Capital Allocators: How the world’s elite money managers lead and invest

By Ted Seides

The chief investment officers (CIOs) at endowments, foundations, family offices, pension funds, and sovereign wealth funds are the leaders in the world of finance. They marshal trillions of dollars on behalf of their institutions and influence how capital flows throughout the world.

But these elite investors live outside of the public eye. Across the entire investment industry, few participants understand how these holders of the keys to the kingdom allocate their time and their capital.

What’s more, there is no formal training for how to do their work.

So how do these influential leaders practice their craft? What skills do they require? What frameworks do they employ? How do they make investment decisions on everything from hiring managers to portfolio construction?

For the first time, CAPITAL ALLOCATORS lifts the lid on this opaque corner of the investment landscape.

Drawing on interviews from the first 150 episodes of the Capital Allocators podcast, Ted Seides presents the best of the knowledge, practical insights, and advice of the world’s top professional investors.

These insights include:

- The best practices for interviewing, decision-making, negotiations, leadership, and management.

- Investment frameworks across governance, strategy, process, technological innovation, and uncertainty.

- The wisest and most impactful quotes from guests on the Capital Allocators podcast.

Learn from the likes of the CIOs at the endowments of Princeton and Notre Dame, family offices of Michael Bloomberg and George Soros, pension funds from the State of Florida, CalSTRS, and Canadian CDPQ, sovereign wealth funds of New Zealand and Australia, and many more.

CAPITAL ALLOCATORS is the essential new reference manual for current and aspiring CIOs, the money managers that work with them, and everyone allocating a pool of capital.

• Language: English
• Publisher: Harriman House
• Release date: Mar 23, 2021
• ISBN: 9780857198877

Ted Seides

Ted Seides, CFA has spent 25 years as an institutional investor, allocating money to managers. He started in 1992 at the Yale University Investments Office, seven years after David Swensen arrived at Yale. Ted spent five years learning under David’s tutelage and departed to attend Harvard Business School shortly before David wrote the bible in the industry, Pioneering Portfolio Management. In 2017, Ted launched the Capital Allocators podcast, a series of interviews with leading Chief Investment Officers. The show reached four million downloads in August 2020. Barron’s, Business Insider, and Value Walk each named it among the top investing podcasts. He also advises asset managers and allocators across business strategy, audio content, and investing. Ted writes opinion pieces for Institutional Investor, wrote a blog for the CFA Institute’s Enterprising Investor and guest publications for the late Peter L. Bernstein’s Economics and Portfolio Strategy.

Book preview

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Capital Allocators

How the world’s elite money managers lead and invest

Ted Seides

Contents

Praise for Capital Allocators

About the Author

Acknowledgments

About Capital Allocators

How to Use This Book

Introduction

Active versus Passive

The case for passive management

The case for active management

Part 1: Toolkit

Chapter 1: Interviewing

Defining the purpose

Preparing

Setting the stage

Active listening

Receiving feedback

Additional tips

Summary

To learn more

Chapter 2: Decision-Making

Why this is so hard

Making better decisions

Summary

To learn more

Chapter 3: Negotiations

Preparation

Updating views

Additional tips

Summary

To learn more

Chapter 4: Leadership

Define a vision

Set standards of conduct

Communicate consistently and frequently

Behave authentically

Inspire and motivate

Adapt and evolve

Summary

To learn more

Chapter 5: Management

Hiring

Organizational design

Project management

Talent development

Time management

Summary

To learn more

Part 2: Investment Frameworks

Chapter 6: Governance

Roles and responsibilities

Investment committee

Incentives

Summary

To learn more

Chapter 7: Investment Strategy

Purpose

Time horizon

Natural habitat

Policy portfolio

Team structure

Summary

To learn more

Chapter 8: Investment Process

Sourcing managers

Target characteristics

Due diligence

Portfolio construction

Monitoring

Icing on the cake

Summary

To learn more

Chapter 9: Technological Innovation

Asset allocation

Risk measurement

Risk management

Performance assessment

Leading edge of data analytics

Summary

To learn more

Chapter 10: Case Study of Uncertainty

Part 3: Nuggets of Wisdom

Chapter 11: Investment Lessons

Nature of markets

Inconvenient truths

Managing volatility

Investment selection

Gaining an edge

Asset class perspectives

Chapter 12: Life Lessons

Managing emotions

Continuous improvement

Relationships

Work ethic

Facing reality

What matters most

Chapter 13: The Top 10

Appendices

Appendix A: Initial Manager Meeting Outline

Background

Investment approach

Initial meeting question list

Appendix B: To Learn More

Interviewing

Decision-making

Negotiations

Leadership

Management

Governance

Investment strategy

Investment process

Data analysis

Appendix C: Directory of Guests on Capital Allocators

Publishing details

For the virtuous circle of guests and listeners on the Capital Allocators podcast

And especially for my wife Vanessa, whose enthusiastic support from the front row seat lights up the stage

Praise for Capital Allocators

Through his podcast, Ted has talked with the best investment minds in the world. Capital Allocators assembles this collective wisdom into an incredible guidebook for anyone who wants to be truly thoughtful about long-term investing.

