An active management partner for the near and long term

In last year’s letter, I wrote to you about how our firm is evolving for the future of active management and clients’ changing needs, including expanding our offering in the growing alternatives market, building on our ability to combine strategies into world-class, commercially relevant solutions, and ensuring we have the right resources to serve both the institutional and global wealth markets.

This year, as we approach our second century of active management, I want to offer an update on how we’re investing in our capabilities and working to help clients navigate both the current market environment and their long-term challenges and goals. I’ll focus my thoughts on four key themes: the investment impact of AI, shifting views on equity and fixed income allocations, the convergence of traditional and alternative assets, and the addition of talent and tools across our firm.

Unlocking AI’s potential

AI is transforming the way people work and has the potential to drive higher productivity and growth. It’s also raising questions, including about the surge in spending on data centers, the timeline to profitability, and the impact on public and private markets. Our investors are incredibly focused on getting the answers right, drawing on deep research, cross-team collaboration, a rich and balanced dialogue, and vigorous debate over critical issues — from decisions about how to weight technology in a portfolio (could markets be underestimating AI’s impact?) to the growing role of credit markets as a source of capital for AI infrastructure (how should investors think about the often complex financing structures being used?).

AI is also transforming the practice of investment management, and at Wellington we are actively evaluating how and where to utilize it to drive innovation, productivity, and client value. Our enthusiasm for the potential uses of AI in our investment processes is high, and we are making the technology and data foundation investments necessary to harness our own internal knowledge to develop new insights.

We believe the winning formula will be a combination of human expertise and machine intelligence. AI can augment idea generation, efficiency, portfolio construction, and risk management. But our business will also remain rooted in the distinctly human skills that can make us a better partner to our clients, including judgment, creativity, empathy, and the simple but critical ability to listen. Ultimately, we are fostering a culture that values both technological excellence and human skill to ensure we scale AI safely and effectively, in ways that strengthen the outcomes we pursue for our clients.

Rethinking equity and fixed income allocations 

This past year, we were deeply engaged in helping clients strengthen their equity and fixed income allocations, and we expect this theme to continue in 2026.

On the equity side, we’re seeing growing interest from clients in revisiting core equity allocations, driven by market concentration concerns, rising volatility, and increasing differentiation across countries and regions. The strong performance of many markets around the world in 2025 and renewed interest in Europe, Japan, and other global opportunities are prompting a close look at how to position portfolios. Clients are also thinking carefully about the type of active risk they want in their portfolios and seeking sources of alpha that are persistent, explainable, and diversifying.

While long-term market return expectations may be more modest, we believe today’s regime presents one of the most compelling opportunity sets in years — for active investors who can identify and capture alpha across styles, sectors, and geographies. Among the key themes our strategists are focused on in their 2026 equity outlook: the broadening of earnings growth beyond mega-caps, Europe and Japan’s transition to domestic-led regimes, and the potential revival of emerging markets.

Against this backdrop, we’re helping clients build better, more resilient equity portfolios through Wellington’s growing suite of extension strategies (including complementary fundamental and systematic approaches), broad global and regional equity capabilities, innovative hedge fund lineup, and custom downside protection solutions. Across our platform, we’re expanding the ability to pursue alpha — from benchmark-aware, capacity-efficient core strategies to high-conviction, unconstrained solutions designed to pursue alpha at scale. This breadth of approaches allows clients to tailor their portfolios along the full spectrum of risk, return, and correlation preferences.

On the fixed income side, the watchword today is selectivity. In credit markets, for example, valuations are elevated in many sectors, but our fixed income teams still see opportunities for patient and disciplined investors. And in government bond markets, they remain confident that bonds can play their role in preserving capital, generating income, and providing diversification, but think careful country selection and yield curve positioning will be critical.

We see this environment as custom-made for active management, and we’re helping clients with a wide variety of investment ideas and strategies in areas like multi-sector credit, unconstrained and opportunistic strategies, and total-return-oriented strategies. Private credit is also central to many of our fixed income engagements with clients, in areas like investment-grade private placements and commercial real estate debt.

