Views expressed are those of the author and are subject to change. Forward-looking statements and opinions should not be considered as guarantees or predictions of future events. Other teams may hold different views and make different investment decisions. For professional or institutional investors only.
What are your thoughts on the COVID-19 situation?
Well, the overarching thought is the same one every single day, and it is to wish that all our clients and colleagues around the globe stay as safe and healthy as possible. They and their loved ones are constantly in my thoughts and prayers.
I would add that I have been so impressed with the countless acts of leadership and personal caring that I get to witness every day from my colleagues on so many levels all around the globe. They have exhibited enormous grace under pressure, staying focused on our fiduciary duty of loyalty and care for clients. They are making difficult decisions to the best of their abilities. I’m so proud of all these leaders, who are acting as “stress-absorbers” not “stress-multipliers.”
We’ve also seen great examples of resiliency among our clients, as they adapt to fast-changing circumstances and collaborate with us in a true spirit of partnership.
How will this situation play out?
There is no playbook for this one. I’m reminded of Mark Twain’s famous saying, “History doesn’t repeat itself, but it often rhymes.” From thinking back on past crises and my personal lessons learned from them, my guidance to all my colleagues has been to go back to first principles: namely, stay flexible and adapt to changing circumstances; focus on the things you can control; take the long view; do the right thing. I’m also reminded of the great homespun wisdom that only a parent can provide (in this case, my mom): “Just do your best.”
How is the firm engaging with clients in this challenging environment?
These times call for deeper engagement with our clients on their investment needs, on sharing best practices around managing the health and safety of our team and those of our clients and their beneficiaries, and on effectively communicating our deep reservoir of medical, technical, and investment expertise.
We are trying to stay very close to clients — by continuing to host meetings virtually, respond to questions, and help solve problems. One of the things we have been very focused on is sharing investment content with clients frequently (find some of our latest insights here). There have been so many contributors across geographies, asset classes, and generations. Members of our macro team have been real standouts. The depth of the investment content and the richness of the dialogue have been strong. This is truly part of Wellington’s “secret sauce.”
How are we engaging with companies?
Virtually. On March 11 and 12, for example, we hosted the very first Buy-side Global Consumer CEO Conference. It was planned months ago as an in-person event, but in less than a week, we pivoted to make it 100% virtual. We still had 23 consumer company CEOs participate. We continue to have a steady flow of virtual meetings with companies to ensure we stay close to the changing business dynamics they are experiencing.
What are we learning as a global firm?
It has been a powerful reminder of the global nature of this business and the need to be connected and not siloed. We have 26% of our colleagues and 27% of our clients located in Asia Pacific (APAC) and Europe, the Middle East, and Africa (EMEA). Our colleagues in Hong Kong have been dealing with this for seven weeks. Our colleagues in Tokyo have mostly been working from home for three weeks. Back in the early days of the crisis, we were able to send things like hand sanitizer and face masks to our colleagues in Hong Kong, where such things were in short supply. Now, our colleagues in Asia are sharing their experiences and lessons learned with us.
We are also seeing the power of technology. We have over 2,300 users logged in to our systems daily and we have made creative use of chat rooms, group VCs, and SharePoint sites to allow our 50+ investment teams to continue to do research, collaborate and debate, and implement investment decisions in client portfolios.
What else are you seeing?
I’m seeing lots of sharing of investment wisdom and lessons learned from our more experienced colleagues, who have been around the block. They are sharing their experiences from having lived through volatile markets and financial crises before. Our colleagues are going about their jobs, continuing to do research, and being discerning about where the real investment opportunities may be.
Does this remind you of the Global Financial Crisis (GFC)?
Yes and no. The human aspects of this crisis are infinitely more important with the threat of the virus. The sharpness of the market drop reminds me of the GFC, but every crisis is different (for example, the GFC was a banking crisis; this one is not). In my investment memory, this period reminds me of other “flights to safety,” in times such as 1998, 2002, 2008, 2011, and 2016.
What “rhymes” in the current situation with the Global Financial Crisis?
I think this will be a marathon, not a sprint. As in the GFC, I think we will be dealing with more volatility for months, not weeks. As I think back to the GFC, there were many twists and turns along the way. I’m reminded that many times during the GFC there were changes as policymakers and central banks adjusted decisions, and with each adjustment, there was a reaction function.
Any firm-wide lessons (as opposed to investment lessons) that you took away from the GFC?
Yes, at a firm level, there were quite a few take-aways: 1) the importance of diversification in many ways (by asset class, by geographic domicile of clients, by institutional channel, by investment approach); 2) the importance of being privately-held so that we can control our own destiny and play the long game; 3) the importance of having a pristine balance sheet in an inherently cyclical business; 4) the importance of having a humanistic, collegial culture, where we are “all in it together.” All four of those foundational, firm-wide lessons help us to be a more stable partner for clients.
What does it mean to have a pristine balance sheet?
We have no outside debt, so we are not beholden to the banks. As an added buffer or insurance policy, we just this month renewed our unused five-year credit facility with the banks. For historical reference, we have been withholding partner earnings now for 20 years to fund our operations through a Partner Loan program. This is a long-winded way of saying that Wellington is in a very strong financial position in terms of our balance sheet, with the goal of being a source of stability to our clients and being able to invest in the business when others pull back. Because of our stability, for example, we find we are able to pick up investment talent during times of crisis.
