Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Masters in
Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
Speaker 2: This week on the podcast, I have yet another extra
Speaker 2: special guest. Zach Buckwold is chairman and chief executive officer
Speaker 2: at Russell Investments. They run about three hundred and seventy
Speaker 2: billion dollars. I found this to be a fascinating conversation.
Speaker 2: Russell has been at the forefront of a number of
Speaker 2: really interesting innovations indexing and outsourced CIO and smart beta.
Speaker 2: They were way ahead of the rest of the investment world.
Speaker 2: Now they're putting together really interesting active portfolios, including private investments.
Speaker 2: They work with both wealth clients as well as institutions.
Speaker 2: You may not know Zach's name, but he's got an
Speaker 2: appolutely fascinating background at Blackrock, Morgan Stanley and Lehman Brothers.
Speaker 2: I thought this conversation was fascinating, and I think you
Speaker 2: will also with no further ado, my conversation with Russell
Speaker 2: Investments Zach Buckwald. Zach Buckwald, Welcome to Bloomberg.
Speaker 3: Delighted to be here, Barry, thanks for having.
Speaker 2: Me, Thank you so much for joining us. I spoke
Speaker 2: to your predecessor about three years ago, right after the pandemic.
Speaker 2: But let's start talking a little bit about your background.
Speaker 2: Undergraduate bachelor's degree at Harvard, what were you studying.
Speaker 4: I studied English, So this was not on the docket
Speaker 4: that I was going to have a career in finance.
Speaker 2: Not the plan. Huh. So you come out of school
Speaker 2: in ninety six, what was your first gig?
Speaker 4: So out of school, I applied to law school, not
Speaker 4: sort of knowing where I was going, and I decided
Speaker 4: to have a little break before I went back to school,
Speaker 4: and I got recruited by Lehman Brothers. So I spent
Speaker 4: two years working in structured finance at Lehman Brothers.
Speaker 3: And it became apparent to me right away. I didn't
Speaker 3: want to become.
Speaker 4: A corporate lawyer because I worked with lawyers and that
Speaker 4: was that was not the job for me.
Speaker 3: But I had a knack for it. I enjoyed it.
Speaker 4: I always liked math, even though I was an English major.
Speaker 4: And you know, you can find other ways to put
Speaker 4: your writing and your reading acumen to work as well.
Speaker 2: And I'm going to say late nineteen nineties, nobody had
Speaker 2: any clue what was coming. A decade later.
Speaker 3: Not at all. Now.
Speaker 4: Lehman Brothers was a great place to start my career,
Speaker 4: but after two years I went to Morgan Stanley and
Speaker 4: that that's how I think of the beginning of my
Speaker 4: career because I spent ten years at Morgan Stanley. I
Speaker 4: was very invested in the firm and the firm was
Speaker 4: invested in me. I learned about, you know, the capital
Speaker 4: markets top to bottom, and I had a career there
Speaker 4: that took me from you know, from a starting associate
Speaker 4: role to running a business that became a CLO business,
Speaker 4: which now is like a real, you know, really important
Speaker 4: part of capital markets.
Speaker 2: What were your titles there? What'd you do there?
Speaker 3: Yeah?
Speaker 4: Well, I started as an associate with within fixed income.
Speaker 4: I you know, I was in sales, I was in trading,
Speaker 4: I was in structuring. I always worked within the credit
Speaker 4: derivative space, and then ultimately credit derivative started getting wrapped
Speaker 4: up in different ways and I worked on the COLO platform,
Speaker 4: and Morgan Stanley had a leading COLO platform that by
Speaker 4: the end of my time there, I ran. And that
Speaker 4: was about you know, I think about the role that
Speaker 4: clos play in the you know, in the in the
Speaker 4: markets today. It's an enormous origination function that helps you know,
Speaker 4: finance a lot of corporate America.
Speaker 2: John Mack was CEO at the time. Is that right?
Speaker 3: So I was there for Phil Purcell and I was
Speaker 3: there for John Mack.
Speaker 2: Wow, those are two legends in the industry. What inspired
Speaker 2: you to head over to Blackrock?
Speaker 4: I went to Blackrock with the guy that I was
Speaker 4: working for at Morgan Stanley, and we created a business
Speaker 4: that was essentially an advisory practice. This was two thousand
Speaker 4: and eight, and Blackrock was hired to work on a
Speaker 4: lot of these situations that were, you know, at the
Speaker 4: start of the crisis. So we worked with the Federal Reserve,
Speaker 4: we worked with the Treasury, a lot of the big
Speaker 4: financial institutions that had you know, problematic portfolios. And Blackrock
Speaker 4: was very well positioned as a byside firm, as a
Speaker 4: company that sort of hadn't underwritten a lot of like
Speaker 4: the problematic derivative.
Speaker 2: I mean they did. They even have an investing banking
Speaker 2: division back then.
