Smaller is better
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • BentallGreenOak agrees to acquire Metropolitan Real Estate Equity
      watch video
      0:45
      Private funds weathered 2020 turmoil
      Daniel McHugh
      Aviva Investors promotes from within for real assets CIO
      Marc Rowan
      More alts managers seek expansion to retail market
    • Kieran Mistry
      Hymans Robertson picks head for new non-traditional risk transfer unit
      Troy Saharic
      NEPC brings on director of new business development
      Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
    • OMERS CEO Blake Hutcheson
      OMERS records worst loss since 2008 on bad COVID-19 bets
      Mitchells & Butlers turns off tap on pension contributions until April
      Jerome Powell, chairman of the Federal Reserve, adjusts his glasses during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington on Sept 24, 2020.
      Powell says Fed will hold steady during economic recovery
      Institutional investors mobilize for equitable global COVID-19 response
    • Database’s debut focuses on public-sector DC plans
      DC plan sponsors differ on need for annuities – survey
      Biden’s retirement idea getting the cold shoulder
      Few participants tapped savings to weather pandemic – Vanguard
    • Emissions from a smokestack in Poland
      Asset managers facing more scrutiny on ESG issues – report
      Boris Johnson, U.K. prime minister, hosts the U.N. Security Council's virtual meeting on climate change risks in London on Feb. 23, 2021
      Progress in fighting climate change falls short – U.N.
      Justin Trudeau, Canada's prime minister, smiles during a virtual joint news conference with U.S. President Joe Biden in Ottawa on Feb. 23, 2021
      U.S. joins forces with Canada on climate change
      Signage is displayed at Harvard University Health Services in Cambridge, Mass., on April 20, 2020
      Harvard endowment’s fossil-fuel investments drop to 2% of assets
    • Donation illustration
      Jefferies will use trading commissions to do good
      Michael Arougheti
      SPACs ride wave as latest investment darling
      Spirit winners
      Prudential honors young people who are helping out
      2 U.K. pension execs take on ESG investing in new podcast
    • Robert 'Rob' Shafir listens during a Senate Permanent Subcommittee on Investigations hearing in Washington on Feb. 26, 2014
      Sculptor hedge fund hits sixth straight year of outflows
      The WallStreetBets forum on the Reddit Inc. website on a laptop computer and the GameStop logo on a smartphone in an arranged photo.
      GameStop frenzy has hedge fund managers rethinking next moves
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
    • Illinois Teachers chalks up $1.3 billion in investments, commitments
      Emissions from a smokestack in Poland
      Asset managers facing more scrutiny on ESG issues – report
      Indiana chooses PIMCO for emerging markets debt
      Boris Johnson, U.K. prime minister, hosts the U.N. Security Council's virtual meeting on climate change risks in London on Feb. 23, 2021
      Progress in fighting climate change falls short – U.N.
    • Margaret Anadu
      GSAM chooses global head of sustainability and impact
      Signage for AMP Ltd. adorns the top of a building in the Docklands area of Melbourne on May 10, 2018
      Ares, AMP eye joint venture
      Thasunda Brown Duckett
      TIAA appoints Thasunda Duckett as president and CEO
      Brightwood Capital adds senior investment professional
    • Thomas Spencer
      Oklahoma Teachers chief Tom Spencer to retire
      Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Sweden’s AP1 gains 9.7% in 2020
      CDPQ returns 7.7% in 2020
      Cleveland-Cliffs to pour $202 million into pension plans in 2021
    • Thomas Spencer
      Oklahoma Teachers chief Tom Spencer to retire
      Margaret Anadu
      GSAM chooses global head of sustainability and impact
      Doug Heron
      Lothian Pension Fund to lose CEO this year
      Correction: PGIM Real Estate
    • Carlyle secures $4.1 billion ESG-related credit facility
      Hamilton Lane raises $3.9 billion for fifth secondary fund
      PSG closes first Europe-focused fund at $1.5 billion
      Kohlberg closes latest private equity fund at $3.4 billion
    • Sebastiano Ferrante and Jocelyn de Verdelon
      PGIM Real Estate turns to staff to fill new roles
      European managers key in on specialist strategies
      Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
      P&I 1,000 largest retirement plans: 2021
      Retirement in emerging markets
      Outlook 2021
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Illinois Teachers chalks up $1.3 billion in investments, commitments
      Indiana chooses PIMCO for emerging markets debt
      New York Deferred Comp plan re-ups with Goldman as stable value manager
      Ann Arbor Employees taps Artisan Partners for international equities
    • Illinois Teachers chalks up $1.3 billion in investments, commitments
      Indiana chooses PIMCO for emerging markets debt
      New York Deferred Comp plan re-ups with Goldman as stable value manager
      Ann Arbor Employees taps Artisan Partners for international equities
    • Emerging Market Equity Manager Services
      Securitized Credit Manager Search
      Private Placements Asset Manager Search
      Actuarial Consultant Search
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Tesla cartoon
      Don’t confuse wealth creation with retirement saving
      Top 1000 cartoon
      Top 1,000 retirement plans weather storm just fine
      Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • Shifting DC Times – Winter 2021
      Bond ETFs show maturity during Covid market mayhem
      Pension Consolidation: Optimizing Scale and Maximizing Efficiency
      China is embarking on a new stage of growth
    • Sameer Shalaby
      Commentary: Why should investors care about treasury management?
      David Blitzstein
      Commentary: Without a national retirement policy, Americans face a future of pension crises
      Lawrence Cunningham
      Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
      My-Linh Ngo
      Commentary: Pension funds and the role of the debt market in the fight against climate change
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      How will gold react?
      To people shaking hands
      P&I Content Solutions
      Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
      Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      watch video
      0:59
      Secure choice and other retirement plans at a state level
      watch video
      3:33
      P&I 1,000 by the numbers 2021
      watch video
      1:33
      A look at hiring activity in 2020
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
    • POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
      POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for February 2021
      Top Performing Managers of Managed Domestic Broad-Market Fixed Income, 4th Quarter 2020
      Top Performing Managers of Stable Value Fixed Income, 4th Quarter 2020
      Top Performing Managers of Convertibles, 4th Quarter 2020
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. ALTERNATIVES
February 04, 2013 12:00 AM

