The new mechanics of equity markets

Episode notes

Equity Strategist Andrew Heiskell and Global Derivatives Director Gordon Lawrence examine how the rise of passive investing, retail participation and faster-moving hedge fund capital is changing equity markets. They discuss why calm benchmarks can mask volatility beneath the surface, why generating consistent alpha has become more challenging, and how active investors may need to adapt their processes as AI accelerates market narratives and positioning.

4:01 – How market participants have changed
6:58 – The role of retail investors
8:20 – Leverage, liquidity and rapid market dislocations
10:05 – The “duck market”: calm above, turmoil underneath
18:10 – Are markets efficient, inefficient — or simply different?
19:55 – How active managers can adapt their processes
24:20 – How AI could amplify speed, consensus and fragility
27:55 – Why process may need to change more than philosophy

Transcript

Gordy Lawrence: 20 years ago, the active mode, the standard or most important, influential mode of investment was your sort of traditional, institutional, fundamental investing, which, like you said, is used to playing on one sports field back and forth with one set of rules. And then retail, I think it's noted that they tend to operate with a different approach. The difference now is that you just don't have as many sort of cops on the block in order to regulate that. Like in the past, if you have retail, come in and express a view, that that would create a distortion in the price of some segment of the market, that would be viewed as an opportunity, or it would definitely be an opportunity that the whole slew of fundamental, like-minded investors would push back against and turn into an alpha opportunity. Now you're at this point where, I mean, with that shift in the balance of power, you're just not quite as relevant.

Andrew Heiskell: Equity markets today look very different from the ones investors faced 20 years ago. The persistent rise in passive flows and ETFs, a boom in retail participation, a shift in the hedge fund landscape and changes in market liquidity dynamics all impact how capital moves through markets. At the same time, concentration around a handful of large companies and now the AI thematic has reshaped the benchmarks in investor behavior.

Hello and welcome to Wellington Investor Exchange. I'm Andrew Heiskell, Wellington's chief equity strategist. In this first episode of our new series on the future of equity markets, we'll explore how the market itself is changing before turning in later episodes to what those changes might mean for investors in portfolios. In recent years, investors have been increasingly challenged by these shifting dynamics. Historical relationships and correlations are changing. Diversification can be more challenging. Markets can appear relatively calm at the index level, while individual stocks, sectors and factors experience significant volatility.

And the one question I hear most from investors is: why has it become so difficult to generate consistent alpha, particularly since the global financial crisis? Have markets become hyper-efficient or structurally inefficient, or maybe a bit of both? Increasingly, this looks less of a standalone problem and more like one symptom of a broader change in how markets are functioning.

To look further under the hood of these shifting market dynamics, I'm pleased to welcome Gordy Lawrence. Gordy is director of Wellington's Global Derivatives Group and is based in our New York office. Gordy Lawrence: Thanks for having me. I understand this is your inaugural show, so I hope it's not a one and done.
Andrew Heiskell: Very exciting. Looking forward to the conversation. As we start the conversation, can you share a little bit about your background and your role at Wellington?

Gordon Lawrence: Sure. So I've been in the derivatives business for pretty much my entire career. I spent the first few years after college working on the sell side and then came to the buy side in 1999 and spent the last 20 and a half years or so working with you here at Wellington Management. As you mentioned, I'm the director of Global Derivatives. I lead a team that does a couple of different things. One is we work with internal portfolio managers on helping them use derivatives in their portfolios. And we also run some strategies of our own. I think one of the reasons why you're interested in having me on the pod is because as a team, we spend a lot of time thinking about market structure and the way that positioning and liquidity impact the way investors face alpha challenges.

As far as how things are, I mean so much has changed. It's unbelievable. If I think back to when I started this in 1999 working on the buy side, a couple of things you mentioned in your intro have really mattered a lot. I would focus a lot on this sort of shift from active to passive. Originally when I got in, I think we were about 90 to 10 active to passive. I think a couple of years ago we crossed over. And now passive represents a bigger share of the ETF and mutual fund industry than active does. That plays a big role in terms of understanding how markets function.

Another thing that's changed quite a bit, or that's gone through a few iterations and now is going through a significant impact period is retail. So we have sort of a rise and fall of retail around the tech bubble, which was the beginning of my time on the buy side. And now we've sort of got retail 2.0 or at least 2.0 in my world. And they're coming to the market with a different set of tools. They're playing with the same institutional tools that most of most of us are working with. They have a lot of access to leverage, options, a whole slew of ETFs that allowed them to express themes in single instrument packages. And in general, they're having a bigger impact on markets.