Speaker 4: Know, I mean we called it advisory, but essentially it
Speaker 4: was like an investment banking function. I mean it was
Speaker 4: really consultative, providing advice, running portfolio analytics, thinking about you know,
Speaker 4: if you can separate like the liquidity crisis from the
Speaker 4: actual credit risk and and sort of the expected cash
Speaker 4: flows on these securities, what could you expect to get
Speaker 4: back And we, you know, we created a roadmap for
Speaker 4: the government on how to invest in these securities that
Speaker 4: they took away. You know that they essentially backstopped from
Speaker 4: these big organizations and tried to create a roadmap to
Speaker 4: bring them back to part to repay all the tax
Speaker 4: payers with interest. And in almost every respect over time,
Speaker 4: the government was successful in doing that, and Blackrock really
Speaker 4: played a very special role in creating those roadmaps. And
Speaker 4: you know, it wasn't what I would think of as
Speaker 4: like a highly profitable business, but in terms of like
Speaker 4: the are that was created around Blackrock as being like
Speaker 4: a solutions provider, you know, sort of a force for
Speaker 4: good in the world. That's what we did, and it
Speaker 4: was a it was a it was a great role
Speaker 4: for me.
Speaker 2: I recall that era that Blackrock essentially you had become
Speaker 2: the streets bond death. Like every brokerage firm used to
Speaker 2: have a fairly substantial bond desk, and it seemed like
Speaker 2: Blackrock has just sucked up all that paper and all
Speaker 2: those traders.
Speaker 4: Well, that sounds like an HR strategy, and I don't
Speaker 4: I don't know that I had any anything any part
Speaker 4: of that. But there was a lot of talent, for
Speaker 4: for sure, and there continues to be a lot of talent.
Speaker 2: You know.
Speaker 4: Some of those you know, some of the folks that
Speaker 4: worked on those, you know, and those assignments are essentially
Speaker 4: running Blackrock now. And it was you know, it was
Speaker 4: the consultative nature of thinking about you know, think about
Speaker 4: the challenges, how we can create solutions those challenges, think
Speaker 4: about the aspirations and the ambitions. And you know, that
Speaker 4: doesn't just apply to workout situations. That applies to all,
Speaker 4: you know, kind of all the clients. And it's something
Speaker 4: that I've tried to import, you know, in to my
Speaker 4: current role at Russell.
Speaker 2: So you're there for fifteen years, eventually you become head
Speaker 2: of their institutional business. That's that's a two trillion dollar silo,
Speaker 2: and you also helped establish Blackrock Retirement Solutions. Explain what
Speaker 2: these groups do.
Speaker 4: Yeah, So after after the consulting practice, I wanted to
Speaker 4: run the insurance business at black Rock that was a
Speaker 4: two hundred billion dollar business at the time. A little sleepy,
Speaker 4: not you know, what I would say is like a
Speaker 4: growth center, and it was housed with the business itself,
Speaker 4: was housed with true insurance experts, asset liability experts, people
Speaker 4: who really understood like the nuts and bolts of insurance companies.
Speaker 3: And I did not have an insurance background.
Speaker 4: And you know, for the first year, I had an
Speaker 4: insurance guy sort of stapled to me every time I
Speaker 4: went to a client and make sure I didn't get
Speaker 4: out over my skis. But you know, but you know this,
Speaker 4: being an outsider sometimes can actually really you know, help
Speaker 4: you think, think externally about some of the things that
Speaker 4: might be impacting the clients, the industry, of the sector,
Speaker 4: the business itself. And early on when I was in
Speaker 4: that role, we ran an analysis of the whole US
Speaker 4: and insurance industry, every company that was bigger than a
Speaker 4: billion dollars of general account assets, and we asked ourselves
Speaker 4: the question, what are some of the external factors that
Speaker 4: could impact these companies that they might not be expecting
Speaker 4: or prepared for, and where could black Rock play a
Speaker 4: role in helping.
Speaker 3: Them deal with those kinds of challenges.
Speaker 4: And we came up with seven situations Barry that we
Speaker 4: thought we're going to have like seismic type impacts on
Speaker 4: the companies, and four of them happened, and in three
Speaker 4: of those cases Blackrock went on to play a really
Speaker 4: big role and run the general accounts and that was
Speaker 4: more than one hundred billion dollars of assets, and we
Speaker 4: put on another hundred billion dollars along the way. So
Speaker 4: that was the case where the business started growing like
Speaker 4: very meaningfully, and I think Blackrock sort of paid a
Speaker 4: lot of attention to that and realized, you we could
Speaker 4: play a bigger role with these insurance companies. They're going
Speaker 4: to do a lot more interesting things than just invest
Speaker 4: in you know, sort of high quality fixed income. Over time,
Speaker 4: you also had some interesting stuff happening with Apollo and
Speaker 4: a theme they were kind of remaking the model a
Speaker 4: little bit. And Blackrock, you know, pays a lot of
Speaker 4: attention to what's going on in the in the outside world.
Speaker 3: And we grew the business.
Speaker 2: To say the very least, what are they twelve thirteen
Speaker 2: trillion dollars now in assets.
Speaker 3: It's a good business, to say the very least.
