the emotional rollercoaster of a public offering.

“If your company is going through a transition to becoming public, you’re going to shift to a point in time where your net worth is going to adjust daily,” Dramis said. “That’s an entirely different emotional decision to think through.”