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Seides shares his due diligence framework for evaluating investment managers: process over performance, culture over credentials, and alignment over assets.
Canon
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Seides explains that 2-and-20 fee structures create an environment where managers are incentivized to grow AUM (more management fees) rather than generate returns (which only affect performance fees). The fee environment shapes manager behavior.
Highlights
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Past performance is the least reliable predictor of future results — process quality, team culture, and incentive alignment are far more predictive
Seides argues that allocators who select managers based on recent returns are chasing performance. The factors that actually predict future success are: quality of investment process, stability of the team, and alignment of incentives between manager and investor.