Ted Seides - Investment Industry Paradigms - [Invest Like the Best, EP.390]

Episode Summary

Executive Summary: Patrick O'Shaughnessy and Ted Seides examine how institutional capital is actually allocated: the evolution of LP/GP relationships, why asset allocation is more nuanced than old models, how scale and governance shape outcomes, and what private equity deals reveal about incentives, collaboration, and communication.

Main Topics: The evolution of institutional investing (Priority: 9/5): Seides says the institutional world is far larger and more iterative than he first realized. Updating the Swenson model (Priority: 8/5): He argues asset allocation should reflect underlying exposures more precisely using a total-portfolio lens. LP-GP misunderstanding (Priority: 10/5): Many conflicts come from different incentives, time horizons, and portfolio constraints, not personal failure. Scale and concentration in asset management (Priority: 8/5): Large winners dominate because distribution, talent, and operational scale create durable advantages. Private equity as case studies (Priority: 9/5): Deal-level examples show how carve-outs, auctions, and restructurings create value in different ways. Communication as an investment skill (Priority: 7/5): Authentic storytelling and transparent communication often determine whether managers earn trust and time. Summits and convening (Priority: 6/5): Seides is building small, rule-based gatherings to bridge allocator and manager perspectives.

Key Arguments: The institutional investing universe is much bigger than he once thought. Risk should be measured at the portfolio's underlying exposure, not just labels. LPs often reject managers for portfolio reasons, not because the GP is bad. GPs misread LPs' broader opportunity set and internal decision processes. Growth and diversification can help a GP survive long enough to outperform. Private equity is collaborative more often than the public assumes. Authenticity matters more than polished messaging when managers explain strategy. Scale concentrates winners, especially in hedge funds and private equity.

Data Points: Time since last on-record conversation: 7 years - Patrick notes how long it has been since he and Ted last recorded together. Original plan for the podcast: 7 episodes - Patrick says he originally planned to make only seven episodes. Co-investment / seed check size: $25 million or $50 million - Seides describes seeding managers with smaller fixed commitments versus a larger portfolio. Portfolio size: a billion or two billion - He contrasts fixed seed commitments with a much larger, mark-to-market portfolio. Example private fund commitment: $50 million - Used to illustrate how private commitments drift as a percentage of a changing denominator. Endowment / foundation exposure: 30% - He says many endowments and foundations are already fully baked into venture/private equity. Public pension exposure: two - He says some public pensions may be at two and trying to go to four. Public pension target change: 4 - Illustrates a two-to-four move that can still mean a lot of capital in a huge pool. CIO tenure: six or seven years - He says endowment/foundation strategy often lasts only as long as the people in the seat. Single-asset fund size: a billion fund - He references 3G raising a fund to do one transaction. Return multiple on Burger King deal: 29 times - He cites one estimate of the Burger King deal as a 29x winner. Return multiple on Burger King deal: 39 times - He cites an alternative estimate of 39x on the same deal. Leverage ceiling: six or maybe seven turns of EBITDA - He explains lenders cap leverage even when equity multiples rise. Yellowstone Club loan: $250 million - Credit Suisse loan used by the founder before the restructuring. Transition services agreements: 20 to 80 - He says carve-outs often involve dozens of TSA arrangements. Partstown seller roll-in rate: 70 or 80% - He says most sellers rolled into Berkshire's Partstown deal.

Pivotal Quotes: "the institutional investing world is just a lot bigger than I realized" — Ted Seides: On how his perspective changed after years of interviewing allocators. "the decisions that get made by LPs, when an LP says, well, we're not going to invest in your fund, 90% of the time it has nothing to do with the GP" — Ted Seides: On why GPs often misinterpret LP rejection. "if you really think that sustainable investments matters, just drive that into the market more because you have to own the market over time" — Ted Seides: On Norway-style sovereign wealth fund thinking.

Implications: The unresolved question is how much more precise, transparent, and governance-friendly capital allocation can become as institutions mature and data improves.