Ted Seides and Brent Beshore – The Future of Asset Management - [Invest Like the Best, EP.30]

Episode Summary

Executive Summary: Patrick O'Shaughnessy hosts Ted Seides and Brent Beshore for a wide-ranging, wine-fueled discussion on hedge fund fees, allocator behavior, duration, market edge, industry dynamics, and personal growth. The episode argues that falling returns, rising competition, and better information are reshaping asset management and making long-duration, aligned, niche strategies more valuable.

Main Topics: Hedge fund fees and business model pressure (Priority: 5/5): The group debates why 1.5% and 20% is under pressure and what replaces it. Where edge still exists (Priority: 5/5): They argue edge has shifted from information access to processing, niche focus, and slow-changing markets. Duration and alignment (Priority: 5/5): Longer lockups and aligned incentives are framed as the best antidote to short-termism. Industry structure and moats (Priority: 4/5): Beshore explains that boring, non-obvious parts of industries often have the best economics. Capital allocation in private markets (Priority: 4/5): Private equity's long horizons and lack of mark-to-market are contrasted with public markets. Mental models and personal lessons (Priority: 3/5): The guests reflect on compounding, intuition, assumptions, and why hard things eventually get easier.

Key Arguments: Hedge fund fees are trending down, but new funds still need management fees to fund a business. Shorting is harder now because low rates and crowded shorts reduce returns and raise risk. Allocator skill is harder to sustain because smart capital finds perceived talent faster. Edge now often lives in less trafficked sectors like Asian markets, staples, utilities, and real estate. Long-duration capital helps because good ideas often need years, not quarters, to play out. Boring businesses and non-obvious suppliers often have better returns than glamorous industries. Private markets benefit from fewer short-term pressures than public markets, aiding compounding.

Data Points: Hedge fund spot fee: close to 1.5% and 20% - Ted Seides describes the current market rate for established hedge funds Short-term interest rates: 1% or 2% - Lower rates reduce the starting return advantage for hedge funds Short-term rates nine years ago: 4% or 5% - Higher rates then made it easier to start up and earn carry on cash Hedge fund assets discussed: $3 trillion - Ted notes the large existing pool of hedge fund capital does not need historic fee levels Long-only average fee: 70 bips - Patrick cites typical fees in long-only management as a comparison 2015 active manager outcome: only 11% outperformed the benchmark - Used to illustrate how concentrated cap-weighted market returns hurt active managers Equity market concentration: a small handful of stocks - Patrick says most S&P 500 returns in 2015 came from a few names Short-only fund result: compounded for about 10 years - The Feshback brothers' historical short strategy in the 1980s Shorting hit rate: 70%, 80%, 90% at times - Used to show how informational edges once created very high shorting success Public company universe: diminishing - They discuss how fewer public companies may change the opportunity set for investors Private equity hold period: four or five years - Ted contrasts fundraising/investment horizons with longer value creation cycles Expected return horizon: seven or eight years - Private equity allocators are expected to wait longer for outcomes Potential small-business exit cycle: three or four years - Brent says this is often too short for true value creation

Pivotal Quotes: "Everything is hard." — Brent Beshore: He reflects on how every career and operating context looks easier from the outside "The bottom line when it comes to media of any sort is it's all about attention." — Brent Beshore: He explains why attention, not vanity metrics, drives media economics "I would say that the book that I'm most interested in that I still feel like hasn't been written is around incentives in businesses." — Brent Beshore: He identifies a missing practical book about how incentives actually work

Implications: The unresolved question is how asset managers will adapt fee structures and find durable edges as markets become more efficient; listeners should focus on alignment, patience, and niche expertise.