What should clients take away from that fact of Wellington’s financial strength and stability?
Clients should take comfort that Wellington will take the long view — through the crisis, however long it lasts. Clients should feel confident that Wellington’s investment professionals, who are entrusted with client assets, are going about their jobs, doing their best for clients every day, and not worrying about organizational turmoil.
Any leadership lessons from other crises?
I’m reminded that one of my mentors used to describe leadership as “low ego; big backbone.” That seems to be a good one for all of us to aspire to… low ego; big backbone… in other words, humility and courage. I’m also reminded that when markets move so quickly and volatility spikes, there is a temptation to make snap decisions. History reveals that there is ample time to make considered decisions — slow down, evaluate the facts, look ahead as best you can, and then make a decision, be it an investment call or a decision surrounding our firm and our clients.
You mentioned the investment dialogue taking place within the firm at this critical moment. What’s the venue?
There are many, both formal and informal, but one that always stands out at times like this is our daily Morning Meeting, which has been taking place for more than 60 years! A global meeting, it brings together equity, fixed income, macro, ESG, and currency perspectives, among others. In recent weeks, the meeting has been extended to allow more time to debate and discuss the current environment and investment ideas. For the first time in our history, we conducted the meeting entirely virtually this past week, with more than 500 participants. It’s a good venue to try and “connect the dots.”
This culture of sharing and collaboration is actually quite difficult to pull off. It’s a tricky balance; we are asking investors to share their strongly held investment opinions AND be open to respectful challenge.
What questions are currently being debated in the Morning Meeting?
A very broad range. What will be the fiscal response by governments to this crisis? Will governments provide a backstop to shore up credit? What additional programs will the Fed or US Treasury put in place to help with the market “plumbing,” particularly on the fixed income side? What programs will the policymakers and central banks put together in Europe, the current epicenter of the crisis? How successful will the social distancing and quarantining programs be? Which companies have the balance sheets to survive a crisis? Will there be a U-shaped, V-shaped, or W-shaped recovery with the current demand destruction? What will the shape of the oil price curve look like from the front to the back end? Additionally, each day recently we have been following the meeting with a “deep dive” on a particular sector led by our career research analysts — e.g., consumer, energy, industrials, technology, financials, etc.
Now that we, like many of our clients, are working remotely, I’m surprised about how smoothly the technology has functioned. We never could have done this five years ago. We have had a couple thousand people working from home, and on the whole, it has worked very well. Of course, we hear the occasional dog barking or baby crying in the background.
What are you seeing in your trading operations?
Generally low liquidity and extraordinarily high volumes. The equity markets, while volatile, are functioning more smoothly than the credit markets from a trading standpoint. We have a savvy and experienced group of traders, mostly working remotely right now, rising to the challenge. Where appropriate, and where we see long-term opportunity, we are trying to be a liquidity provider.
What are you seeing in terms of client activity?
We have the privilege of being entrusted with assets to manage on behalf of more than 2,000 institutions around the globe: private pensions, public pensions, insurance companies, central banks, sovereign wealth funds, endowments, foundations, mutual fund sponsors, family offices, etc. The behavior varies greatly depending on the unique circumstances of the institution. So far, previously scheduled fundings of new mandates are occurring on schedule. We are seeing redemptions from mutual fund sponsors where we serve as subadvisors. A number of institutions are also redeeming for liquidity needs. On the other hand, in a few cases, some financial institutions, pensions, and banks have been waiting for this moment, with credit spreads having again widened, to invest back in the credit markets. A few institutions have begun to rebalance toward equities.
What advice have you been offering to your Wellington colleagues?
Keep over-communicating and sharing perspectives. Keep reaching out, checking in, and caring for one another all around the globe. Remember our primary fiduciary duty: We exist for our clients. They have entrusted us with their assets. During these volatile times, we can prove our mettle by having an unwavering focus and following our disciplined processes, so that we can deliver long-term investment excellence. It’s okay to say “I don’t know” when asked a question. As I get older (and hopefully wiser), I find myself using that phrase more often. Also, remember how much stress our clients are under. Our clients are real people with families and hopes and dreams and fears. Reach out and connect with them on a personal level.
Any daily reminders for yourself?
Keep investment excellence for clients at the center of all we do. We are a mission-driven firm. If we can deliver investment excellence over the long term, we can help tens of millions of beneficiaries achieve their goals.
Any parting words of wisdom?
I am confident that our resiliency, esprit de corps, and entrepreneurialism will help us find new ways of connecting and collaborating remotely with our clients and colleagues while working through these disruptive events. We won’t get everything right, but we will learn and adapt. One thing that I know with certainty is that our unique, humanistic culture of kindness and our fiduciary culture of care and loyalty to our clients will continue to shine through during these tumultuous times.
We are here to help and we value the two-way engagement with our clients through these trying times. Please let us know how we can help and stay in close contact so we can support you and your entire organization most effectively. Finally, I will close where I began — with best wishes to stay safe and healthy in the days and weeks to come.