How Allocators Select Asset Managers with Meetings

How a bad bet earned a meeting with Warren Buffet; and why allocators NEED meetings

Wanted to share some key insights from the latest interview with Ted Seides who spoke about successful manager selections for allocation & the power of meetings.  Ted worked with David Swenson at Yale where he learned everything he could about manager selection, the sourcing process, and due diligence.

He didn’t have as much interest in direct investing, and was more interested in manager selection so he started a smaller emerging manager fund; and is currently managing a single family office.

Ted got a meeting with Warren Buffet based on a letter he sent. This spawned many comical cat and mouse discussions and turned into a million dollar bet that Ted lost in reference to the market beating hedge funds. You can read more about this bet here.  Ted was aware where Warren liked to eat, and was playful with the letter. He believes that since his playfulness was authentic, it helped him gain the comfort to meet in person.  The meeting was organic, all day, and was a fun conversation.  A couple takeaways are as follows:

·      Warren is authentic and doesn’t try to be someone else

·      Warren focuses on attractive businesses with a consistent message on what he is trying to accomplish

·      When Warren looks at investments, he is looking at the entire universe of active managers and the fees are things to be cautious of

·      Active management can mean a lot of thing to various people, and a certain set of characteristics (investment strategy, thesis, team) are needed to succeed

What Allocators get from Meetings vs. Crunching the Numbers

·      Most of the 1st allocator meetings are fact based (team, performance, portfolio construction)

·      There may be several of the similar types of meetings with the same questions with different sets of people to measure consistency

·      The next few meetings like to dive deeper into the nuances.  One thing they will do is talk about a specific investment and how it flows into the investment process that was defined. 

·      If specific investments that are mentioned do not follow the previously mentioned process,

·      Another view is how managers take a look at investment decisions, analyze teams, effective decision making processes, etc..

What do you miss if you don’t take meetings

·      Just looking at the track record will set you up for failure

·      It takes wide ranging conversations to truly get to know someone and their strategy

·      To understand this, you have to put in the time

·      You miss seeing how differences of opinion are handled.  It is also interesting to see how the meeting is ran whether if one person runs the meeting and answers all questions vs. having other team members add perspectives.  It is also interesting to

·      Example:  We invested in an early stage manager, and we learned some information about how they ran their strategy vs. what they were told.  As a result, when mentioning this information,  he was very offensive and took it as a challenge to his integrity. 

·      Most Managers tell their story vs. asking what the allocator is looking for.  The discipline of listening is not always there since managers see