Podcast
Ted Seides, founder of Capital Allocators LLC, host of the Capital Allocators Podcast, and author of his second book, Capital Allocators: How the World's Elite Money Managers Lead and Invest, is our guest on Raise Your Average.
Takeaways
• Ted Seides reminisces about his old friend and mentor, David Swensen, Endowment Fund Manager and CIO, at the Yale Endowment and Yale University, who, sadly, passed away the week before we recorded this episode.
• What he learned from David Swensen during his 5 years at the Yale Endowment Investment Office, and the impact that working with him had on the trajectory of his career and his life.
• What impact David Swensen had on the investment industry and everyone who knew him.
• David Swensen (and team) reportedly added $35-billion in alpha to the Yale Endowment (above and beyond peers and market returns) during 30 years, all the while forgoing insane amounts of compensation.
• Ted shares Swensen's timeless framework and first principles, and stories from his time with Swensen.
• Swensen created for his own use, what are now called 'factors' and 'factor-based' approach to diversify portfolios in a time when factors did not exist.
• Where are the edges in the market today?
• What are sophisticated institutions with spending needs/liabilities of 5-8% per year doing to get those returns?
• Beyond Diversification and Asset Allocation, what are the 3 new 'buckets' institutions are using to construct portfolios?
• Ted's infamous bet with Warren Buffett - Ted talks about this in some detail.
• The lessons learned from decades interviewing elite money managers
• What are the investment learnings?
• What are the non-investment learnings?
• What are the biggest challenges?
• How are the people evolving?
• What happens in the Investment Offices of elite money managers?
• The 3 Ps and the 3 Cs
• How do you make good decisions? As an individual? As a team?
• How do investment committees decide what to do?
• What are some of the common threads across all allocators?
• What are some key advantages investment advisors have over CIOs and portfolio managers?
Full Transcript:
Ted Seides, Capital Allocators – How the World's Elite Money Managers Lead and Invest (RYA Ep. 11)
Joseph Lamanna: [00:00:00] Welcome to Raise Your Average. I'm Joseph Lamanna Managing Director at AdvisorAnalyst.com. My co-hosts are Mike Philbrick and Adam Butler from ReSolve Asset Management, SEZC. Our special guest is Ted Seides, founder of Capital Allocators, LLC, the Capital Allocators podcast named one of the best investment podcasts with well over 5 million downloads and most recently the author of his second book, and now a bestseller by the same name, Capital Allocators, How the World's Elite Money Managers Lead and Invest.
Disclaimer: [00:00:34] The views and opinions expressed in this broadcast are those of the individual guests and do not necessarily reflect the official policy or position of AdvisorAnalyst.com or of our guests. This broadcast is meant to be for informational purposes only. Nothing discussed in this broadcast is intended to be considered as advice
Joseph Lamanna: [00:00:53] Ted, Welcome to Raise Your Average. It's great to have you.
Ted Seides: [00:00:57] Thanks Joseph. Great to be here with you guys.
Mike Philbrick: [00:00:59] Good to have you back, Ted.
Ted Seides: [00:01:01] Yeah, like I'm ready for the grilling. Let's have at it.
Mike Philbrick: [00:01:04] I love it. I love it.
In, in, in classic fashion, right? Raise Your Average is about, you know, taking the advisors out there and raising their knowledge level and, um, average when it comes to all things investing.
And you have probably one of the best resumes in that world. I mean, even the name of your Capital Allocators podcast and the world's elite and the way they invest and manage their teams is stellar. And I think we probably should mark the beginning of this conversation with a small moment of silence for David Swensen and what I was sort of, I don't know if I was, I was enthused or tickled.
I don't know what the right wording is that he had done a lecture earlier last week with Yale and one of the management schools, um, that he had been conducting with a colleague of his, for 35 years. You know, still was, uh, even though battling cancer and things that I certainly didn't know about was, was, uh, deeply committed to, uh, this endeavor.
Adam Butler: [00:02:04] For those who don't know, right, this is relevant because Ted, you spent several years with David, um, along your career trajectory, right? So it may be useful for you to sort of set the stage by, by telling us a little bit about your career trajectory. And then we can maybe pause with some anecdotes of your time with David, um, given the context and, um, go on from there.
Ted Seides: [00:02:28] So I, yeah, I graduated from Yale in 1992 and my very first job was working for David at the Endowment. Um, and I stayed for five years and in that period of time. And so he was my, my first and really my true mentor in the business. He was an amazing, uh, leader, investor, teacher, mentor. Um, and, um, yeah, he'd been sick for a long time, but it's very much like, like the way people describe it, babe, how, you know, how, uh, how bubbles burst very slowly and then all all of a sudden.
So he, he had been sick for a while, but I think any of us were expecting this, though there were a number of people who got to the point where they thought he was invincible. And I think it had cancer terminal cancer. Sure. For, for nine years with a maximum expected life of five. Um, and just, you know, like anecdotally his wife and two step kids got COVID and he didn't, uh, in the last, you know, over the last year or so.
Um, yeah, very sad, but, but was, was coming. It was a long time coming. Um, and he had just an amazing impact on people and the industry. So there's a fair amount getting written about him now, like certainly this week, um, I wrote a little piece that I sent out. I wrote a little reactionary piece and then a piece over the weekend.
Um, and, and there's really two sides of that. One is this incredible impact he had on the investing world because he popularized the institutional framework of multi-asset class investing in the particular way that, uh, he and only a few others had been doing it in a book he wrote 20 years ago, that became kind of the seminal bible for, for this group of investors.
And then on the other side, on the interpersonal side, he just touched so many people. Um, there were a number of my old colleagues who, who eventually left and, and now run other large non-profit pools of capital. Uh, he, and, and as long time, number two, Dean Takahashi taught this class at Yale for something like 35 years, it was a 20 call it a 20 person seminar.
But if you think about that, that's 700 Yale undergraduate, too many of whom went off into the investment business. And then they had this incredible portfolio of managers around the world that they just had amazing relationships with. So he was a very, very special guy. Um, and it took some reflection for me over a couple of days.
It hit me a lot harder than I maybe anticipated it would cause for a whole bunch of reasons, but was just the, the amazing impact he had on the trajectory of my life and my career. And then you see how common it was and, and the things that you read about him now, the, the, the adjectives that people use to describe, or just not common.
Um, yeah. Selfless and confident as it requires to be a great investor, uh, how giving you was, how 'mission first' he was, and really in, in many people's eyes forgoing insane amounts of compensation. I mean, they they've run the numbers of key. He added he and the team added something like $35 billion of added value to Yale.
So that's above peers above benchmarks and we call it alpha over 30 years and he was making a few million bucks a year. At the end, when I worked there, he was making a few hundred thousand a year and he thought that was sufficient. Um, so just, uh, just a remarkable kind of unparalleled person. Yeah.
Adam Butler: And I mean, his general framework is, would you say it's, it's timeless, you know, sort of the way he thinks about allocating capital and the rules and sharistics that he applies to the selection and partnership with, with managers.
How much of that, um, experience with him, have you sort of pulled forward into your own framework and, and informs what you described in your podcast and in your book and what you use from day to day?
Ted Seides: Yeah. Yeah. I mean, most of what I learned from investing came from him, those are the, you know, the formative first five years of my career, um, he started kind of the investment challenge from what he always referred to as first principles.