Breaking down artificial barriers between traditional and alternative assets

Today, clients we serve in both the institutional and the wealth markets are less likely to think about “traditional assets” and “alternative assets” as two separate and discrete buckets, but rather as a holistic opportunity set. This is not about the end of the classic 60/40 asset allocation model — it’s the natural evolution of the model to use the full range of available investment tools. It’s about seeking opportunities to optimize between public and private markets or between long-only and long/short strategies. 

Ultimately, as active managers, we think this shift is about having the flexibility to go where the alpha is on behalf of our clients. That may be in public markets, in private markets, or at the intersection between the two. We see this, for example, in our work managing assets for insurance companies, who often have large long-term credit portfolios and are increasingly seeking advice on how to combine investment-grade public credit with private credit. 

To ensure we can support our clients’ needs across the asset class spectrum, we’re continuing to build out our private investment capabilities in areas that align with our experience and skill sets. Recent examples include the formation of our Private Real Estate Credit platform, an extension of our 30-year history investing in commercial real estate across fixed income and public equities, and the launch of our Venture Growth Evergreen platform, aimed at meeting growing demand from wealth and institutional clients for flexible, institutional-quality access to venture and growth equity. 

Our focus on bringing the full investment toolkit to our work in the wealth space is also reflected in our alliance with Vanguard and Blackstone, which seeks to fundamentally transform how individual investors access institutional-caliber investment opportunities. Our firm has worked closely with Vanguard for 50 years and we’ve long respected Blackstone's capabilities. Now, our three firms are working together to build and launch solutions that seamlessly integrate public and private assets, as well as active and index-based strategies.

We’ve also recently completed a multiyear investment in and reshaping of our Hedge Fund platform, which was founded more than 30 years ago. The platform has evolved from single-strategy funds into a fully scaled, multi-strategy platform led by specialist teams across two verticals: equity long/short strategies and macro/credit strategies. This new framework is better aligned with the goals of today’s investors, including using different hedge fund strategies to strengthen diversification in a traditional 60/40 portfolio.

Building talent and tools for the future of asset management

To succeed for our clients in all these areas, we need the right talent in the right seats. We could not be more excited about the experience and skill we’ve added over the past year, including agile, data-driven thinkers in Global Industry Research, Wellington Solutions, Equity and Fixed Income Boutiques, Private Investments, and Hedge Funds, as well as key business leaders in our Client and Technology groups. We’ve continued to build on our solid foundation of investor development training as well. In particular, we launched Investment Excellence, a new function that brings together our Investor Development and Risk and Performance Strategy teams to help our investors generate attractive risk-adjusted returns for clients through a mix of quantitative and qualitative tools and coaching. 

Finally, we remain focused on ensuring we have the tools and infrastructure to deliver investment solutions in the manner and vehicle best suited for each client channel, now and in the future. We're working to build out the technology and operations capabilities needed to power the growth of active ETFs among our clients. We’ve also been engaged in some of the industry’s most impactful pilot projects in the area of blockchain technology and tokenized funds. For example, in 2025, in collaboration with our partners Fundbridge and Libeara, we successfully introduced our first tokenized investment product, $ULTRA, which we are subadvising. It is a tokenized Treasury portfolio traded on the Ethereum and Solana blockchains. Our team developed a robust solution to continuously calculate net asset value, enabling round-the-clock pricing and facilitating redemptions and secondary trading during nights and weekends.

We think blockchain technology is poised for a leap in adoption in 2026, buoyed by the advance of clear regulations globally. And we see the potential for tokenized funds to benefit both institutional and wealth clients, with advantages such as fractionalization (to lower investment minimums), instant settlement, enhanced liquidity, and improved access to products in private equity and private credit. 

We’re on a mission

Our mission and purpose as a firm is to drive excellence for clients to positively impact millions of beneficiaries’ lives. I am extremely confident in our ability to continue to fulfill that mission — because of the steps we’re taking to build for the future of asset management, but also because beneath it all is a strong and enduring foundation. 

This includes broad active capabilities across all major asset classes and deep experience combining these capabilities into targeted solutions to client needs. It includes a powerful investment ecosystem with more than 800 investment professionals and a collegial, collaborative culture we believe is our competitive advantage. And it’s all made possible by a private ownership model that enables us to remain relentlessly focused on long-term success for our clients.

As we move into the new year, I wish you and yours all the best. We welcome the opportunity to discuss your evolving needs and how we can help. On behalf of our entire firm, thank you for the privilege of managing your assets.