And the final piece that I'd point to is just compositionally within the hedge fund industry. You know, when I first started out, the hedge fund industry was pretty much dominated by single manager approaches, who operated with, you know, modest, moderate amounts of leverage, and generally being, for the most part, fundamentally focused, reasonably low turnover. Over time, that's shifted quite a bit. We've had you know, we've had a big increase in the presence of the multi-strat platforms, pods, whatever, whatever you want to call them.

Within these multi strategy platforms what you're going to have is pods of investors who are running standalone mandates. They tend to be sector-oriented, but they're little pieces of a larger multi-strat platform.I mean they've shifted from representing maybe 5% of the market 6 to 10 years ago to now, more like maybe 10 to 15% of the market, so a much more important actor now than there were even a few years ago, and I think really impactful in terms of some of the fragility events that we see in the markets these days.

Andrew Heiskell: Yeah, it's pretty striking. I've seen some data here recently that shows that long-only trading activity now represents something like just over 10% of total market trading volume, which is pretty striking, right? A stunning reversal from where we'd seen it even just a couple of decades ago. And I guess in some regards, the way I've thought about it in my mind is we have like one playing field, we're all on the same football field or baseball field or whatever it is.

But, you know, there's one scoreboard, but there's multiple teams playing almost different games at the same time. You have retail, you have hedge funds, you have long-only investors, and they're all sort of crashing into each other, again, playing slightly different skilled games, but sharing one common scoreboard, which I think is creating a lot of these very unusual dynamics in markets.

And so along those lines, you know, as we see this intersection of active passive, the role of retail, hedge funds, how does the interaction of all of those change the dynamics of how you think about markets and assess the risk and opportunity within equity markets?

Gordy Lawrence: Well, the first part of it is that active-passive transition that we talked about, I think, has really opened the door for retail to have a bigger influence. I mean, 20 years ago, the active mode, the standard or most important, influential mode of investment was your sort of traditional, institutional, fundamental investing, which, like you said, is used to playing on one sports field back and forth with one set of rules. And then retail.

They tend to operate with a different approach. The difference now is that you just don't have as many sort of cops on the block in order to regulate that. Like in the past, if you have retail, come in and express a view, that that would create a distortion in the price of some segment of the market, that would be viewed as an opportunity, or it would definitely be an opportunity that the whole slew of fundamental, like-minded investors would push back against and turn into an alpha opportunity.

Now you're at this point where, I mean, with that shift in the balance of power, you're just not quite as relevant in the market right now and it can allow these distortions to continue for longer and create some pretty significant headaches if you find some of those names in your benchmark.

Andy Heiskell: Yeah, it actually follows on too in terms of the trading dynamics in markets today. The increased use of leverage, whether it be just, you know, how people trade via ETFs or baskets or leverage ETFs or zero-expiry options – that changes dynamics as well. So not only do we see that impacting maybe small meme stocks, but now it's also increasingly influencing mega-cap stocks as well. How do you see the leverage dynamics in markets trading changing the way that you're thinking about these market flows?

Gordy Lawrence: Well, at least at the retail level, as I was getting out a little bit before, it's a little bit, you know, the democratization of some of these instruments that end up having some carryover impact with a small amount of premium. An individual investor can control a large amount of market exposure through some of the shorter-dated optionality or the leveraged strategies that you mentioned that have been introduced.

I mean, another aspect of this in terms of how leverage is impacting markets, though, too, is going to be related to that group of the multi-strats or pods that I mentioned before that, you know, they're operating with much higher leverage. If you think about it in in our game analogy, they are playing the same game. But they're playing it a lot faster than we are. And they're playing with a coach that doesn't have very much patience. And so periodically they'll just walk off the field. Like if something isn't going their way, they're just going to exit because they have very small risk budgets, like their ability to take or their willingness to take on significant losses when they're running at such high leverage, exposure is going to be limited.
And so what you're going to get is these sort of boom busts within individual names, within individual themes. Because this crowd, which by the way, as a group, they tend to, you know, congregate in a lot of similar strategies or a lot of similar themes – they're going to decide to exit if that's not going very well, and you can end up with these really big dislocations, very rapidly.