– Raphael Arndt, CEO, Australia Future Fund

Capital Allocators is jam-packed with actionable advice from the world’s leading investment experts on topics ranging from interviewing managers to decision-making. Ted distills the wisdom of his impressive array of podcast guests into a compendium that deserves highlighting on every page. Take it from me, choosing to read Capital Allocators is a good decision.

– Annie Duke, former professional poker player, best-selling author, and decision strategist

Ted Seides has achieved a remarkable book that draws on the expertise and experience of a broad cross-section of industry leaders. He expertly distills interviews that he conducted directly into a book that seamlessly covers executive, leadership and investment skills and lessons. Capital Allocators is a well-crafted and informative read for existing and prospective investment professionals as well as for those who work with the investment industry in any capacity.

– Gregory J. Fleming, President & CEO, Rockefeller Capital Management

A fantastically broad, deep guide to the asset allocator’s world. I wish it had been written 25 years ago. The quotations in it are alone worth the price. You can quote me on that.

– Andrew Golden, CIO, Princeton University Investment Management Company (PRINCO)

Ted understands the nuance of investment management better than anyone I know, because he’s talked to more investors than anyone I know. It’s been said that books don’t change minds; sentences do. There are so many good lines in this book it’s hard to put down.

– Morgan Housel, Partner at Collaborative Fund and best-selling author

Unlike many ‘invest like the best’ books, Capital Allocators does not pretend there is some magical trick that will turn anyone into an investing genius. Instead, Ted Seides details how great investors do the hard work that leads to better outcomes. You won’t get rich quick reading this book, but if you take the time to really understand the lessons it teaches, you will be a better, more thoughtful investor.

– Ben Inker, Head of Asset Allocation, GMO

Capital Allocators is an excellent collection of toolkits and frameworks for investing that reflect both the institutions and the different styles of their CIOs. Capital Allocators is a starting manual for all the things aspiring CIOs need to consider as they develop their style and strategic vision. Importantly, Ted acknowledges that there are many ways to be a successful CIO and that CIOs can learn from each other in that diversity of viewpoints.

– Ana Marshall, CIO, William and Flora Hewlett Foundation

The world of institutional investing needed Ted’s voice – it just didn’t know it yet. With this book, and with his unparalleled podcast, Ted has brought a whole hidden world to a broader audience, and anyone interested in how the world’s most prominent investors move money is better for it.

– Kip McDaniel, Editor-in-Chief, Institutional Investor

Ted has made the world of capital allocation approachable for everyone across hundreds of conversations. Now he’s further distilled the lessons into a package that will make any investor better at what they do. Required reading.

– Patrick O’Shaughnessy, CEO, O’Shaughnessy Asset Management

This book boils down the most interesting insights and important lessons from the biggest and most powerful investors on earth – the ones that literally put the capital in capitalism. It offers a glimpse into the thinking of capital allocators in a coherent and digestible format. It should be required reading for anybody interested in investing and certainly will be for my students!

– Ashby H. B. Monk, PhD, Executive Director, Global Projects Center, Stanford University

Page by page, Ted Seides’ Capital Allocators brings us tools, frameworks and a rich collection of wisdom captured from his professional network. Ted’s book allows us to discover how successful CIOs incorporate various aspects of the investment process and lessons learned in navigating financial markets. This book should be mandatory for any investment teams aspiring to evolve and win.

– Mario Therrien, Head of Investment Funds and External Management, Caisse de dépôt et placement du Québec

I have learned something from every podcast, and this book pulls them all together. There is no one right way to be a CIO, we are all unique, but there are still lessons that we can learn from one another and value that comes from understanding the nuances among us. Thank you, Ted, for providing a forum for CIOs to share ideas and for writing this great collection of highlights.

– James Williams, CIO, J. Paul Getty Trust

About the Author

Ted Seides, CFA has spent 25 years as an institutional investor, allocating money to managers. He started in 1992 at the Yale University Investments Office, seven years after David Swensen arrived at Yale. Ted spent five years learning under David’s tutelage and departed to attend Harvard Business School shortly before David wrote the bible in the industry, Pioneering Portfolio Management.

Ted spent a summer job and two years after business school investing directly at three of Yale’s managers, hedge fund Brahman Capital, and private equity firms Stonebridge Partners and J.H. Whitney & Company. He learned that life inside the sausage factory is rarely as clean as the final product appears.

He returned to investing through managers in 2002, co-founding and serving as President and Co-Chief Investment Officer of Protégé Partners. Protégé was a leading multibillion-dollar alternative investment firm that invested in and seeded small hedge funds. In 2010, Larry Kochard and Cathleen Rittereiser profiled Ted in the book Top Hedge Fund Investors, and in 2016 Ted authored So You Want to Start a Hedge Fund: Lessons for Managers and Allocators to share lessons from his experience.

