Public companies run by their founders are not just a qualitative theme but a quantifiable factor, like 'value' or 'quality'. Crescent AM's research shows isolating this factor and tilting a passive portfolio towards it adds one to two percentage points of alpha per year, even in small caps.

The new approach to asset allocation treats private markets as an alternative to public stocks and bonds, not just a small add-on. This means integrating them directly into the core equity and debt portions of a portfolio to enhance returns and diversification.

Historically, private equity was pursued for its potential outperformance (alpha). Today, with shrinking public markets, its main value is providing diversification and access to a growing universe of private companies that are no longer available on public exchanges. This makes it a core portfolio completion tool.

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.

The central task for capital allocators is to identify investment managers with a proven, durable edge—be it in sourcing, operations, or strategy—that allows them to consistently capture alpha in markets that are otherwise becoming more efficient.

The dominance of low-cost index funds means active managers cannot compete in liquid, efficient markets. Survival depends on creating strategies in areas Vanguard can't easily replicate, such as illiquid micro-caps, niche geographies, or complex sectors that require specialized data and analysis.

David Swenson's endowment model has two parts: diversified market exposure (beta) and manager outperformance (alpha). While wealth advisors can easily replicate the beta part using low-cost ETFs, they lack the institutional resources to consistently select top-quartile managers who generate true alpha.

Crescent Asset Management's core investment philosophy is to use public markets for cheap, passive beta exposure. They concentrate their active management efforts on private markets, where they believe an informational and access-based edge can be used to generate true alpha.

A pure TPA system can alienate specialists hired for specific asset classes. A hybrid model, where a portion of capital is allocated to traditional buckets, allows organizations to retain deep expertise in areas like private equity while still gaining the benefits of a holistic TPA overlay on the rest.