That is broadly applicable. Not necessarily exactly how he did it, but the concepts and how he applied them. So you're sitting at Yale, you have an endowment that has a perpetual time horizon, um, and very limited liquidity needs. They have spending every year, but they also have donations on the other side.
So liquidity needs are very, very light and he walked into what was more or less a traditional 60/40 portfolio in the mid- eighties and said, this doesn't make any sense. So first principles, if you have that long duration liability, you might as well have long duration assets and equities are the most long duration assets that exist.
So very equity oriented within that. You want diversification because that's the ultimate free lunch. And then he, then there were other first principles, things like looking for less efficient playing fields, um, uh, alignment of interest between sort of the, the investor, the managers they employ. So there's some real basics there and.
That sounds so common today. Um, some of the things that he said, but it wasn't when he started. And so what you miss, what we all miss on the day-to-day, the year to year is that he was constantly innovating on what those next two or three things to think about. So to give you a fun example, especially for you guys in the, in the early nineties, when I was there pretty focused on the U S equity portfolio, which was much more meaningful than, than it is today for them.
And David had looked at the Roger Ibbotson data of stocks, bonds bills, and inflation that the book that he reprints and resells every single year with one extra line of data, um, and said, Todd, if you look at the growth of a dollar over long periods of time, what happens with cash? What happens with bonds?
What happens with large cap stocks? What happens with small cap stocks? Sure. It looks like small cap stocks do better over a long period of time. So yeah. A us equity portfolio is always biased towards small cap. Similarly value one over time. It was always biased towards value that was before there were things called factors.
He would just, he just looked at the academic research and said, we should be biased towards small cap and value. Nobody talked about factors then about 15 as I think back, maybe close to 20 years ago. Now I was out of the office, but I was having a conversation with him. And he said, yeah, we're just finding that our managers are all gravitating.
And what's really working as these, these businesses that are just better businesses and we've called it quality. And where there was no academic research about a factor about quality. And they had tilted their portfolio towards quality stocks. And so who knows what those have been in the last couple of years, but he was always thinking from first principles and then implementing, uh, within that kind of broad asset class structure that people are more familiar with, but there were all kinds of, kind of incremental opinions and innovations that happen with it.
Mike Philbrick: [00:09:37] Yeah, I kind of think of him as sort of one of the grandfathers, if you will, that if you look at other large, um, asset endowments and you look at the lineage of where they come from, there's just his, his, um, uh, students. (Adam: Diaspora) Yeah. Like litter, the, the, the heads of these other endowments, uh, much like the Bill Parcells and Bill Belichick, uh, you know, sort of through, through the football domain where you have this sort of thought process of how you build a team or build things and, and go about, um, allocating, if you will, is just, uh, become a pretty great training ground.
And I think probably the whole endowment arena owes him a great debt of gratitude, actually. Yeah. So how, how did, how have you in those formative years, how have those come along your career trajectory, maybe, maybe step on from Yale and then go through your progression and ending up at Capital Allocators and give us your personal arc beyond the Yale experience.
Ted Seides: [00:10:45] Sure. Well, I'll, I'll go through the rapid highlights. I left after five years to go to business school thinking I wanted to pick stocks. I did that for a little while. Uh, I wasn't sure that I was learning enough about business analysis. So I moved over to private equity and did that for about two years.
And then I had decided that I wasn't really good at any of that. And I went back to picking managers and that led to the formation of a partnership called protege partners, where I was the one of the founders and co CIO for 14 years, uh, investing in smaller hedge funds since seeding new hedge funds. Um, and I left in 2015, so about five, six years ago, um, and did a whole bunch of things.
I'd written my first book, which was a series of lessons, um, from, in case studies really of seeing all these startup hedge funds. So both for managers who are going through that path and allocators who are thinking of investing in these smaller. Um, and that led to being on a couple of podcasts, which led to an idea of, Hey, I want to just go run around and talk to my old friends and see what happens with that.
So I did that on the side for a couple of years, I was working with a family office and doing a couple of their projects and about, I don't know, a year and a half, two years ago, I just kind of woke up one day and said, wow, people are like, now calling for advert. Maybe this is a business. And so kind of leaned into it and it's gone from there.
Adam Butler: [00:12:02] That's terrific. So what are the, how has your process of all your thinking evolved over, over, and, you know, this may dovetail to how have, how has the business itself a bolt and, and, um, the managers and where edges might be found now versus, you know, 10 or 15 years ago, but what are, what are some ways that your thinking has evolved in the context of the way that markets have evolved?
Ted Seides: [00:12:25] Yeah, well, you know, markets are always evolving. One of the things I found from tried and true principles is that when you leave the nest, you try your own things and you try your own spin on things. And what I learned over and over and over again over the years was that David was always right. So I would come back to things like, you know, market timing and say, you know, I know he says that most of the time, you can't really time markets and therefore you should just be diversified.
But I know when things are overpriced on the margin and I'd buy the Howard marks view that you kind of know where you are on the cycle and that just never works. So I've gotten more to an even deeper appreciation that I can't time markets. And it's when you believe that it's amazing. The kind of conversations you have with people who say yes, but you know, aren't things isn't doge Quinn ridiculous.
Right now, like, of course it's predicted. But that doesn't mean it's not going to go up further or like we don't, we just don't know. So, um, from a broad brush perspective, most of what I believe is very consistent with what I learned at Yale, but yes, markets evolve and, and the biggest evolution today for pools of capital like that is that you can't look at, um, asset class buckets, wherever, whatever you want, us equities, international equities, emerging market equities, fixed income.
You can't look at any bucket of asset classes and see an expected return in any time soon based on current pricing that will get people to their spending needs. So for institutions that may be, let's just simplify it and call it five to 8%. Um, and that's, uh, that's a real challenge. Like what is, what do you do in that situation?
And so you've seen shifts towards private equity with. Right. And depending on the rationale, it can either be right, or just the assumption of more risk because you're not getting paid, um, what you need to get paid to meet spending needs. And so that's been the biggest shift is that when I worked at Yale and most of the time, since the anchor of portfolio construction was tied to asset allocation and the academic research about sort of cross-sectional returns of asset classes would have told you that asset allocation is what drives your returns.
And that matters more. So the index fund movement, all of these things, if you get asset allocation, right, keep your costs low, you can get where you want to be. The problem with that today is that most of the sophisticated, the most sophisticated people in the world don't think it'll work because you can do asset allocation.
You can have low costs the same way, but if the returns don't get you, what you need for your spending, it's not enough. And so a lot of the most sophisticated institutions are moving away from. Asset classes as a driver of returns, they still use it as a, as a communication tool because it's easy to understand and moving more towards you could call it opportunistic investing.
Now that might not mean moving around asset classes. It might mean more focused on manager selection, less bounds of what asset classes are. So to give you one example, a number of years ago, Notre Dame had success at classes and you could, you know, off the top of my head, I don't know, but you can imagine it to us equities and private equity and venture capital and real estate.
And today they have three public private and opportunistic those three buckets. Don't tell you anything about the returns of what's in each bucket. So what they're doing is being driven entirely by manager selection. And then they'll take a top down view after that and say, okay, what do we own? Does this have the kind of diversification we want?
And they'll make changes accordingly, but they're not driving. Implementation decisions, starting with asset allocation and buckets to fill it's all bottom up, but that's one big change. Another big change for these institutions is, is on the cost side, which is if returns are tighter, which means you really don't have as much call it margin for safety relative to your liabilities.