Andy Heiskell: I think that's one of the most interesting things to me is that because on one hand, we see this higher leverage, more volatility, more fragility. And you've spoken about alpha fragility and beta fragility juxtaposed against this environment, where in some regards, at the surface of the market, we've seen a collapse of volatility. And it seems like everything is sort of calm at the surface. But underneath there's so much, so much turmoil.

So maybe break down for us a little bit more in terms of how you think about this alpha and beta fragility, and how do you see structural fragility around markets overall?

Gordy Lawrence: Well, so yeah, the first thing is that concept that you're describing there where everything looks calm on top and you've got fairly low volatility at the index level. We've been calling that a duck market. Like very placid on the surface. And their legs beating like crazy below. And I think there are a few things contributing to that.

But so first just the concept of beta fragility. Beta fragility has been kind of a known concept I’d say, you know, for ten plus years. I think it developed somewhat out of the regulatory change and strategy changes that came out of the global financial crisis.

You know, first, on the regulatory side, you had a bit of a pivot in terms of who were going to be the providers of liquidity in the market. You used to have the big banks providing their balance sheets. Oftentimes, they would step in the way of dislocations and tend to be, you know, tend to mute volatility. And through some of the changes that came out with the regulation after the GFC, you've seen that shift over to a group of market makers which are more algorithmically focused. You know, they're going to be computers trading, not individuals. They're running with smaller balance sheets. And as a result, they will tend to run away when volatility increases, because with the smaller balance sheet, you just can't afford to take a big loss. And so that's what's happened on the supply side of liquidity.

And on the demand side of liquidity, we've had this proliferation of products which are going to just tend to demand liquidity when volatility rises. So it's sort of a bad mix like a couple of examples of that. Volatility-targeted funds, you know, sort of also developed in the wake of the global financial crisis used by insurance companies. Those will explicitly weigh their equity exposure inversely to the level of volatility in the market, so as volatility is rising they need to sell equity. And similarly, CTA strategies, trend-following strategies, did well during the GFC and attracted a lot of assets. And so now you've got more and more money that's sort of running a very similar strategy in the context of when markets are selling off, which is typically when volatility is rising, is when they're going to be demanding liquidity. And so we've had both of those things happen again, these concepts I think have been in place probably since, around 2015 the market really started to latch on to this idea of beta fragility. And I think it's really well understood. The alpha fragility side is related to what we were talking about with the platforms and just sort of this tendency to go from like sort of calm to chaos really quickly at the single stock level to and again, I attribute it to the way a lot of these strategies are run.

So you're going to get this type of fragility periodically at the individual level. And I think, you know, to get back to this, this duck concept, right? I mean, I think that that's been a big contributor to a lot of the volatility that we're experiencing underneath the surface. Like if you if you take a look at the environment that we're in right now, which I mean, we have a lot of other macro themes that are impacting markets. But AI, undoubtedly, a huge factor in terms of driving the market's narrative on a day-to-day basis. And it's the type of thing where, you know, you don't have answers today. Right? You have theories, right? And so what you get is these immediate like these boom busts into a theme.

And I think again, it's because this group of capital doesn't have time to wait. You know, it's alpha first facts later is the concept. And so when you have so much narrative volatility as we've been experiencing through this, you're going to get a lot of this behavior where okay, this is the disrupter, here's the disrupted. We're going to go long/short, we're going to create this huge spread in performance. And that's taking place below the surface. But at the surface it doesn't really look like much because the two returns are cancelling.

Andy Heiskell: Yeah, to me, that's like the ultimate irony in this. In regards, we talk about all this rise of volatility under the surface, all this fragility that exists around the system. But again, like above the surface, it all appears very, very calm. And so to me what I observe is like the learned outcome of investors in that environment is, well, if the surface is very calm, then why do you want a hedge?

Hedging actually just reduces your return and maybe even just increases your volatility. If we just look at what the Sharpe ratio of the S&P 500 has been in the last 15 years, it's been a very pleasant experience, right. At the index level, volatility has been relatively low and returns have been exceptionally high. And so we collectively, as investors around the globe have learned this behavior of don't hedge, don't diversify.
Because those things are only just net suckers. Like negative net present value exercises. So stop doing that. And I think again some of the I think forward looking of all of this is like we'll have to sort of unlearn some of that behavior.

Gordy Lawrence: Well and if I can throw one more thing for the people who have continued to hedge, it's been similarly frustrating this year because of this dispersion. You're not getting even during drawdown periods, even within sectors. You've got enough dispersion taking place within the sector that if you're hedging with a sector ETF to address, like say, a financials portfolio or an industrials portfolio, you're not necessarily getting as much movement in that sector ETF as you might expect given what's going on beneath the surface. So it's been it's been a tough road.

