Jeff Aronson warns that prolonged success breeds dangerous overconfidence. When an investor is on a hot streak and feels they can do no wrong, their perception of risk becomes warped. This psychological shift, where they think "I must be good," is precisely when underlying risk is escalating, not diminishing.

There's a surprising disconnect between the perceived brilliance of individual investors at large, well-known private equity firms and their actual net-to-LP returns, which are often no better than the market median. This violates the assumption that top talent automatically generates outlier results.

During due diligence, it's crucial to look beyond returns. Top allocators analyze a manager's decision-making process, not just the outcome. They penalize managers who were “right for the wrong reasons” (luck) and give credit to those who were “wrong for the right reasons” (good process, bad luck).

Many LPs focus solely on backing the 'best people.' However, a manager's chosen strategy and market (the 'neighborhood') is a more critical determinant of success. A brilliant manager playing a difficult game may underperform a good manager in a structurally advantaged area.

According to Ken Griffin, legendary investors aren't just right more often. Their key trait is having deep clarity on their specific competitive advantage and the conviction to bet heavily on it. Equally important is the discipline to unemotionally cut losses when wrong and simply move on.

The best investment opportunities are often with managers who have strong demand and don't need any single LP's capital. The allocator's core challenge is proving their value to gain access. Conversely, managers who are too eager to negotiate on terms may be a negative signal of quality or demand.

The majority of venture capital funds fail to return capital, with a 60% loss-making base rate. This highlights that VC is a power-law-driven asset class. The key to success is not picking consistently good funds, but ensuring access to the tiny fraction of funds that generate extraordinary, outlier returns.

Instead of focusing on process, allocators should first ask managers fundamental questions like "What do you believe?" and "Why does this work?" to uncover their core investment philosophy. This simple test filters out the majority of firms that lack a deeply held, clearly articulated conviction about their edge.

Shifting capital between asset classes based on relative value is powerful but operationally difficult. It demands a "coordination tax"—a significant organizational effort to ensure different teams price risk comparably and collaborate. This runs counter to the industry's typical siloed, product-focused structure.