One way you could do it to squeeze out returns or sort of more of a net return. So you see more co-investing in private equity, you see more movement towards some internal management of the assets so that these, these pools of capital don't have to pay the extra layer of fees to get at the underlying economics of what they're investing in.
So there's a bunch of different changes along the way. Um, but most of the seminal core principles, uh, that David espoused absolutely hold true in are somewhat time.
Adam Butler: [00:16:44] I'd love to chat more about, cause it's such a great story about your experience with, with the bet with buffet. And we've obviously written on that and are big admirers of your, um, the motivation for that, for that bet and the way you approached it.
Um, but maybe if you don't mind, just give us a little background on how that came about what was it and what was your
experience
Ted Seides: [00:17:08] with it? Yeah, sure. Um, so Adam, you know this well, but, uh, so we, now we have to go back to 2007. Um, so Warren had made some statements really to the effect that costs are expensive.
And he made a statement that a group of hedge funds couldn't beat the S and P 500 and of a broad statement. Um, I thought that was cheeky and I thought it was mostly wrong and there's a lot of reasons why, uh, but the easiest ones are. It's very apples and oranges comparison. So a group of hedge funds, the argument that fees eat up returns, uh, is, is a true statement in a constrained market where the participants create the market.
So you can imagine if, if your only mandate is large cap stocks and you put 25 different managers that collectively own 2000 securities together, they will probably own the market and you're paying them fees. So you'll lose. And that's kind of the argument. If you broaden it out, you could say, yeah, the more you pay the riskier, it is that you'll.
Attractive returns. The problem is that hedge funds are totally different in hedge funds can invest in Asia. They can invest in cap bonds. They can invest in all kinds of things that have no relationship to the S and P 500. Um, so when I looked at that back in 2007, the S and P was trading at all time, high multiples.
So just us stocks alone would tell you roughly speaking, there's an inverse correlation with starting valuation and subsequent returns, particularly over long periods of time. And if you're starting with a high valuation, that means you're likely to get. Par outcome. And let's just say that subpar relative to average over history.
Um, so that's kind of interesting, right? At the time short term interest rates were, I dunno, 4% or so. So unlike today, where you say, well, interest rates are so low that justifies a higher multiple, there was nothing about rates that would have told you that it justified a higher multiple. So it felt like us stocks were, were priced expensive.
And then you look at these two things and you say, well, hedge funds historically tried to seek equity like returns. So the outcome, the, the expected returns, the outcomes of the two buckets are the same, but they were trying to do it in a very different way. And so if you started and say, oh, do you want to bet on the S and P 500 at that point in time?
You know, my view was, well, no, it's too expensive. This is the wrong time to be making that bet. And you could imagine three different scenarios over those subsequent 10 years. If stocks are expensive, as they were, you might've expected a sub-par return, uh, Valuation multiples don't change. And you get that historically average returned, right?
Or maybe multiple somehow expand from there. And you'd expect to get a better than average return. Well, the hedge fund side of that ledger, none of that really mattered that much. You just sort of expected that hedge funds were going to earn around that historical average return. So I looked at that bet and said, didn't matter who was Warren or anyone else?
I would look at that bet and said, well, that sounds like a pretty good bet for hedge funds, because I thought that the S and P 500 would have a sub-par return. And you'd want to bet on almost anything, except for that. If you know stocks weren't, weren't going to generate good returns. Well, it sure looked good because the bet started in January 1st, 2008, the market collapsed, and I don't know the exact numbers, but after about 14 months, hedge funds were about 50% ahead of the S and P up until that starting point in time, if you look back 15 or 20 years, wherever there was real data, the gap between hedge funds and the market was never more than 2%.
In any given year. So it looked like the bet was over 14 months based on history, then there's, you know, the fed came in, you never know what's going to happen in markets. And I don't know that there was another quarter in the next kind of eight and three quarter years where hedge funds beat the market.
And sure enough, after, after maybe six years, the market caught up and surpassed hedge funds and then Warren won the bet.
Adam Butler: [00:21:14] So there's two elements to that. Right? One was, um, that markets went on to deliver on scenario three, right? Where not only did they preserve their, their prior valuation, but they went on to, um, achieve even higher valuations relative to earnings and sales.
Right? So it had this sort of outlier outcome or improbable outcome relative to history and hedge funds maybe. Didn't quite deliver there. They deliver sort of below average performance over that time period. But I think, and I've heard you reflect on this subsequently, um, that if you had your time back, you might've run the bet a little differently.
So maybe what, what lessons did you learn after the fact that you might have brought to, uh, another bet like that going forward?
Ted Seides: [00:22:09] Well, the biggest lesson I took away from it is you really don't, this is back to what I said about market timing. You really don't know what will happen, even if you think you do.
Um, so this is a classic kind of probabilistic outlook on markets. This bet played out and there was only one outcome which actually tells you nothing about the probability distribution of potential outcomes from that scenario. There's only one outcome. And that one was a losing one. I don't that, that wasn't new to me, but it's sort of, you know, an interesting thing.
Um, I had written a paper at the beginning of the bet that effectively was. My thesis for taking it. So you could actually go back without bias and read that. And what I would say from it was, um, I was a little too optimistic about hedge funds and I think more than anything else, uh, at what point in time you'd hit this inflection point of competition, really making returns difficult to come by.
And I do think that happens sometime in that period of time. Um, and you know, there, there were a bunch of other things you could have changed the bet, uh, to make it a little more apples to apples. That wasn't a lesson I would say, but that was certainly you could have done, but what I've told people, it's like, Warren buffet makes a proposition.
You either take them up on it or you do. But you don't get to change the rules, right? Fair enough. So those were his rules. I think it was a winning bet with his rules and I was happy to take it. In fact, I made it even harder because in theory, we could have picked, say 10 hedge funds. And we, we implemented it as five fund to funds, which logistically there were some reasons to do it that way to make it easier, but it also added a layer of fees.
And part of the reason I wanted to do that was I said, I was so confident that we would win the bet that you know, that you could say, well, those, that those three hedge funds did unusually well with you had five fund to funds and you beat the market. Then what was Warren going to say? And what was interesting is we actually know what, what he was going to say, because in this, the, after the second year of the bet, he also had experienced the first time where the S and P had beaten Berkshire Hathaway.
Over a 10 year period. And he had a quote, which I then pulled out and had an, a presentation that I'd give to our clients about the bet, because everyone was asking, which effectively said, even in time periods, as long as 10 years, the results can be significantly influenced by the starting or ending points.
So we actually know there's a big investment lesson there that whatever you think the long-term is, I've said the long-term is really three to five years. And any investment strategy, any investment with a manager, your assessment of the success of that investment will be significantly influenced by the time period that you happen to choose
Adam Butler: [00:24:52] most definitely.
Yes. Um, and I think you also commented and we S we definitely picked up the torch on, on this and, and, you know, graciously you're you're, and this is absolutely right. You don't get to reset the terms when Warren buffet, um, designs a bet, right. In all fairness, you are pitting an asset class with an expected all of four or five against an asset class with a, with a ball of 16 to 20.
So, you know, in all fairness, maybe, uh, a comparison on risk adjusted returns would have been less biased, but you don't get to set the terms and you took the bet you did, but I think it's also a good lesson that it's,
Ted Seides: [00:25:39] it's
Adam Butler: [00:25:39] even harder to deliver higher total returns. Um, when you start with a major handicap of also having, uh, an investment with much lower risk.