Speaker 2: So ten years of Morgan Stanley, fifteen years at Blackrock,
Speaker 2: what lessons did you take from those experiences to Russell investments.
Speaker 4: Yeah, Well, first and foremost, it's all about the client,
Speaker 4: and if you lose sight of that, understanding what the
Speaker 4: client is dealing with, their challenges, their ambitions, their aspirations.
Speaker 4: Being a consultative provider, if you start from a push
Speaker 4: out like here are the products that I have, Here
Speaker 4: are the things that I've done before, it almost never works.
Speaker 4: And it also that's not the age that we're living
Speaker 4: in today. The age that we're living in is how
Speaker 4: can I help you achieve the outcomes that you're trying
Speaker 4: to get to. How can I anticipate some of the
Speaker 4: challenges that you're going to experience, How can I help
Speaker 4: you learn from some of the things that I've seen
Speaker 4: in the sector or the industry. And you start from
Speaker 4: there and it builds a foundation with the client that
Speaker 4: is just sort of irreplaceable. So that's I mean, that
Speaker 4: was one really important learning. Now, I came into Russell
Speaker 4: because Russell had like, first of all, it's a ninety
Speaker 4: year legacy.
Speaker 3: Thank you for starting with.
Speaker 2: That nineteen thirty six. That's a lot you're coming up
Speaker 2: on a century soon.
Speaker 3: Yeah, exactly. I'm really proud to run.
Speaker 4: I'm the eighth CEO by the way of in ninety
Speaker 4: years of Russell investments. I mean that's so for US
Speaker 4: asset manager's and I think about the things that Russell
Speaker 4: has done in that time, Barry, I mean, it's been
Speaker 4: a real innovator and category creator. Everybody knows the Russell indexes,
Speaker 4: which were you know, sort of cultivated and innovated in
Speaker 4: all sorts of cool ways, and we all have it
Speaker 4: in our pensions in our four to one case. Uh,
Speaker 4: you know, Russell was the original pension investment consultant. We
Speaker 4: created that categoryus. Russell was the original o CIO and
Speaker 4: we're still a leader.
Speaker 3: In O CIO.
Speaker 4: These are these are really you know, sort of important
Speaker 4: categories that have a big impact on the investment ecosystem.
Speaker 4: And what was what was special to me about Russell
Speaker 4: and the reason I wanted to join is Russell's approach
Speaker 4: to doing all of these solutions is it's entirely open architecture.
Speaker 4: So the view is we build and implement portfolios at Russell,
Speaker 4: which is you know, something I worked on at Blackrock
Speaker 4: and to some extent and Morgan standly two.
Speaker 3: But the idea is we use best of.
Speaker 4: Breed managers and strategies from around the whole investment universe.
Speaker 4: So if I put together an O CIO portfolio at Russell,
Speaker 4: I'm building you know, fixed thing commandager, you know, the
Speaker 4: best quality fixed thing come managers, the best private assets managers,
Speaker 4: the best cash and so on, and best index products.
Speaker 4: You know, we can kind of it's it's we can
Speaker 4: kind of go everywhere within the ecosystem. And that was
Speaker 4: a model that I was very excited about because it
Speaker 4: became more about like thinking through the lens of what
Speaker 4: the client is looking to achieve and how can I
Speaker 4: use all of the tools and the ingredients available, as
Speaker 4: opposed to sort of a set, you know, set of
Speaker 4: tools that I that I had at hand from the
Speaker 4: company that I worked for.
Speaker 2: Really interesting. We're going to talk about pensions oci. We're
Speaker 2: going to talk about a little later. I didn't realize
Speaker 2: this till I started doing my homework. Russell is effectively
Speaker 2: credited with inventing smart beta. I mean, who knew that.
Speaker 2: I think of a couple of other firms as taking
Speaker 2: the leadership in that recently, but forty years ago, you
Speaker 2: guys were on the on the cutting edge of that.
Speaker 2: What is it like running a firm that has a
Speaker 2: near century long legacy. How does that affect how you
Speaker 2: think about risks and opportunities.
Speaker 4: Yeah, I mean the legacy is a wonderful thing, but
Speaker 4: you know, you can't rest like we all know, we
Speaker 4: can't rest on our laurels. It's you know, the job
Speaker 4: for me is to make sure that I'm taking sort
Speaker 4: of the best parts of the history and the legacy,
Speaker 4: the innovative spirit, all these cool things that we've done,
Speaker 4: and then evolving them for the world that we're in today.
Speaker 4: Our mainline business, we have we have sort of two
Speaker 4: central businesses. It's o Cio and its model portfolios that
Speaker 4: we do on the retail side, which is essentially the
Speaker 4: same kind of ideas of the institual business, building great
Speaker 4: portfolios and implementing them. Ninety percent of our business is
Speaker 4: those falls into those two categories.
Speaker 3: What I need to do today is make sure that
Speaker 3: I'm using.