Smaller is better

Jeffrey Tarrant and Theodore Seides started out in different worlds but came together to focus on smaller hedge fund managers

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Michael A. Marcotte
    Ted Seides (left) and Jeffrey Tarrant
    Jeffrey Tarrant & Ted Seides

    • Current position: Both are co-founder, and co-chief investment officer, Protégé Partners LLC
    • Assets under management: $2.1 billion as of Jan. 1
    • Total employees: 37
    • Investment staff: 15
    • Jeffrey Tarrant, CEO
    • Age: 56
    • Education: University of California – Davis, B.A. economics; Harvard University Graduate School of Business, MBA.
    • Personal: Single, two children
    • Interests: Tennis, music, documentary films
    • Boards and charities: ARK US (Absolute Return for Kids); Film Society of Lincoln Center; WITNESS
    • Theodore “Ted” Seides, president
    • Age: 42
    • Education: Yale University B.A. economics and political science; Harvard University Graduate School of Business, MBA
    • Personal: Married, three children
    • Interests: New York Yankees, sports, fitness activities
    • Boards and charities: Greenwich Round Table; Wenner-Gren Foundation; Cycle for Survival

    Separated by age and different work experiences, Jeffrey Tarrant and Theodore “Ted” Seides discovered two commonalities when they co-founded Protégé Partners LLC: a focus on small, emerging hedge funds and an endowment/foundation investment mentality.

    Mr. Tarrant, the elder of the co-chief investment officers and Protégé's CEO, managed money for prominent families and went on to build the hedge fund database Altvest, now owned by Morningstar Inc. While building Altvest and starting Protégé, Mr. Tarrant also served from 1998 to 2002 on the board of directors of The Investment Fund for Foundations and advised TIFF on building its first hedge fund of funds.

    Although Mr. Seides' childhood dream was to manage the New York Yankees baseball team, his career started in the endowment world when he joined the investment staff of Yale University after finishing undergraduate studies there. He stayed for five years, eventually becoming senior associate overseeing public equity managers and managing internal fixed-income portfolios for the university's now $19.3 billion endowment. After receiving his MBA in 1999 and following a two-year stint managing private equity and hedge fund seed investments, Mr. Seides teamed up with Mr. Tarrant to start Protégé Partners in 2001. Mr. Seides is president of the company.

    Protégé now manages $2.1 billion in hedge funds of funds and customized portfolios that combine investments in small, established hedge fund managers with seed investments in new firms.

    A lot is riding on Messrs. Tarrant and Seides' conviction that returns of small hedge funds will top those of the stock market. None other than Warren Buffett, chairman and CEO of Berkshire Hathaway Inc., bet the Protégé pair that their hedge fund portfolio couldn't outperform the returns of the Standard & Poor's 500 index for the 10 years ending Dec. 31, 2017. The winner will donate $1 million to charity.

    Jeff, how did you get into money management? After I got my MBA at Harvard in the mid-1980s, it was the time when Harry Markowitz's theories were being adopted and I became fascinated about how to use a hedge fund approach to do this.