Andy Heiskell: That's definitely been very striking, right. Because we've seen this rise of dispersion and collapse in correlations in every regard across equity markets globally. So across global markets, we've seen it within markets, across sectors, within sectors, in every regard. It's created this environment where again you almost have to be a winner or a loser. There's sort of no in-between.

But you add one loser to one winner and at the surface it looks like almost nothing is happening. So with all the shifting and the changes of these dynamics at the market level, how do you think this has impacted the ability to generate alpha in markets?

Gordy Lawrence: Yeah, I mean I think I think it's made it very hard. It's been sort of frustrating, caused a lot of confusion for people. You know, we went through a period of time where the returns of the market were very, very concentrated in a small group of stocks. The Mag 7 trade went on for a lot longer than most people would have expected. We've eased away from that. But again, you've still got this whole environment going on beneath the surface where you can just sort of unexpectedly get blown up in a name.
So I think what it's meant as far as trying to generate returns in this environment is, kind of going back to your game analogy, you've got to understand who's on the field with you, right? Like if you're if you're in a theme that's particularly crowded or, you know, you need to be particularly wary that that can end, it doesn't mean it's going to end tomorrow. But you need you need to size appropriately because the tendency with these things, at least, you know, the tendency over the last couple of years in a lot of these themes is you get a rush of capital into it, you know, again, alpha first, back second, and then ultimately it falls apart on itself.

Andy Heiskell: How does all this shift thought process around time horizon?

Gordy Lawrence: Yeah, I mean, I think the whole world has become much more short-term-focused. I mean, we see it within our world, right? Like not that long ago, a standard hedging strategy would be 3 to 6 months. Then it sort of started becoming one month. And now a lot of hedging transactions are taking place over like a two-week period. So people have become much more short term within the options world, but also, yeah, within performance.

Andy Heiskell: Is there opportunity on the other side of that, of maybe taking a longer or different time horizon?

Gordy Lawrence: I mean, again, I think the real opportunities there are when you're picking up the pieces. Like when you're going from something that was crowded and got too crowded and then, you know, sort of fell apart on itself and that positioning gets washed out and you buy and you might not have the trust yet. But you're buying it at a price where at least there's room for more capital to enter. Again, it just sort of has to forget a little bit first.

Andy Heiskell: So in my opening comments, I raised this notion of markets becoming hyper efficient or maybe on the other side, structurally inefficient. I mean, we're both products of the University of Chicago. So I guess we have this bias that markets generally over time are efficient. But there's this growing notion that all of these dynamics within markets are actually making the market structurally sort of broken in a way.
You know, maybe those are two sort of circles that lap around each other in some regards. But how do you view that debate, and how do you think about the changes of market efficiency or inefficiency over the course of this last couple of decades?

Gordy Lawrence: I kind of knew this was coming and I was going to say, what would Gene say? So one of the things that you and I share, along with our 20 plus years here, we both attended the University of Chicago. Both worked our way through Gene Fama’s, what was it? Theory of financial decisions class. A brutal, really, really tough class. And so if we were sitting there in class and I'll try and do his voice justice. Heiskell. Heiskell, he’d say. What do we know anytime we want to try and test market efficiency. What's the challenge? And you, you know, because you always do your reading and you'd be like, well, Professor Fama, you know, we have a joint hypothesis problem, right? Right, in order to be able to prove whether a market is efficient or not, we have to have a model of market equilibrium, right?

You have to have an understanding of how assets are supposed to price. And that's I think what we're really getting at here is there's a reasonable probability that because of all of the change in terms of market participants and their behavior, that this model of market equilibrium has actually changed. So we can say it's broken. But it is what it is. It’s the field we’re playing on.

Andy Heiskell: Yeah, it's a good segue. So we spent a lot of this time talking about what has changed within markets over the course of the last two decades. So I'm interested in turning the conversation a little bit to for an active manager, what do you do about it?

And I guess in some regards, the way I've thought about evolution within markets, is that your philosophy, your view of markets should maybe only evolve very slowly over time, but the process actually should be very dynamic, right? Because the markets themselves are extraordinarily dynamic. And if your process is static or slow, or too slow or slower than the market, then you're liable to be left behind. So in that notion, how do you think about your own philosophy and process, or how do you approach markets through derivatives to be able to not only manage risk, but maybe capture the alpha opportunity on the other side?