On a slow day in 2007, Ted had the bright idea to challenge a statement made by Warren Buffett about the superiority of index funds over hedge funds. With aspirations to demonstrate the value of hedge funds to institutional portfolios, he initiated a charitable wager with Warren that pitted the 10-year performance of the S&P 500 against a selection of five hedge fund of funds from 2008–2017. Protégé Partners lost the bet, and Ted still wonders about the probability distribution of outcomes and the quality of his decision process.

In 2017, Ted launched the Capital Allocators podcast, a series of interviews with leading Chief Investment Officers. The show reached four million downloads in August 2020. Barron’s, Business Insider, ValueWalk, and Forbes each named it among the top investing podcasts. He also advises asset managers and allocators across business strategy, audio content, and investing.

Ted writes opinion pieces for Institutional Investor, wrote a blog for the CFA Institute’s Enterprising Investor and guest publications for the late Peter L. Bernstein’s Economics and Portfolio Strategy.

You can hear Ted’s story in his own words on Capital Allocators episodes 45 (It’s Not About the Money), 34 (Deep Dive on Hedge Funds), and 5 (The Bet with Buffett).

Acknowledgments

My father lost his parents at a young age. His father passed away at age 52, and my dad never thought he would live a day past that. Still smiling at 87, every day of the last 35 years has offered unexpected upside.

The Capital Allocators podcast has been the same for me. I started it without an objective or goal. Thanks to incredible guests, engaged listeners, the magic of compounding and optionality, the experience has offered a cornucopia of upside surprises.

The guests who share their stories are the stars of the show and receive my deepest gratitude. Almost all the guests who appeared during the first year are friends from my time in the business. Thank you for sharing our conversations publicly without any expectation of benefit. These talented professionals backed this endeavor with their time and wisdom and laid the groundwork for what happened since.

Guests repeatedly shared stories of tangible and intangible benefits that accrued to them after coming on the show. Most hear from old friends and colleagues, and many find it productive for their investing and business. It’s been gratifying to deliver that goodwill and offer all future guests a hint that positive surprises will come out of their appearance. As a bonus, for every handful of guests who I didn’t know before the podcast conversation, one has evolved into a meaningful relationship. I’m so glad we met in this way.

This show has created a virtual community. The audience is just as important as the guests to its strength. An engaged audience attracts great guests, which in turn helps keep the quality of content high and the audience growing. Our community of listeners ranges from leading allocators and money managers around the world to interested students of investing from all walks of life. Thank you for choosing to spend your precious time listening to the show.

Over the last three years, I’ve received countless notes of thanks. Each one reminds me that this effort is a lot bigger than me and energizes me to carry on. Thank you for those kind words.

Although I didn’t set out to pursue this adventure as a livelihood, a series of serendipitous circumstances led to that outcome. I am deeply appreciative to all the advertisers, corporate sponsors, premium content members, and advisory clients who support the business around the show.

Patrick O’Shaughnessy has been my brother-in-arms on this journey. He has been my sounding board and thought partner on style, best practices, and the business of podcasting. He is a force of nature, an inspiration, and a wonderful friend.

Christopher Seifel is the catalyst who made this book happen. A year ago I reached out to my mailing list (www.capitalallocators.com) to ask for assistance in gleaning the best quotes from each show. Christopher went above and beyond, outlining each episode with a page and a half of quotes. I had thought about this project for a while but couldn’t imagine finding the time to go back and review thousands of pages of transcripts. Part 3 of the book draws heavily on Christopher’s outstanding curation of the episodes.

Connor Aller joined me as an intern two years ago to manage the behind the scenes production of the website and special projects. He has enthusiastically cranked through everything I asked of him, while performing at the highest level in his day job. Thanks Connor, I could not have had the bandwidth to take on this project without your help.

Craig Pearce at Harriman House approached me two years ago offering to publish any book I might consider writing in the future. He offered an economic partnership and delivered as a true partner in this project every step of the way. Thank you for your outstanding comments and suggestions that significantly improved the quality of this book.

Brian Portnoy and Erez Kalir are great friends and accomplished thinkers who graciously commented on a draft of this book and made it better than it could have been without their keen eyes. I am grateful for your assistance and friendship.

My wife Vanessa Schenck-Seides has been the wind beneath my wings since the day we met. Neither of us imagined that life would bring us together as it has, and I am incredibly grateful that it did. Thank you, my love, for encouraging me and laughing with me every step along the way.

I come from a family of teachers. My mother retired from running a preschool some time ago, and my sister works with special education students. My father taught graduate school alongside his medical practice for years, and my brother almost left his career in wireless telecom to teach business school. I always assumed I would find myself in a classroom. Apparently, I already have. Thank you for attending class each week and for picking up this textbook.

About Capital Allocators

Who are these capital allocators and why have conversations with them on the Capital Allocators podcast been listened to four million times?

Capital allocation is the process of deciding where to invest limited resources. It occurs when corporate executives decide how to fund operations and initiatives. It occurs when portfolio managers at investment firms select and size positions. And it occurs when Chief Investment Officers (CIOs) for end