Speaker 4: All of the tools available so as the market moves
Speaker 4: from you know, active products to passive products, as the
Speaker 4: market starts integrating private assets with public assets, all that
Speaker 4: is part of our portfolio today. And so the goal,
Speaker 4: you know, as the leader is to make sure that
Speaker 4: the strategy is incorporating We're open architecture it's truly incorporating
Speaker 4: the entire ecosystem into the into what we build for
Speaker 4: our clients.
Speaker 2: I want to get your feedback on a quote of
Speaker 2: yours I found in my in my homework quote financial
Speaker 2: security is a central challenge for this industry. How did
Speaker 2: your experiences at Blackrock, at Morgan Stanley, and way back
Speaker 2: when at Lehman Brothers, how did it affect your concept
Speaker 2: of financial security?
Speaker 4: Financial security and retirement security especially. Took me a little
Speaker 4: bit of time to hone in on Barry. I mean,
Speaker 4: I think back to my years at Morgan Stanley, and
Speaker 4: you know, the job there was very much about sort
Speaker 4: of like finding the arbitrage in the markets. It's where
Speaker 4: can we make money on as a sales and trading function,
Speaker 4: and we help clients along the way, you know, by
Speaker 4: delivering the products and the services that they want. But
Speaker 4: first and foremost it was about the investment bank.
Speaker 3: And that changed for me.
Speaker 4: I had a review with my boss at the time
Speaker 4: and she said to me something that she meant as
Speaker 4: a compliment. She said to me, Zach, you can really
Speaker 4: smell the money. And I went away and that was
Speaker 4: not the legacy that I wanted from my career, and
Speaker 4: you know, I moved to Blackrock shortly after that, where
Speaker 4: I was helping you know, the government, the tax payers
Speaker 4: deal with like really critical issues, like really big, thorny
Speaker 4: problems that we're going to have an impact on, you know,
Speaker 4: on the quality of life of the people in this
Speaker 4: in this country. And it was a complete reset of
Speaker 4: my perspective. You know, now we build portfolios at Russell,
Speaker 4: but you know, if I'm working for a pension or
Speaker 4: four one K or an insurance company, at the end
Speaker 4: of the day, I'm serving individuals. I'm helping them, and
Speaker 4: we don't lose sight of that. I'm helping them have
Speaker 4: a secure retirement.
Speaker 3: Now.
Speaker 4: By the way, they have to do their part too,
Speaker 4: because it's also about you know, saving early, contributing, making
Speaker 4: sure that you're you know, learning about the plan and
Speaker 4: making the right decisions. But the role that we play
Speaker 4: within the industry is a make or break in terms
Speaker 4: of whether they're able to whether they're able to achieve that.
Speaker 4: Now you also have something going on in the background
Speaker 4: that's that's going to have a very big impact in
Speaker 4: the next couple of decades with retirees in America, and
Speaker 4: that is that really the risk has shift. It now
Speaker 4: the retirement security risk has shifted from you know, organizations
Speaker 4: like the companies and the.
Speaker 2: Government companies in defined benefits to define content.
Speaker 3: Defined contribution.
Speaker 4: Right, so the standard model, the standard pension model, is
Speaker 4: shifting to the four to one k. And today still
Speaker 4: about half of retirees have access to a pension and
Speaker 4: that plus UH plus social security more or less gets
Speaker 4: the job done. But in another decade it's going to
Speaker 4: be less than a third, and in another two decades
Speaker 4: it's going to be very little at all. So that
Speaker 4: means that now the four to one K is the
Speaker 4: staple that's going to you know, result in a secure,
Speaker 4: comfortable retirement or or not. And you know, the big
Speaker 4: challenge with a four to one K is that the
Speaker 4: risk of saving, investing and also decumulation, taking that pot
Speaker 4: of money and knowing how long you know, the longevity risk,
Speaker 4: knowing how thinking about how long you're going to live
Speaker 4: and how to allott it over time. All that risk
Speaker 4: will now be borne by the individual. And we have
Speaker 4: not fully processed that. And the you know, within within
Speaker 4: the country that this is a crisis that's coming. People
Speaker 4: aren't prepared to own that responsibility and the system today
Speaker 4: isn't set up in such a way that sort of
Speaker 4: the decisions are very easy to you know, to make.
Speaker 4: The onus is really still on the individual.
Speaker 2: So that's really fascinating. How does that affect what you
Speaker 2: see within your role as CEO at Russell Investments.
Speaker 3: Yeah, well, thanks Berry.
Speaker 4: Our whole mission is built around helping people achieve financial security,
Speaker 4: and we do that on the institutional side by partnering
Speaker 4: with corporate sponsors and helping to ensure that the plans
Speaker 4: that they're putting in place and the role that they
Speaker 4: play through matching, through providing lifetime income, whatever the set
Speaker 4: of benefits are is going to be, is going to
Speaker 4: serve the participants in the way that we think is
Speaker 4: going to help them. Have you retire with confidence and
Speaker 4: with security. But as the you know, as the machine
Speaker 4: shifts and it moves more toward a four to one
Speaker 4: k and then you know, a lot of folks end
Speaker 4: up with a nest egg that they have to manage
Speaker 4: on their own. The goal is to make sure that
Speaker 4: on the wealth side we also have sort of the
Speaker 4: right kinds of products and services and solutions that help them,
Speaker 4: you know, understand income, help them understand accumulation, help them
Speaker 4: get the right diversification, help them get fair fees. I mean,
Speaker 4: the goal is to make sure that we're really delivering
Speaker 4: sort of a set of products and services that's going
Speaker 4: to allow them to live the kind of retirement that
Speaker 4: they all they'll hope for.