So the apples to apples there would be to, um, to square up the risks. So that at least you're, you're competing on an equal footing, but anyways, I thought it was a great bed and we obviously wrote some complimentary, uh, views on that after the fact. And, and you're right resulting here is, um,
Ted Seides: [00:26:09] is not perfect.
Um, right. So anyways, you, you left
Adam Butler: [00:26:13] protege partners and you started this essentially, you went right from Porgy partners to this podcast, capital allocate the Capital Allocators project being your full-time effort. Right. And then you, you, I guess had enough of enough interviews under your belt. And had taken an up notes and were able to distill the lessons from those interviews that it eventually motivated the writing of this book.
Right. So, so walk me through that process and what the book's about.
Ted Seides: [00:26:44] Yeah, I mean, there was always, there's always a book in a, in a podcast. I think by the time I put the pen to paper, so to speak, there were something like 3,500 pages of transcripts. Uh, so there's not a question of whether there was a book, it was sort of what, and whether I wanted to do it.
Um, what, what happened for me was after probably 40 or 50 episodes, I had started to forget the little nuggets that I was getting from each one. It just couldn't keep track of them after awhile. And I decided that I wanted to go back. And for my own investing benefit just have access to the things that I thought were the most influential learnings for me on my desk.
Um, because once you write a book, you realize that, uh, the bucket list has been checked and there's not a whole lot of reason to spend the time and energy to write another one, um, because it does suck up time and resources. And so that was never going to be the motivating factor for me. The motivating factor was really, I wrote it for myself.
I wanted to go back and make sure I was learning from all these conversations and not just kind of producing stuff. So that started with probably the areas that I learned the most, which were the non-investment areas. And the way I think about it is that because we're in this environment and have been for a while and probably will be for a while longer, where this call it margin of safety, where the expected returns over what people need to meet, their spending needs is much narrower than it was in the past.
Um, that means that all of the things we know that go into the investment process to generate those returns have fewer degrees of freedom. So things like decision-making theory, how do you go through making a sound decision? Uh, things like leading a team and managing a team and getting things done, um, are all things that just happened to be fascinating to me personally.
And I knew that they weren't things I had been taught in my twenty-five years of investing. And so I was able to have some of those people on the show or, you know, pick out some people that were great in each of those fields and pull out those lessons and share those as this isn't definitive research on any of these topics, but it is a distillation of the four or five conversations with say the best business leaders that I've interviewed.
And what do they say about what it takes to lead an organization? You create a framework out of that and just share that framework. And so that was what started it. And then there was another section, obviously from these conversations of how has this call it endowment model evolved. So. What's changed.
What are the challenges? How have people evolved it and why? And so I created kind of an investment section. Um, part of that investment section was what I like to say is sort of the part of David Swinson's book that he didn't write. So pioneering portfolio management, David wrote beautifully this whole thesis of what this strategy is about.
He didn't say a whole lot about how they go about doing it. Like what actually happens in the investment office, where do they find their manager ideas? How do they conduct their due diligence and research? Uh, how do they construct their portfolios? So I kind of walked through that process, which is more of a, more of my experience, both at Yale and since and than it is necessarily from the podcast, but a little bit of both.
Um, and then when I did that, what was left was, um, lots and lots of these great little nuggets that didn't necessarily fit into one or one or the other of those sections. And when I went about writing the book to distill those old lessons, I had a team go back and outline every single. Through quotes. So we cut it at 150, so there are 150 episodes and we had a list of 40 or 50 quotes that outlined every single one.
And I went through all those, and that's where I started picking out the themes to write about. And at the end we just took the best ones and said, there's like 160 left. Let's categorize those and just share this. Isn't what I think this is what the guests said. And that's one of the most fun kind of areas and compilations of the book.
So that's kind of a three sections of the book. Um, I have, I have a couple of copies right behind me and there literally isn't a day that goes by where I'm not opening it up to refer to something or find something helps that I know it's in there and I know where to look, but it really has become kind of that manual for me.
Uh, and it's gotten, you know, I've started to hear really great things about people who have had time to read it since it came out about him. I
Mike Philbrick: [00:31:17] would agree. I thought that the, um, you sort of, you, you had, you separated into sort of the tool kit, the investment framework, and then the, those nuggets of wisdom.
And I found that first part really interesting, uh, the idea of before you get to the investment framework, there is a whole myriad of steps that need to be thought about from, you know, um, th as you mentioned, decision-making and negotiation and leadership and these things, which were, um, I, I think critical to the investment process, but are often sort of left off or not discussed so thoroughly.
Uh, and then the nuggets are just magic. I mean, that, that's a,
Ted Seides: [00:31:56] one of the
Adam Butler: [00:31:56] things that I was, um, I was really impressed with and, and, um, I don't think get nearly enough attention, um, is the importance of all of these many qualitative or sort of softer skills. Um, and. Um, sort of looking around corners that that makes all the difference in manager selection.
Um, so I wonder if you could go into some of your thinking on that, because I think that the level of detail and rigor that goes into top quality, so manager selection and due diligence would surprise a lot of people.
Ted Seides: [00:32:37] Yeah. Um, well that whole process really is the, the most people oriented side of the investment business.
Um, because if you think about the difference between picking a manager and investing in a company, uh, on the manager side, there's much less data. You don't have three sets of financial statements. You really just have a performance track record and maybe a little bit of exposure and maybe some positions underneath it.
So there's there's work. You can do. But ultimately you're trying to assess how has this person in team likely to perform going forward and the methodology for doing that does have similarities, which is if you meet, if you go meet an investment manager for the first time, you'll probably be excited and blown away.
And you'll probably, that'll probably happen the second and the third and the 10th and the 20th and the 30th and maybe the 50th. But when you get to the 200th, you'll start to realize that first guy I met, you know, they, weren't all that interesting. And you can start to explain why now do that in the thousands.
And you develop a whole set of, of pattern recognition that really goes into, I mean, you could train it, people talk about people, process and performance. Um, three PS there. I use three C's character, character, and character. They're all these kind of cute alliterations but ultimately what you're trying to do is you're trying to understand very deeply, how does that investment manager thing.
What do they believe about investing? Why is the strategy they're pursuing likely to work? So from a philosophical perspective, and then you walk through their investment strategy, which is where do they get their ideas? How do they conduct the research? How do they get from there to a decision? How do they put that decision in the context of a portfolio?
How do they think about managing risk fairly straight forward, an investment process. And then as you ask questions about each of those things, you're always reflecting back on, does this fit into that strategy? And that's kind of the process part of the equation, then you have a team. Yeah. And you have to figure out, okay, there's also an element of, do you like that strategy, which has to do with your own beliefs as an investor?
So I'm bringing the table, my own set of beliefs and I'm meeting with a manager. Does that fit into my set of beliefs about what works? Um, but then I have to say, okay, I'm meeting with resolve. I think these guys are really smart. They seem nice. There's also 50 competitors that are doing the same thing.
And let me go meet with 20 of those that I've heard of the best and try to figure out what are the subtle differences of at one manager from the next. And you just iterate on that over and over and over again. Then you bring it into your team and you go through the whole exercise that everybody else does.
How do you make a good decision as a team? Let's get other people's opinions. And then when you really think you have it and you've written it all on paper, you then bring it to an investment committee. Who might be the ultimate decision maker and you have to convince them that this is something that fits into the portfolio.