Gordy Lawrence: Well, I mean, it's gone through a lot of evolution on its own as well. I'd say 20 years ago when I started working here, a lot of the focus was, you know, what I call stupid derivatives tricks, things you could extract from the derivatives market, which gave you some idea of sentiment in markets.
And then over time that gravitated towards focusing on positioning a little bit more. And sentiment is nice, and there's some implied positioning in there, but trying to gather more explicit information on positioning became more important, as like as that beta fragility concept started to appear, more recently, to sort of counter some of this alpha fragility that we see playing out, trying to get as close as you can to an understanding of how some of this faster money is positioned.

Because again, I think that the world we live in is one where you just have to be hyper aware of what's taking place around you, and that can be the structural inefficiency, which seems a little bit odd because it's just information, but it's aggregating it which is proving to be, I think, you know, the most interesting part of this, because you're not going to have, you know, posted numbers. You're not going to get that on individual stocks or individual themes or sectors or anything like that, right? Like you have to try and build it up from a few different places.

But trying to generate for people as clear a picture as possible as to who else is out there in the market in your theme. If you're not exposed to this theme, you know, who is? How far are they leveraged to it? If you're waiting for it to come back to earth, you might have to wait a while.

Andy Heiskell: So a super big picture question, but I mean very, extremely important one as well. How do you think that the active management industry needs to change and evolve overall within this framework?

Gordy Lawrence: I mean, again, there's a lot that I think continues to evolve on the risk side. I think a lot of people have not spent, particularly on the long-only side, as much attention to their underweights as they have their overweights. And that's been a very big story in this environment, particularly if you're in like a mid-cap or a small-cap type benchmark where you can have these takeovers where, you know, a horde of investors will animate a group of stocks, and all of a sudden they'll represent a significant portion of the returns for your benchmark.

And you weren't thinking about them because you would never touch them. Well, from a risk standpoint, you got to pay more attention because again, those were those were lower-risk scenarios before because you also knew your peers weren't going to test them.

Andy Heiskell: One way I've sort of described it as like historically, most managers would start with a blank sheet of paper, right, and say, I just need to add good stocks to that piece of paper until I have a portfolio, right. And if I pick good stocks, I'll have good alpha. And that's all that really matters where we've evolved, right, because of market concentration, because these shifting dynamics around sectors and themes that if your blank sheet of paper doesn't have the right theme on that now foreign piece of paper, then you can be really caught off guard.

And so to me it's a bit of a flip, right. It's to say rather than that blank sheet of paper, maybe in some regards you start with what the market is and where do you have differentiated views versus the market? Both in terms of your active overweights and your active underweights. And position that accordingly.

Gordy Lawrence: Yeah, I think that's extremely important. And just another facet of that is that oftentimes there was a little bit more ability to substitute exposures before. You could sort of say okay, I'm going to be short a little bit of consumer beta, but I'm going to make it up in tech. Not even close to the same things right now, right.

When you have all that dispersion going on, even if you even if you aren't completely starting with a blank sheet of paper, you still have this this difference that you can't treat them as fungible.

Andy Heiskell: On those lines, you've talked a lot about this dispersion in many regards, like what's dominated markets over the course of certainly the last few years has been the AI thematic and in many regards as you referenced, it's the AI winners or AI losers. It's like AI versus everything else. And there has to be a winner and loser on every side of every trade. So that's increasingly dominating markets, no question about that. How do you think the rise of AI will change a lot of what we talked about from a structure and dynamic perspective across the markets broadly?

Gordy Lawrence: Well, I mean, it makes everybody faster. We already talked about the newsflow dynamic in terms of the rotation of different narratives. But I think in terms of the actual use of the tools, makes people faster, makes people much more capable of identifying those themes as they're being engaged with by the market. And I think that poses more danger, right? Like, because it's this consensus vehicle.
And that consensus when it shifts means everybody out as well. Like it's nice when it's building up. And actually sometimes you get some pretty odd behavior on the upside too. But if you're getting there because everybody's using the same tools to come to the conclusion that, oh, this is where we're supposed to be, when some new narrative enters the market, that shatters that. And now the black box tells you, no, no, no, no, that's not what we're supposed to be in anymore. Everyone gets out. And so again, just more additions to the fragility engine because of the way that people are using these tools.