Speaker 2: Really really interesting. So whenever I talk to people about Russell,
Speaker 2: everybody knows the Russell two thousand. The question is what
Speaker 2: does Russell do? How do they make money on? They
Speaker 2: must do something more than the Russell two thousand. Tell
Speaker 2: us a little bit about the different business lines at
Speaker 2: Russell Investments.
Speaker 4: Sure, so the index business is now owned by a
Speaker 4: London Stock exchange and they do a magnificent job with it.
Speaker 4: And we still have a little bit of the you know,
Speaker 4: the aura. Every time I'm in the elevator, I see
Speaker 4: the advertisements for Russell and I think.
Speaker 3: I didn't have to pay for that ad. We get
Speaker 3: the benefit.
Speaker 4: The business is predominantly an it's an active asset management business,
Speaker 4: and we really have one main function barrier. It's about
Speaker 4: building and implementing great portfolios, and we do it for
Speaker 4: institutional clients and we do it for retail clients. So
Speaker 4: building the portfol folios is really about sort of portfolio construction.
Speaker 4: It's strategies and managers. For ninety years we've done manager
Speaker 4: research at Russell. We have, you know, a huge team
Speaker 4: of people now is augmented by AI and technology helping
Speaker 4: us look at sixteen thousand different managers and figuring out
Speaker 4: we invest with about two hundred and twenty five of them,
Speaker 4: you know, figuring out which managers and strategies we think
Speaker 4: makes sense in the different portfolios we create. And then
Speaker 4: the implementation is one of the coolest parts because that's
Speaker 4: we actually do the investing on behalf of the managers.
Speaker 4: They typically give us model portfolios, and then all the
Speaker 4: things around the portfolio that can be very incremental. It's
Speaker 4: the transitions, it's the hedging, completion, exercise completion mandates, overlays
Speaker 4: and you know, those things can be alpha generative, they
Speaker 4: can be very important for risk management. You can add
Speaker 4: a values overlay for clients and so it's a full
Speaker 4: portfolio delivery at the end of the day.
Speaker 2: Coming up, we continue our conversation with Zach Bufwold, Chairman
Speaker 2: and CEO of RUSS Investments, discussing exactly what Russell Investments
Speaker 2: does for its clients. I'm Barry Ridholts. You're listening to
Speaker 2: Masters in Business on Bloomberg Radio. I'm Barry Ridolts. You're
Speaker 2: listening to Masters in Business on Bloomberg Radio. My extra
Speaker 2: special guest this week is Zach Buckwald. He's chairman and
Speaker 2: chief executive officer of Russell Investments. The firm was founded
Speaker 2: in nineteen thirty six and runs about three hundred and
Speaker 2: seventy billion dollars. Zach joined Russell in twenty twenty three,
Speaker 2: coming from his previous career at Blackrock. So you mentioned
Speaker 2: you're researching sixteen thousand different managers and internally you're generating
Speaker 2: just a fire hose of data. How do you analyze that?
Speaker 2: What value is that data to the firm?
Speaker 4: Yeah, the data is everything, and we have we do
Speaker 4: have a you know, historical trove of of data, but
Speaker 4: it changes quickly. You think about how quickly the uh,
Speaker 4: you know, the investment ecosystem evolves, and you know, managers
Speaker 4: have strategies that make sense on one day and then
Speaker 4: things change and those strategies don't make sense. So it's
Speaker 4: it really has to stay current even though we you know,
Speaker 4: we certainly value that the historical data and performance and
Speaker 4: use it. We start with sixteen thousand and the first
Speaker 4: layer is largely technology driven, so it's uh, you know,
Speaker 4: we have huge feeds that take into you know, that
Speaker 4: that take in and analyze all of the available information
Speaker 4: that's provided to us by managers directly and also that
Speaker 4: we can find out there in the in the public domain.
Speaker 2: When you say managers of these mutual fund managers, ETF managers,
Speaker 2: private managers or all the.
Speaker 3: Above, it's it's all of the above.
Speaker 4: I mean, typically because of our size and scale, we
Speaker 4: don't we don't invest in a ton of.
Speaker 3: Direct like uh, shared products.