    So I got into the hedge fund business — which back then was pretty nascent — by joining Berkeley Asset Management Inc. We were running two small (hedge) managed-account funds of funds and back in those days, the managers we had money with were Paul Tudor Jones and Louis Bacon, larger managers.

    Most of the hedge fund investors back then were large European family offices. I worked for a large German family office then and it was kind of a club: All the investors knew each other and we all knew all of the managers. There was a roster of only about 180 hedge funds in the "80s to invest in.


    How did you and Ted meet in order to form Protégé? There were a number of triangulations that brought us together. One was because I was on the board of TIFF. David Salem ran TIFF then and he introduced me to Ted. And Ted's former boss, Dave Swensnalso was on the TIFF board at that time.


    How is Protégé's flagship portfolio constructed, Ted? We're strong believers in the concept that smaller managers provide an opportunity to deliver outstanding results. With that belief, what we chose not to do was to make particular strategy bets. If we can find great, talented small managers that we think have a good chance of outperforming, we don't allow a strategy allocation to drive portfolio construction. Effectively, we've created a multistrategy hedge fund.

    That said, we have tried to make the portfolio look roughly like what we were seeing in market with about half of assets invested in long/short equity and ¼ each in relative value and event-driven strategies.

    Ted, as with other multistrategy hedge funds, are you dynamically allocating assets between managers? Not much. That could be disruptive to a hedge fund depending on its size. We're just not big believers that you can pick strategies that effectively.


    How large is the hedge fund seeding subportfolio, Ted? The target for the seeding component is about 40% of the portfolio, but it could rise up to 50% or drop to zero. We view seeding as a way to reduce, if not eliminate, fees charged by the underlying manager. Many new hedge fund managers starting their businesses in this environment are capital-starved. That means they may be more open to a seed deal. They often will not charge 2% (management fee) and 20% (performance fee) because they are desperate for inflows. The weighted average fee level charged by our managers is 1.4% and 17%.


    How does seeding improve returns, Ted? We get returns from the established hedge funds we've invested in, but there's an economic stake we get from the emerging hedge funds we've seeded that results in profits — cash flows — as they've grown. That money is returned to the initial investors in the fund. For example, last year those initial investors received an additional 65 basis points of return from the cash flow resulting from the seeding deals. After we've done the calculation the total fee investors pay, including our fee, is about 1.75% management fee and 20% performance fee.


    How popular are you with new hedge fund managers? Is Protégé their first call, Ted? We like to be popular. We aspire to be one of the most desired first calls. That doesn't mean we want every single one of the 6,000 small hedge funds out there to give us a call. Many of our introductions to new managers come through more established hedge funds.


    Do you sense that some institutional investors might be picking your brains so they can replicate your approach? Jeff? Yes, to some extent. Unlike the early days when our clients were predominantly endowments and foundations and content with a single pooled strategy, today most of our new inflows are coming from pension funds and what they are really want is customization. They don't want their investment to look like the flagship fund. They might want to take more risk, they might want a more concentrated number of managers or more hedge funds from Asia. I think of customization like this: We've built the pizza and customization gives an investor just one slice.


    Jeff, you and Ted have talked a lot about Protégé mimicking an endowment model. How then do customized portfolios fit into your business model? For the first 10 years, we did offer a single pooled strategy for investors, which is very typical of an endowment. The evolution to more customized, specialized portfolios took some engineering on our part. We have a huge technology infrastructure, which makes it easier to provide the investor with just a “slice” of the overall pool.

    Where we've had to make some adjustments is with our investment staff, adding more client-facing responsibilities to some of the investment staff's work load, having them work more closely with the investor relations team to act as a liaison between the client and the investment teams. Some of our younger partners are anxious to become more closely involved with clients and customization will be a good way to facilitate this. n

    Related Articles
    Berkshire adds stocks in pension fund handoff to Buffett lieutenants
    Protege Partners founder joining Credit Suisse to build hedge fund
    Recommended for You
    BentallGreenOak agrees to acquire Metropolitan Real Estate Equity
    BentallGreenOak agrees to acquire Metropolitan Real Estate Equity
    Aviva Investors promotes from within for real assets CIO
    Aviva Investors promotes from within for real assets CIO
    More alts managers seek expansion to retail market
    More alts managers seek expansion to retail market
    Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
    Sponsored Content: Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Shifting DC Times - Winter 2021
    Bond ETFs show maturity during Covid market mayhem
    Pension Consolidation: Optimizing Scale and Maximizing Efficiency
    China is embarking on a new stage of growth
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center