Andy Heiskell: I mean, I guess we're learning on the fly, right? As the technology evolves. But I think it's a very active debate of like, does the rise of AI make markets more or less efficient? Does it make markets more or less risky? Right. That's a very interesting debate. I'd love to hear thoughts on that.

Gordy Lawrence: I mean, again, I think it's both. Not getting into the efficiency debate too much further, but in terms of, you know, asset prices moving to reflect consensus, I think it makes it much faster. But yeah, like, dangerous.

Andy Heiskell: I mean, in many regards, the way I've thought about the framework, right, is like for any stock picker, any active manager. You should love an environment that has lots of dispersion.
You should love an environment has very low correlations. That's your opportunity set. But of course, you have to be on the right side of those winners and losers. And I think that's the challenge of the dynamics of this market is, like you said, those perceptions can shift quite quickly and faster than what the actual fundamentals are shifting. Or maybe the fundamentals aren't even shifting at all. Maybe it's just a matter of perception and digestion of the information on the fly.

Gordy Lawrence: I think it's exactly that. On paper you see this type of dispersion and you say, this is great. This is what we've been waiting for. But it's the persistence of the dispersion that I think is the problem. There's just so much churn in winners and losers. Not necessarily just winners and losers. And it makes for a tough go of it unless you're going to be a little bit more nimble.

Andrew Heiskell: Yeah. It's interesting, even within artificial intelligence itself, like we've broken down the trading dynamics around that. And even the narrative within AI itself shifts seemingly on a daily, if not weekly basis. It's shifting dynamically, like one day the hyperscalers are the winners, the next, they’re the losers.

So we began the conversation with a seemingly simple but actually incredibly complex question about why has it been so difficult for active managers to generate consistent alpha over the course of the last 15 years. And we've covered a lot in the conversation from the rise of passive and ETF investing to retail participation and fragility and dispersion and artificial intelligence, all having impacts in terms of market dynamics.

So as we close out this conversation, I'd love to hear from you. What do you think is most important for investors in terms of understanding how these market dynamics are changing and what they should do about it?

Gordon Lawrence: Well, and I think you touched on this a little bit before, and it really resonated with me, is just the idea that you shouldn't necessarily create revolutionary change in your philosophy, right? It's process that probably needs to change. And it's really one of just, you know, pardon the pun, but situational awareness, right. Like having a really clear understanding of who else is in your trades with you, how they're playing the game, you know, whether they're kicking north, south or east, west, and being able to structure around that.

Otherwise, you're going to end up in an environment where you're sort of persistently surprised by the amount of twists and turns there are to get to your outcome, and you might not be able to stick with it at that point. So that's where I would focus my attention on - process improvements. Not necessarily philosophy.

Andrew Heiskell: Great. It's been a tremendous conversation. Thanks for joining me.

Gordon Lawrence: My pleasure. Yeah.

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In Singapore, this material is provided for your use only by Wellington Management Singapore Pte Ltd (WM Singapore) (Registration Number 201415544E). WM Singapore is regulated by the Monetary Authority of Singapore under a Capital Markets Services Licence to conduct fund management activities and is an exempt financial adviser. By accepting this material you represent that you are a non-retail investor and that you will not copy, distribute or otherwise make this material available to any person. In Australia, Wellington Management Australia Pty Ltd (WM Australia) (ABN 19 167 091 090) has authorized the issue of this material for use solely by wholesale clients (as defined in the Corporations Act 2001). By accepting this material, you acknowledge and agree that this material is provided for your use only and that you will not distribute or otherwise make this material available to any person. Wellington Management Company LLP is exempt from the requirement to hold an Australian financial services licence (AFSL) under the Corporations Act 2001 in respect of financial services provided to wholesale clients in Australia, subject to certain conditions. Financial services provided by Wellington Management Company LLP are regulated by the SEC under the laws and regulatory requirements of the United States, which are different from the laws applying in Australia.

In Japan, Wellington Management Japan Pte Ltd (WM Japan) (Registration Number 199504987R) has been registered as a Financial Instruments Firm with registered number: Director General of Kanto Local Finance Bureau (Kin-Sho) Number 428. WM Japan is a member of the Japan Investment Advisers Association (JIAA), the Investment Trusts Association, Japan (ITA) and the Type II Financial Instruments Firms Association (T2FIFA). WMIL, WM Hong Kong, WM Japan, and WM Singapore are also registered as investment advisers with the SEC; however, they will comply with the substantive provisions of the US Investment Advisers Act only with respect to their US clients.

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