Speaker 4: We do much more sort of separate accounts, and but
Speaker 4: we do invest in mutual funds, we do invest in
Speaker 4: ETFs or index products where that makes sense and that
Speaker 4: can help, you know, drive down cost or you know,
Speaker 4: help with the diversification. But the managers is for the
Speaker 4: active strategies and active represents. I'm going to guess probably
Speaker 4: eighty five percent of the assets and that that we
Speaker 4: manage overall. Remember we're using different active strategies as the
Speaker 4: building blocks to create these portfolios. So predominantly it's not
Speaker 4: Russell managed. Although you know, we can talk about the
Speaker 4: smart beta that you brought up predominantly. These are externally
Speaker 4: managed strategies that we bring together and then we collapse
Speaker 4: the whole thing together in one portfolio, and we look
Speaker 4: enterprise wide because you might have you know, three active
Speaker 4: equity managers and they're not paying attention to what the
Speaker 4: other ones are doing, and so you can end up
Speaker 4: with outsized positions or underweights. You can end up with,
Speaker 4: you know, people on opposite sides of trades, and we
Speaker 4: look to you know, to correct or make adjustments where
Speaker 4: it makes sense.
Speaker 2: So you guys were very innovative then helped create the
Speaker 2: concept of outsourced. Chief Investment Officer O CIOs tell us
Speaker 2: a little bit about that business line, who are the
Speaker 2: clients and how much assets does that run?
Speaker 4: Yeah, so O CIO represents the lion's share of the
Speaker 4: three hundred and seventy billion that we manage. And it's
Speaker 4: a fast growing segment, not just at Russell, but it's
Speaker 4: growing because a lot of companies are outsourcing their pensions
Speaker 4: or their fo one kes to you know, folks that
Speaker 4: live and breathe the markets and that think about retirement
Speaker 4: security like we do all day long. So, you know,
Speaker 4: a typical day at Bloomberg might have one top story
Speaker 4: about a big corporate, you know, big US corporate that's
Speaker 4: chosen to outsource their retirement portfolio. Now, we work with
Speaker 4: a lot of in house teams as well. We help
Speaker 4: by bringing in any of those implementation services like transitions
Speaker 4: and hedging. We do that for a lot of a
Speaker 4: lot of companies that have internal teams, but sometimes sponsors
Speaker 4: decide to you know, to hire retirement experts to run
Speaker 4: their to run their retirement portfolio, and that's when they
Speaker 4: would bring in an source chief investment officer. We're a
Speaker 4: top five provider and it's some of the big you know,
Speaker 4: the other big asset managers that that also provide that.
Speaker 4: We're the ones who do it with an open architecture framework.
Speaker 4: So the goal is not to have Russell run the
Speaker 4: whole portfolio. It's to bring in best of breed managers
Speaker 4: and to bring those together.
Speaker 2: Huh really really kind of interesting. When you talk about hedging,
Speaker 2: are you hedging equity, hedging, fixed income? What is the
Speaker 2: hedging business? Like?
Speaker 4: Yeah, it can be all of the above, also foreign currency,
Speaker 4: you know, it can be hedging individual sectors. You might
Speaker 4: have a sponsor that's in the technology sector and they
Speaker 4: feel like they already have enough exposure to technology, and
Speaker 4: so you can you know, make some adjustments to the portfolio.
Speaker 4: That way, you can also build in a values orientation
Speaker 4: for you know, organizations that have a particular view of
Speaker 4: the world that they want to express in their investment portfolios.
Speaker 2: So let's talk a little bit about smart beta, which
Speaker 2: Russell helped pioneer in nineteen eighty five, way before your
Speaker 2: time or my time for that matter. Is this still
Speaker 2: something that's a key part of what you're doing.
Speaker 4: So we still have a strong footprint within Systematic Barry
Speaker 4: and you know, Russell manages on average between ten and
Speaker 4: twenty percent of the portfolios that we look after, and
Speaker 4: Systematic typically is within that that ten to twenty percent.
Speaker 4: We use it not to make you know, credit decisions
Speaker 4: or stock picking decisions like that's not our game. That's
Speaker 4: why we hire external managers who are true experts in that.
Speaker 4: We use it to like round out the portfolio, to
Speaker 4: make adjustments to make sure that the portfolio is complying
Speaker 4: with why the client hired us or whatever their investment
Speaker 4: you know, their stated investment strategy says. But smart beta
Speaker 4: is you know one of the many places where Russell
Speaker 4: was an innovator, and you know, these things can sort
Speaker 4: of take on a life of their own as the
Speaker 4: as the industry adopts those practices.
Speaker 2: We mentioned artificial intelligence earlier. Tell us how you're using
Speaker 2: AI and either risk management, portfolio construction, or just data analytics.
Speaker 4: So, Barry, we have a list this long of sort
Speaker 4: of you know, desired use cases that we're working on
Speaker 4: for AI. And I think we're still in early innings here,
Speaker 4: but the kinds of things that we use AI for
Speaker 4: today very effectively, are more task oriented. We know, we
Speaker 4: have it fill out our RFPs, we have it build
Speaker 4: pitch decks, we have actually we use AI to you know,
Speaker 4: read five hundred page filings, you know, which we used
Speaker 4: to have a human being do back in the day,
Speaker 4: and it's very effective at that. The real goal for
Speaker 4: you know, for this company is that I want AI
Speaker 4: to actually help us with investment insights, with manager research insights.
