Tetelestai Capital and What it Means for Active Management

The days of the “2 and 20” model have been numbered, but the days of active management are very much still blossoming. 2020 has shown the necessity of active management to keep global markets efficient. When passive investors fled for the hills during March’s near 40% decline of the SP500 in a matter of weeks, who were they large buyers? Active management.

In 2019, Passive funds surpassed 50% of the total value of assets in the United States. These funds are allocated across their strategy (whether in index ETFs or a more specialized basket of stocks) and parked there until redemptions are called on while charging half of the active management fees. This seems great in a decade where the domestic market in the U.S. climbed uninterruptedly higher year after year, and annualized volatility was at record lows, but what happens when volatility mean reverts? Are passive investors with minimal investment experience able to weather multiple 10%+ drops in a year and hope they recover? As 2020 showed, it is not human nature to sit still when the markets get wonky and this problem seriously reduces portfolio performance for passive investors.

So why Tetelestai Capital and why now? The exodus of financial assets from active to passive management is driven by one main factor: fees. Active management as a whole is not able to justify the lofty fees charged, which render their net performance mediocre compared to the market. It is natural then to cut costs to find a better solution. The problem is lower fees means lower protection with passive management for your hard earned capital and no ability of outperformance. That is where Tetelestai Capital comes into play.

At Tetelestai Capital, we are throwing out the “2 and 20” active management model for a much simpler and advantageous model for the investor. We charge a management fee which is very competitive with passive managers and we do not charge a performance fee until the MSCI global benchmark average of 8% per year is met by the fund. This means that if the fund earns 8% a year in line with the benchmark, you are only paying the fees of a passive investor. Tetelestai Capital gives you the ability to outperform the market and protection from unnecessary fees all in one package. And according to Bloomberg, with $4.8 Trillion sitting in money market funds as of 2020, we know there is a lot of money sitting on the sidelines waiting for opportune investments.

This is the start of a new age for active management, and being involved early allows your portfolio compounding to be even stronger. After all, Einstein said it best: “compound interest is the 8th wonder of the world”.

EJG