Professional allocators rarely receive feedback on their ability to question managers. Ted Seides found that hosting a podcast, which requires listening to and editing his own interviews, created an invaluable feedback loop that dramatically improved his information-gathering and due diligence skills.
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 fund managers approach capital raising by broadcasting their own "unique" story. However, the most successful ones operate like great listeners, first seeking to understand the specific needs and constraints of the Limited Partner (LP) and then aligning their value proposition accordingly.
The private equity market is following the hedge fund industry's maturation curve. Just as hedge funds saw a consolidation around large platforms and niche specialists, a "shakeout" is coming for undifferentiated, mid-market private equity firms that lack a unique edge or sufficient scale.
Every investment decision feels uniquely difficult in the present moment due to prevailing uncertainties. This mental model reminds investors that what seems obvious in hindsight (like buying in 2009) was fraught with risk at the time, helping to counter behavioral biases and the illusion of past clarity.
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.
Large private equity firms are long on capital but short on deal origination. Ted Seides suggests a firm like Blackstone could adopt the Millennium hedge fund model: acquiring specialized deal teams and plugging them into a centralized risk and capital platform, effectively becoming a multi-manager PE firm.
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.