Speaker 4: That's going to actually drive performance at the end of
Speaker 4: the day. And I think we still have a fair
Speaker 4: amount of We're making progress, but I think we still
Speaker 4: have a fair amount of work before before that happens.
Speaker 3: But you know, that's the.
Speaker 4: View we're having you know, having a portfolio where we
Speaker 4: look after sixteen thousand different strategies and managers. We're starting
Speaker 4: from a place where we be as you said, we
Speaker 4: have troves of information, of historical information that we're relying on,
Speaker 4: and that we're using AI to sort of help build
Speaker 4: out that framework.
Speaker 2: So I'm always fascinated by you know, the old joke
Speaker 2: is no one's ever seen a bad back test, and
Speaker 2: AI and those sort of things are only capable of
Speaker 2: looking at what's already occurred and built into all of
Speaker 2: those back tests and to some degree, built in to
Speaker 2: AI is that the future is going to resemble the past.
Speaker 2: How do you navigate around that? Because sometimes the future
Speaker 2: doesn't resemble the past. Just look at AI and how
Speaker 2: it's changing so many aspects of various businesses.
Speaker 4: Yeah, well that's a place where you know, I'm still
Speaker 4: pretty optimistic that there's an enormous amount of value creation
Speaker 4: to come varry because the you know, what we've seen
Speaker 4: from AI so far, at least how it's how it's
Speaker 4: shown up in terms of you know, in the market
Speaker 4: performance has been almost entirely Harvard in the technology sector.
Speaker 4: It's where you know, sort of where AI exists what
Speaker 4: we have seen yet is all the other sectors that
Speaker 4: we know are going to be sort of enormously impacted
Speaker 4: by the proper use of AI, the creative and innovative
Speaker 4: use of AI. So you know, you see a little
Speaker 4: bit of it in like healthcare and life sciences, but
Speaker 4: you know, logistics and shipping and consumer goods and investments,
Speaker 4: asset management, they're all going to get transformed by AI
Speaker 4: because it's changing things. And you know, this is where
Speaker 4: I'm really optimistic that we have a lot more room
Speaker 4: to run in the markets today, is because you're still
Speaker 4: not seeing like all the you know, the potential and
Speaker 4: the benefits of AS showing up in some of these
Speaker 4: you know, what we think of as sectors that are
Speaker 4: peripheral to technology, but you know, in truth, technology is
Speaker 4: like critical to how we you know, how we all exist.
Speaker 2: Makes makes a lot of sense. Let's talk about private markets.
Speaker 2: How can Russell Investments help their clients access private markets?
Speaker 2: Between AI and privates, those are probably the two hottest
Speaker 2: topics we've been talking about this year.
Speaker 4: So privates represents at seven percent of the portfolios that
Speaker 4: we manage. It's heavier in the institutional portfolios. It's lighter
Speaker 4: right now. Within wealth portfolios, there's a lot more growth
Speaker 4: that's that's going to happen, especially in wealth. I think
Speaker 4: the average wealth clients something like one or two percent
Speaker 4: of their portfolio outside of their real estateholdings about one
Speaker 4: or two percent in privates, and that number is going
Speaker 4: to grow and should grow, right because this is a
Speaker 4: really important source of return and risk diversification, and if
Speaker 4: you rely on the historical precedents, it's been an enormous
Speaker 4: outperformer writ large and so you know, kind of delivering
Speaker 4: you know, access is a it's a very important function
Speaker 4: that we do at Russell, but also that we work
Speaker 4: with our financial advisor partners to figure out the best
Speaker 4: ways because it's you know, how you deliver privates to
Speaker 4: to institutional investors is different, right There's tax considerations and
Speaker 4: reporting considerations, liquidity considerations that all need to be considered
Speaker 4: with individuals. So we're trying to do this, you know,
Speaker 4: really judiciously. Within wealth portfolio is wealthy people, wealthy families.
Speaker 4: There's a lot of room to run here. You know,
Speaker 4: I'm being extra cautious when I think about you know,
Speaker 4: sort of four to one k's or you know, four
Speaker 4: to one k graduates, you know, middle class people nest eggs,
Speaker 4: because that's where you know, I think about are these
Speaker 4: appropriate investments? Do they help with financial security? Can you
Speaker 4: get your money back when you need it? Are the
Speaker 4: fees you know fair and appropriate? And and so I
Speaker 4: think you need to be extra careful with with the
Speaker 4: you know, sort of true working people, working families and
Speaker 4: their retirement nest eggs. But wealth or at large, there's
Speaker 4: a there's a ton of room for private markets.
Speaker 2: So you mentioned seven percent. Where could this possibly go?
Speaker 2: Is this ten percent, fifteen percent, twenty percent. I've heard
Speaker 2: people say sixty forty is out, it's now fifty thirty,
Speaker 2: twenty or whatever the numbers add up to.
Speaker 3: I don't know where it gets to.