So there's a lot, and that's at the manager level, right? Then it rolls up into a portfolio level, which at the stuff we were talking about before. So there's, there is a lot that goes into it. Um, there's some combination of science and art for everyone. And then every allocator has their own views and their own way about going about doing it.
Um, so there, there isn't a right answer for sure. Uh, but there, there is a lot that goes into it. So similar
Adam Butler: [00:35:58] about the character, character, character, because you told you've shared a few stories and in other conversations where, for example, it's so important to check references, or it's great to meet with employees who have left the firm, these types of sort of the type of due diligence that goes maybe further than many classic, um, Allocators like think to go.
So any, any thoughts in that regard to
Ted Seides: [00:36:29] be? Yeah, sure. There's a lot, but there's two different ways I would think about framing it. Um, one is, what's the purpose of, of doing all of this work on this people assessment. And I would say that what you're trying to do is figure out if what you heard and saw in terms of the investment strategy and the limited number of examples that you may have walked through is true.
If what you believe about that person is a true, and that's very, that's very difficult. Uh, uh, a good friend of mine, Graham Dunkin just wrote a wonderful blog piece about this. I think it's Graham dunkin.blog, uh, that, that talks about, you know, what's, what's in front of you. What's actually, who is this person?
And how do you figure out who they are? Because by the way, they don't necessarily see themselves clearly for what they are and you don't see yourself clearly. And so how are you trying to figure out what what's real? So there's a real psychological piece, almost of trying to figure out, you know, what's real.
The other thing I would say is that, um, what you're trying to do within the context of a strategy, that's a little bit less at the high psychological level is you're trying to understand if the manager has your interests at heart, um, because the structure of most of these relationships and the compensation is such that the incentives aren't usually perfectly aligned.
Um, if you look at asset management, businesses and fees, most people actually do better, just raising more and more money than they do of limiting the capital, but performing better. So that's kind of a truth across most of the industry. It's not. It's not right in the sense that it probably shouldn't be set up that way, but that's just how it is.
And so what you're looking for is a manager who deeply understands and appreciates that it's not their money, it's your money. And they're trying to do right by that. And so what I found over the years, that's hard is that the only time you really figure that out are during periods of exceptionally good performance and exceptionally bad performance.
Um, and when those happen and people are under, you know, in, in the latter case stress, and in the first case, greed, uh, you get a chance or you could say fear ingredient, you get a chance to see how they respond. And sometimes you can do that in advance of investing, and sometimes it happens concurrent. Um, and what you find is that over long periods of time, the people who are really in it for the game itself and not for their own balance, Tend to be a little less, uh, temperamentally volatile in those periods of times.
And that's kind of what you're looking for. What were some of
Joseph Lamanna: [00:39:22] the common threads you discovered among all of the different Capital Allocators?
Ted Seides: [00:39:31] Oh, wow. Um, so there's, there, there are a couple of things that are super interesting. So one is that this was a relatively new field call it, you know, even when I started it was brand new, there were very, very few of these offices, which means that if you, if you interview CIO is today, they all come from wildly different backgrounds, which is kind of fascinating because there was no linear background to get to these seats.
Um, what I find even more interesting if that's actually now changing. Because these, these organizations have been around the people who are getting elevated or more and more square pegs in square holes, right? That's the number two at another endowment becomes the number one, a CIO at a smaller endowment becomes a CIO at a bigger endowment.
That's not necessarily good or bad, but you do start to ask questions of where will innovation come from now that we no longer have Dave Swenson. If people are linearly, ascending into roles, maybe even getting to a Peter principle type issue. So that's one, that's super interesting that these people just come from historically have come from wildly different backgrounds with all kinds of different perspectives.
And that brings that power of cognitive diversity across the industry. Um, the other, I would say is that, um, governance and, and I would define governance by ultimate investment decision-making uh, so can the CIO implement the strategy? They think that they would like to is far more challenging than I had approved.
Um, so with the exception of some of the top endowments, but people who have been in their seats for a long time, you see a fair amount of CIO turnover. Uh, you see board level turnover, you see boards that are not sophisticated investors. And when you do have people that have been around some of those more challenged governance, uh, organizations for a long time.
So take like a Chris Alman at Calsters. Uh, Chris has his job is a teacher. He is an it's it's as if he's teaching, investing 1 0 1 every other year. Because he has new board members coming in that all come from outside the industry and he's has to reiterate the same thing over and a has to reeducate those people.
And that's particularly hard because, um, all of the challenges of behavioral bias that people in the industry have learned about over the last five or 10 years, and tried to figure out how to address if those are brand new to the person who's ultimately making the decisions, but they've got a lot to learn.
Um, and it makes it very, very difficult for those organizations to make effective investment decisions. When they're so far behind in terms of the, the underlying foundational education you would like to have before you're tasked with making investment decisions. So that's the second one that, that, that, that big governance challenge.
And then the third is this idea that everyone's looking for the next. Everyone is looking for the next opportunity to add alpha. And, and most of the time you don't see it, but when it comes up, it's this sort of eye-opening, you know, there's this wonderful piece written. And the last couple of weeks about tiger global by another venture capitalist from founder's fund that, that talked about this hedge fund firm in the technology space who found this niche in this kind of like later stage private investing and they used hedge fund type research.
And. Effectively hedge fund ownership principles to apply it to venture capital. And they found that historically venture capital firms took great pride in being on the boards. And they said, well, we're not going to be on the boards. We're going to be good at making fast decisions and we're not going to we're growth investors, and we're not going to worry as much about price.
And they carved out a very, very successful niche, but that is something that just doesn't happen that often. Um, but people look all the time and my, uh, at a business school professor who runs high Vista strategies and outsourced CIO and Andre peril, the brilliant guy who said, you know, alpha, just isn't sitting there waiting for you on the corner of 47th street and fifth avenue.
You have to go dig for it. Right. You gotta work for it.
Mike Philbrick: [00:43:28] It's usually harder than what everybody else is doing
Adam Butler: [00:43:31] and less comfortable. Um, so what are you, I mean, obviously you
Ted Seides: [00:43:37] had a chance to interview.
Adam Butler: [00:43:39] Such a broad group of allocators that were very different. And in many cases along different, um, continuums, what ones really stood out to you in terms of their, the, the way they viewed the problem, the way that they structured their organization, the type of managers or, or investment strategies that they, um, were focused on.
Anything really? What, like, what were the outliers any come to mind?
Ted Seides: [00:44:13] I mean, they all are, and none of them are to some extent. So what I would say is that most of the successful people in the seats are a function of the pool of capital. They manage. Um, so you could look at a series of endowments CEOs and they have more in common than a series of pension fund CEOs because the nature of the asset and liability structure is just different.
And that would be different yet. Again, if you were interviewing a bunch of financial advisors where the spending needs of individuals, or just a different set of criteria than they would be for either of those other pools. And so, um, there aren't that many people that think wildly differently. I think that like anything else, there, there are a set of principles and, you know, David Swenson was probably the first person to publicly espouse these in a way that others could understand.
But there are a set of principles that generally. And you can veer from them, but that's not what people veer from when people talk about the risk of being different. They're trying to find things that make sense. That might be a little bit different from others. In generally speaking the structure of the investing.
