Ted on Alt Goes Mainstream (EP.458)

Key Takeaways

David Swensen's "Yale model" emphasized diversified, equity-oriented multi-asset investing from first principles.
Private equity faces challenges like high fees and the "log jam" of exits, despite potential beta and persistence.
The wealth management channel is increasingly exploring private markets, learning from institutional allocators.
Behavioral biases impede investment decisions; structured processes and human judgment remain crucial, even with AI.
Content plays a growing role in asset management for building trust and accelerating due diligence.

Ted Seides worked for David Swensen at the Yale Endowment from 1992 to 1997, covering public equities and managing an internal bond portfolio.
Swensen rooted his investment approach in "first principles" and basic economic research.
This led to the "Yale model," an equity-oriented, diversified, multi-asset class approach.
Swensen's discipline and strategy guidance provided invaluable lessons.

Private equity returns are driven by financial leverage, operating improvements, and entry/exit multiples.
A core question is whether private equity, on average, can outperform the S&P 500, considering its higher fees.
Factors like leverage, historical small-company outperformance, control premiums, and liquidity premiums are potential advantages.
The speaker estimates a 40% chance of median private equity outperforming the S&P 500, with average managers needing 100-200 basis points to break even.

The shrinking universe of public companies and growing private markets have made diversification a primary driver for private market investing.
The wealth management channel's adoption of alternative assets is leading to parallels between private equity and hedge fund industries.
This includes a move towards RIC products for easier wealth channel adoption, akin to hedge funds offering 1099s instead of K-1s.
Concerns exist about "watered-down" private equity products for the wealth channel due to capacity constraints and high fees.

The hedge fund industry has seen concentration into large platforms like Citadel and Millennium, a trend potentially mirroring private equity and alternative assets.
This consolidation is driven by the need for scale to manage lower required rates of return for larger investors.
The possibility of Blackstone adopting a "Millennium" model for private equity, housing portfolio managers under a larger infrastructure, is discussed.
Talent migration is evolving, with some opting to stay at larger firms for higher compensation and stock appreciation, a shift from 20-30 years ago.

Human judgment remains crucial in investment diligence, particularly for non-quant managers, even with AI's impact.
An 'edge' in investing is defined by behavioral, analytical, informational, or technical advantages.
Past mistakes, like rushing decisions and backing an underperforming manager at Protege, highlight the importance of thorough due diligence.
Managing behavioral biases, such as revisionist history and the difficulty of acting decisively, requires a structured investment process.

AI is evolving in business and investing, with current applications focused on efficient information processing, like analyzing past manager communications.
Its effectiveness depends on whether individuals use it to augment their work or as a replacement for independent thought; it has not yet reached the decision-making stage.
Content in asset management helps managers tell their story and connect with potential investors, speeding up the due diligence process.
The guest notes the overwhelming amount of available content and the need for investors to identify what provides value.

The 'Capital Allocators' business evolved from advertising inquiries to organizing high-quality summits, distinct from traditional conferences.
Limited Partners (LPs) primarily value relationships and partnership with great people, alongside investment strategy and analysis.
Effective content can build trust and accelerate relationships by revealing a person's authentic self, surpassing traditional cold outreach.
Managers need to articulate unique strengths with data, maintain authenticity, and select content modalities that suit their firm's personality.

Ted Seides learns from guests, citing Ed Griffinstedt's unique private market approach (90% in privates, significant venture and China exposure) as an example.
Seides' current investments focus on relationships, asset management, fintech, and AI-driven businesses like FEMA in London and iConnections.
He draws parallels between the current AI boom and the early internet, noting prediction difficulty and high valuations, cautioning about potential market corrections.
His AI investment strategy involves partnering with experts, specifically mentioning Gavin Baker and his AI fund with Valor.