Isn't one of them, you know, it can be on the margin, but it's, it's, you know, do you want to invest in managers? You want to do it yourself. Do you want to have everyone wants lower fees? How are you going to access lower fees? Are you going to be about access? Are you going to be about, you know, being, finding someone who's off the radar, if they're off the radar, are you making sure that they're off the radar because other people haven't found them or because you missed something and they didn't miss it.
So there's a lot that goes into all of those, but I don't think there's any, there's so many little, you know, part of that, as Mike said, that nuggets of wisdom section, there are so many little sort of special things that people talk about that frame, the investment challenge. That's much more impactful when you add all those up than any one person as well.
That person is so different from others. So let
Adam Butler: [00:46:08] me, cause this, this podcast is directed to advisors and I'm just wondering whether there's any, there are any particular lessons that can be distilled from conversations with, um, you know, the really big allocators. They obviously have these big alligators have many advantages that an individual advisor may not just an individual advisor have any advantages that they might want to put to use and how can they put those to use in the most
Ted Seides: [00:46:41] effective way?
Yeah, the good news is I would not generalize by saying advisors have advantages in the same way. I wouldn't buy, you know, endowments have an advantage or pension funds have an advantage. Uh, I wrote a piece a couple of years ago about home field advantage and it came from a woman Ellen Ellison, who was a guest on the show who managed the university of Illinois.
Endowment. And it was called the foundation. And because of where they sat, they invested a lot in agriculture because they had people around them who deeply understood that space. And they felt like they had an edge. Um, you have others like university of Virginia, where Julian Robertson was a graduate and lots of graduates happened to be long, short equity world.
And if you looked at the university of Virginia's endowment, there's a lot of long short equity managers because they understand and know that ecosystem. So for financial advisors, the biggest benefit that financial advisors have that most of these pools don't is their client base. So their client base came to them because they're super interesting.
Oftentimes wealthy people who have succeeded in some. And the question will be, how do you mind that the very specific knowledge in the client base to improve investment results? And that might be one-off opportunities that other people don't have access to where you can sort of say, look, you have a particular client or set of clients that know something about a particular industry.
It's not about asset allocation. It's not about us equities. It's about this particular technology entrepreneur who understands software and is telling me, Hey, this is an interesting space. And then you can corroborate that. So that's one advantage. The other is, uh, is actually a huge advantage and this is a little more structural.
Um, and something, it took me a while to appreciate, which is that, um, great financial advisors are able to add a lot more value to their clients than just the investment results. Great endowment and pension fund managers are entirely beholden to solely the investment. So. Which means that if you take the same principles of investing, that we all believe about the importance of having a good long-term strategic allocation, sticking to it through tough times, the financial advisors have the ability to keep their clients calmer, not easy, by the way, clients aren't necessarily calm, but they do have the ability to add value and not risk losing their clients only because of market rate, market related returns.
And that's a massive advantage if they then take that and apply it to their investing. It's
Mike Philbrick: [00:49:19] a tough one though. I mean, you've got, as you mentioned earlier, you've got the CIO who's responsible for communicating both up and down the chain of command and then keeping that consistent across multiple generations.
You know, David Swenson, again, we'll come back as the example for someone who's was in the seat. Three or four decades. And you, you don't see that level of consistency across so many other, uh, large endowment and pension funds, uh, which is a real challenge. How are you, you know, if you set out as the sort of permanent capital set it with a permanent capital view, um, but you have transient managers and board members of that permanent capital, it is a really hard, um, a really hard equation to solve.
It's something I think that David wrote about in his books too, about actually managing the board and, and select and doing a very good job at selecting who was going to come onto the board in order to maintain that level of discipline across decades.
Ted Seides: [00:50:24] Yeah. So I would say don't get me wrong. None of this is easy.
This isn't like all financial advisors have to do is keep the clients calm. You're in great shape, right? It's incredibly difficult. But across these different pools of capital, I would tell you that, um, having the ability to add value beyond the investment related results so that the risk of that client leaving is less is hugely hugely important.
Um, and so I've what I've seen in great financial advisors is they do both really well. Like they're quite good in the investing, but they're incredibly good at the client service side. So
Adam Butler: [00:51:06] I think group think is a real, an interesting challenge. And, you know, obviously in the institutional space and in the retail advisor space, there's a certain amount of group think that is a function of just the fact that.
Genuinely best practices, right? As you say, sort of, oftentimes you've tried to sort of deviate or experiment with new practices. And in most cases you realize that those basic ones that David espoused ended up being most effective, too much of that means that everybody is making the same decisions at the same time, for the same reason.
And obviously in investing the best value and the highest expected returns are often found where others either don't want to look or are constrained in some way from looking, how does an allocator, whether it's an advisor or the head of a family office or an institution, a CIO, how does, how should they think about balancing off.
Best practice, maybe leading to group think against, you know, the fact that the best returns are
Ted Seides: [00:52:16] founder, aren't looking right. I'm all ears, Adam, I'm all ears. I mean, that is, uh, you know, that's the key question, right? It, there's no easy answer to that. Um, a lot of it has to do with not when do you decide to go out on a limb, but how what's the process?
How are you communicating so that when you decide to take that risk, that everybody understands what that risk is, and then it may or may not work out. They don't touch on
Mike Philbrick: [00:52:46] it, maybe touch on some of the decision-making, um, uh, tricks and, and sort of, um, lessons that you, you, you had talked about in the book.
Cause I think those are, are helpful.
Ted Seides: [00:52:57] Yeah. So decision-making theory really comes from a couple of guests that I know you guys know. Well, two Annie duke and Michael Moebius and, um, Some of the specifics have to do with group decision-making. So it starts with this idea that, that each of us, as individuals are kind of hardwired to make bad decisions, which comes from way back and survival in the wild and fight or flight response.
But the idea is that we'd like to think when somebody says something, we think about whether we think it's true and then we sort of bond accordingly, but that's actually not how the brain works. If somebody says something, you think it's true and you're kind of lazy and maybe later you decide, you know, whether it's true or not.
And then that runs into all kinds of issues. So, um, it's hard for individuals to get to making good decisions. It's even harder for groups. Um, so in, in some of the groups, there are certain things about practices about, um, how you form a group. And that can be true, even if you're on your own, which is the ideal size for group decision-making is about four to six people.
Um, and the reason for that is that. You want to be able to encourage other people to share their different perspectives so that no individual has to be beholden to knowing everything about every decision and weighing everything accordingly. And so you have a couple of different people. It doesn't mean they have to be on your team.
They could be trusted advisors, they could be friends, whatever it is, but you want to encourage in any decision you're making to have a couple of people that have input, um, within that. Uh, and this is especially true. If you do have a team, you want those opinions to come out. So it's not just that they're there it's that those people are encouraged to express.
You could say disagreement or dissenting views, cause that will, will make your. Your decision process more robust. And so there are a couple of things that go into that. One is particularly if it's a junior person, they have to feel safe to express their views, right? Sometimes you, Matt you're in this situations where the leader is a very strong-willed person and somebody disagrees with them and they're like, well, that's stupid.
And then they dock their bonus. And you know, that person is unlikely to come back and, you know, say something that might be the key, you know, risk in a situation that other people have missed. So that's the, the, the words people use for that as cognitive safety. So the idea that you're safe to express your own cognitive expressions, um, there's a couple of other things.
I mean, Annie talks about thinking in probabilities as opposed to absolutes, and that's an incredibly important thing, particularly when you have a leader in the rest of the people on the team, because we now know that if the leader expresses a view, everyone else will instinctively just agree with her.
And that's particularly important because they want to Curry favor with them. So they get the good bonus. Right. So, um, now one way that the leader can encourage people to understand that they don't have the answer is by saying, well, I'm about 60% sure. Of what, of whatever they're saying, or I'm 70% sure of this.
And if they think in probabilities that allows other people to say, oh, they're not sure about that. Well, let me, let me try to help them think about why that 70% might be 80% or, you know, that 30% seems kinda let me tell them why. I think that 30%, you know, really more like 40 or 50. And so when you, when you think and talk in probabilities, It reduces some of that kind of absolute thinking and that's kind of falling in line with other people.
And there's a couple other, there's a couple other little principles as well, but that's a lot of it. A lot of it is this deep understanding that when we talk, we infect other people with our beliefs. Um, and that can be used both ways, right. There are times where you don't want other people's opinion. And so you can approach a situation and, you know, maybe it's with your kids or something like that.
And just say, Hey, you know, this is what I think. And what do you think? And you're more likely to get people falling into line.
Mike Philbrick: [00:56:51] I think you also mentioned a story too about, uh, one of the, one of the firms actually hardwired it in, so they couldn't actually make quick decisions. Oh,
Ted Seides: [00:57:02] yeah. There's all kinds of, uh, there's all kinds of ways of creating tools.
So the thing to remember is even once you're exposed to all of these lessons about how we're, you know, our brains are kind of wired the wrong way to make decisions. It doesn't mean you're you get any better at it, right? Because just because if your wiring is one way, you don't rewire it by learning that your wiring is off, it's still off.
Um, so what, what good investment organizations do is they create processes to mitigate some of those biases. So one is that like slowing down the day, Say we have a decision and let's not make a reactive instinctive decision. Let's make sure we go through a process where we're, we're in a room of people.
And in that room, the most junior person is going to express their view first, or the least, the least knowledgeable. Person's going to express their view first and we're going to walk their way up. Um, so there's all kinds of different ways that, that some of the organizations can try to make better decisions.
Big one, by the way, is writing it down. Um, you need to write down what you were thinking at the time, because there's this whole thing called hindsight bias, where we, we believe mentioned resulting earlier at the end of a decision. If it worked out, we generally think it was a good decision. And if it didn't work out, we think it was a bad decision.
And if we then say, well, it worked out, it must have been a good decision. Let me write down what I was thinking at the time. We'll we'll misremember the details. So that it makes it look like it was a good process. So it's actually really important, you know, good decision makers, keep journals while they're making the decisions.
So you could go back and review, why did I miss that manager? Why did I pick that stock? And you could look at it and say, oh, this was right, this was wrong. What did I get wrong? Could I have gotten more information that would have informed that that led to a bad outcome? Uh, so there's all kinds of little things like that.
Ted,
Joseph Lamanna: [00:58:52] what's the most important lesson you learned in all of your experience?
Ted Seides: [00:58:58] Um, you know, there's one and again, this is another one that David said to me at the very beginning of my career is the importance of being around. Great. Yeah. Uh, that the people you're around really do influence, um, what happens both in your outcomes and in your life.
And I've, I've experienced a range of that. I've, you know, I've had, from my time at Yale, I was surrounded by fabulous people. You know, some of the leaders that you guys had mentioned that are now running other things were, were colleagues. And, and when you're around people that you really enjoy and really respect, uh, you get a lot better outcomes.
And when that's mixed,
Adam Butler: [00:59:38] what's the next project
Ted Seides: [00:59:42] we've got. Hillary is going right now. I'm happy to walk you through them. So. The podcast itself has become a business and, uh, really, you know, advertising sponsors and we have, we just premium content. And so then the question becomes, if that's an asset, what's the, how do you monetize the value of that asset, which is really a data analysis exercise.
So we're in the process of ripping out the backend of our websites. So we can track things like engagement with the site and you know, what people are reading and surveys and things like that. So that's going to be a fun project of taking this little cute thing on the side and saying, huh, this is a business.
You, how would we, how would we treat this as a package? Um, we are, uh, we are also starting a training online training program for kind of, I would say mid-career allocators called Capital Allocators university. We're going to do the first cohort in September. Um, but Andy's going to come teach teaching and that that's gonna be a lot of fun.
Uh, and we're in the process of starting a second podcast. Which, uh, is a unique, I would say it's a unique twist on, um, uh, helping managers tell their story in a way that is, I think part of what's made Capital Allocators work as a podcast, but that people aren't really well-positioned to pull off, but our team is.
And then the last is I'm going to be getting back into the investment business relatively soon. So I've been investing my own capital and a combination of what I've done in the past and, um, the relationships that come up from the podcast and frankly, I'm running out of my own willingness to invest in illiquid things.
So, uh, we're putting something together. So some of my friends can invest alongside not unlikely to be anything like the institutional capital I ran in the past, but it'll be a lot of fun. So you're running out of.
Adam Butler: [01:01:32] Motivation to invest in illiquid things. So you're gonna be focused on liquid markets
Ted Seides: [01:01:36] or liquid straps, the opposite, not motivation money I'm running out of money that I'm willing to put in things that I'm not going to see for a long time.
Uh, motivation is very high, the balance sheets pretty fully deployed
Adam Butler: [01:01:52] at other interesting questions. The, is the process, is there, is there any point in the process that where things diverge a little bit for, um, managers that invest in illiquid strategies versus liquid market type strategies?
Ted Seides: [01:02:09] Yeah.
There's tremendous differences. Um, I think one of the key differences between public and private markets is information as you have far more information available to you in the private markets. And so, um, That means there's more work you can do. And that's both true. If you're investing in a private sale, private equity fund, where there's a lot of data available about what's happened with each of their investments in the past, how did it transpire?
What was their thesis ahead of time? Can you corroborate that? Um, and there's also, you know, I'll tell you a fun story. So I invested in a late stage, private alongside a man I've known for a long time and respected a couple months ago. Maybe it was last year and it was in the technology space. It's not something I know intimately.
And I called a friend who in the public markets in that space. And we started talking about, you know, how, how, how should I even think about this? Like, I'm, I'm being told it's a good opportunity. I'm not going to spend the time to underwrite the company. And he said, I don't know, let's look at the board.
So we go online and we look at the board members and lo and behold, I knew one of the board members. So I called her up as an old friend. I hadn't talked to in awhile. And I said, Hey, I have this opportunity. What's going on and she proceeded to talk to me for 45 minutes and told me absolutely everything about the company, what was happening now, what the numbers were, what the projections were, where the CEO is having success in China, and you get off the call and said, that sounds like inside information.
And it was, but it's a private company, right? So there's a lot more to that. And then I would say the biggest difference from what I did in the past, and what I'm looking to do now is it takes a long time in the business to really get to the point where, you know, I refer to as sort of that deep authenticity of who are you, what is your edge and how do you want to implement that?
And for most of my career, I followed, um, what I learned from Dave and implemented that in the hedge fund space, which was its own box. And what I found is that while the research that goes into that is something I'd wanna wrap up. My real advantage is, is in this area that I call compounding relationships.
So it's relationships with managers. That's not transactional, it's not, Hey, this is a great fund. I'm going to give them money and be very, very passive it's. Is there a relationship here where I can give them money and, and find a way to add value to their business, to their investments, to their fund and focusing on those types of relationships, rather than trying to sharpen my pencil as tight as I can to say here's five managers, that all seemed good.
Let me try to figure out who the very, very best as what I've found is that. My ability to add value comes from that relationship component. And that when I focus on that the returns have taken care of themselves. And so, you know, we'll have a team that's doing all the work that I, but I'm focusing my energies more on making sure it's the right type of partnerships that are, you know, adding value in compounding, you know, the value of that relationship over time and letting it compound just like compounding capital does.
Mike Philbrick: [01:05:25] Yeah. That's you, don't it just what you had said earlier about the private, uh, private equity space? We had Arthur Salazar on from, in Canada, I think is Northland family office. And basically he, he mentioned the same thing. You're in private equity space. Insider, what you might think is insider information.
Uh, ha pan quotes is, is, is not illegal. In fact, it is the, it is the, the alpha, it is the sauce. It is the, the, the extra insights that you can garner freely because it's non-public markets and you sign NDAs in order to, you know, hive off any of that in some cases. Uh, but you are literally seeking those types of insights and are able to do so.
And it is a, uh, an advantage, I think, for certain people in certain situations, it's an advantage. You also have to consider that where are you in the lineup of people that might even get access to it in the first place, which is, uh, it can be another sort of very, very large challenge, but it's, it, it, it's an interesting feature of that private equity space.
Adam Butler: [01:06:30] So, um, I, I'm gonna let you go soon, but, but, um, before I do, you've seen thousands of manager picks. And we've spent most of the conversation on how to become a better allocator. How can you, how can managers do a better job communicating the merits of their strategies?
Ted Seides: [01:06:52] Um, yeah, it's not an easy thing to do, right?
Because people in my seat have seen thousands of these things over time. I try to communicate some of that in my first book, uh, certainly for the hedge fund space. Um, I think that the, if there's a way I could describe it, it's get feedback. Find ways to get feedback on presentation, style, and clarity of the message.
Um, it's not easy to get feedback. Uh, generally speaking, you go out and you have these meetings and people invest. They don't invest. It's not, it's not very easy to do it. Uh, but people don't actually spend much time on things like their own presentation style. They don't often come out of meetings and say, how did I do in that?
They tend to come out and say, Hey, did they like, oh, that was great meeting. They liked us. What are we going to do next? So there is this sort of create self feedback loops. Cause there's no silver bullet, right? People, some people have the gift gab and others don't and it's there so many managers, I think I, I kind of calculated it, added up the numbers in this book.
Um, and, and I, I used the data from any PC and there were, there were so many managers across strategies across asset classes that the channel. So if someone getting a meeting generally think about it with somebody that I don't know is like something like five or six times harder than it is for a college senior to get into Yale or.
Um, so it's a very difficult game to, to, to crack into and to keep going, because there's so much competition and there are so many products that are more or less the same. So that means that the way to get reps and to make them better is just to get better and better at telling your own story, which
Mike Philbrick: [01:08:39] is also so difficult too, because you're trying to get feedback.
And, and then you don't know the feedback that, that really worked well, but did it work well for the people you were presenting to or who is giving you? What is your, your colleagues? Yeah. Yeah. It just, it, it, it's, it's hard as, as you say, everything is difficult, but in, in searching for that, maybe you can find some nuggets, but it's, uh, it's definitely a, uh, a good process, but a difficult.
Yeah. Now, before we let you go, I also, wouldn't, wouldn't mind hearing a couple of those nuggets at the, uh, at the end of the book that were your favorites, maybe that will entice people to actually also, uh, jump in and, and the book is definitely worth a read if you haven't read it. Um, I would highly recommend this, uh, this book for, uh, for your, uh, consumption.
Um, but there are, and there are a myriad of these sort of, uh, nuggets as they're called, but I would love to leave folks with one or two that you liked and then make them buy the book for the others.
Ted Seides: [01:09:40] Sure. Um, well I put after, you know, th the, the compilation of the book itself, uh, and I'll, I'll give a little pitch for something free.
So in the process of writing the book. One of the things we did was we pulled out the four or five best quotes from every single episode. And we didn't end up using that in the writing of the book, but I did compile it and I make it available for free to anyone who signs up for our mailing list. So that's pretty cool.
Then go to capital allocators.com and that's got all of them in there sorted by the guests. Um, at the end of the book, I created a top 10 list. So there's, you know, 3,500 pages of transcripts. There were 800 and something quotes, something like that that went into it and picked out 10. And they were, I don't know how you do that other than they were the 10, that just seemed to resonate the most for me.
Um, so I'll tell one funny one and, uh, and one kind of thoughtful one. So the funny one, uh, has to do with, uh, a friend of mine, Jim Dunn, who manages wake forest university's endowment in and outs for CIO called Verger capital. And before that he was the head of research for the giant consultant Wilsher associates.
Hmm. It told the story of sort of one of the most clever ways that someone got in the door. So just this question, and he opened a box that came in the mail and it had one red stiletto and there was a note inside it that said, I got my foot in the door. Can I come get my shoe so good? And he, it, the uptaking the meeting that I don't think it went anywhere, but, um, there, there, you know, I think on that list, one of my favorite quotes and it kind of goes to what we were saying about decision-making comes from James akin.
Who's a macro strategist in Wimbledon, England, and he says, emphasize the reflective over the reactive oh yeah. Process that I'll take that one exactly. And as you're reflecting on it, go to Amazon. Yeah,
Adam Butler: [01:11:42] capital allocators, Ted Seides. And, um, this has been spectacular as I knew it would be. And, you know, thank you so much for being so generous with sharing so many insights from your book. Um, there's still plenty more in there and we didn't get to today,
Ted Seides: [01:11:57] but Joe, Joe,
Mike Philbrick: [01:11:58] are you going to ask the closing question as well?
Joseph Lamanna: [01:12:01] I am. I'm just waiting for the perfect opportunity, but thank you, Mike. So we always ask this question. Would you rather spend a week in the future or a week in the past?
Ted Seides: [01:12:16] I feel like that's actually easy because every week I spend from here on out as a week in the future, so I'll be doing that all the time.
So I guess I'd rather go spend a week in the past and change some things up. But as a concept, uh, I imagine I'd rather spend. A week in the future. Next. I like it.
Mike Philbrick: [01:12:42] So one last thing, Ted, where can everyone find you? I think we've said it a couple of times, but let's give them, let's give them the rundown on where they can find you and all of the stuff that you're creating.
Yeah. Thanks Mike. So everything is housed@awebsitecalledcapitalallocators.com. A podcast is available on any mobile device, capital allocators, the book capital allocators, give, repeat myself, capital allocators, find something else we're going to be calling the school capital allocators university. The fund would probably be called capital allocators partners.
I don't know what it's gonna be called. Um, so yeah, capital allocators.com and everything. Everything is there. Sign up for our free mailing list there and get this compendium of the book, which is great. You're on Twitter, Twitter. Yeah. Twitter is TCDs. So that's not capital allocators, but there might be a capital allocator.
So it's not me winter and nine, 10. So we do put. Uh, some of those, some of those great quotes from every episode on both Twitter and LinkedIn, so anyone's favorite platform and get them there. Perfect.
Mike Philbrick: [01:13:40] Fantastic. Thank
Joseph Lamanna: [01:13:42] you. Thank you so much,
Ted Seides: [01:13:43] Joe. Thanks a lot. Thank you so
Joseph Lamanna: [01:13:45] much. Appreciate it. Thank you.
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