Speaker 4: It's certainly going to be north of seven percent, you know,
Speaker 4: I think it's I think you have to think not
Speaker 4: only about what's appropriate for the portfolio. Is listen, if
Speaker 4: you do a backward looking analysis of private equity and
Speaker 4: private credit, you know which I outside of you know,
Speaker 4: specific real estate investments that people choose themselves.
Speaker 3: Those are like the two biggest food groups.
Speaker 4: If you run an analysis of what those investments looked
Speaker 4: like over the last twenty years, Arry, it's going to
Speaker 4: be different than what you're going to get in the
Speaker 4: next twenty years for a lot of reasons. But you know,
Speaker 4: I'll tell you from my personal perspective right now. You know,
Speaker 4: in the last two years, my vets office has been
Speaker 4: bought by private equity. My landscaper, my garbage collection, my dentist,
Speaker 4: they're all owned by private equity now, and you know,
Speaker 4: they're doing these roll ups and there's lots of efficiencies
Speaker 4: to be created on bringing these you know, these practices together.
Speaker 4: But you know, that's a pretty different investment than buying
Speaker 4: a company, right and making a company better and selling
Speaker 4: that company, which historically is you know where where private
Speaker 4: equity made its name and its reputation and the return
Speaker 4: stream that we've seen. So, you know, another thing I
Speaker 4: think about is how am I going to make sure
Speaker 4: that the risk and return profiles I'm putting into these
Speaker 4: portfolios that we can you know, reasonably predict what they're
Speaker 4: going to look like, and that we can manage them,
Speaker 4: you know, sort of appropriately, given that the asset pools
Speaker 4: might look a little different than what you know, what
Speaker 4: we were investing in ten years ago.
Speaker 2: Really really interesting. So let's talk a little bit about
Speaker 2: some of the things that are going on in the
Speaker 2: market today. Fee compression has been a giant factor really
Speaker 2: since the financial crisis. You recently decided to reduce some
Speaker 2: of the fees on your flagship fix income products. Tell
Speaker 2: us a little bit about what drove your decision and
Speaker 2: what are you thinking about in terms of fees generally.
Speaker 4: I mean, the governing presept barrier is always to make
Speaker 4: sure we're providing value to the clients, and you know,
Speaker 4: we do that by charging a fair and appropriate fee
Speaker 4: for what it is we're doing. If I'm going to
Speaker 4: focus on anything, it's less about what's the fee that
Speaker 4: I can charge and more about making that I'm invaluable
Speaker 4: to these clients and that we're really, you know, helping
Speaker 4: them achieve their goals. When you the truth is, when
Speaker 4: you do a great job for the client, the fee
Speaker 4: almost becomes not an issue. Now, having said that, we
Speaker 4: have some businesses that are scale businesses and that I
Speaker 4: compete with, you know, with other good providers, and I
Speaker 4: have to make sure that we're staying competitive, so we're
Speaker 4: not in any way immune to feed compression. But you know,
Speaker 4: but if you can provide a really good value proposition.
Speaker 3: It's not such a big deal.
Speaker 2: So this has been an ongoing factor in the industry,
Speaker 2: particularly for active managers, and Russell is primarily an active manager.
Speaker 2: Are you seeing any changes in this trend globally? I
Speaker 2: mean it started very much in the United States with
Speaker 2: with entities like black Rock and especially Vanguard, your global firm.
Speaker 2: What does this look like overseas?
Speaker 4: Yeah, fee compression in our space is you know, it
Speaker 4: comes through in different ways globally. O CIO is the
Speaker 4: place where we've been sort of most susceptible to, you know,
Speaker 4: to feed compression. Barry, and you know, if I think
Speaker 4: about who we compete against, the landscape has changed for
Speaker 4: us over the last ten years. You know, ten years ago,
Speaker 4: I competed largely against like the consult the traditional consultants,
Speaker 4: and we had a very different offering. We actually implemented
Speaker 4: the portfolio. We weren't just doing manager research sort of
Speaker 4: on paper. We were actually trading the portfolio and you know,
Speaker 4: doing the risk management and the overlays and the completions.
Speaker 4: Things that were a very big value add and we
Speaker 4: were unique in that respect. And then along came the
Speaker 4: really big asset managers that saw Ocio in part as
Speaker 4: sort of a distribution function. You know, if I can
Speaker 4: deliver the entire portfolio, I can put a lot of
Speaker 4: my own underlying products into that portfolio.
Speaker 3: And by the way, that can be a great business
Speaker 3: for you if you have.
Speaker 2: But that's a closed architecture. You guys run a very
Speaker 2: open architect.
Speaker 4: We run a completely open architecture, and we're unique in
Speaker 4: that it's true open architecture. Eighty plus percent and sometimes
Speaker 4: one hundred percent of the assets come from third party managers,
Speaker 4: but we still have to compete against organizations that are
Speaker 4: running their own version, which might be closed or semi closed.
Speaker 4: And you know, if you have a whole lot of
Speaker 4: underlying products you're putting into the portfolio, it gives you
Speaker 4: a lot of leeway to change the fee or to
Speaker 4: compress the fee at the ocio level because you're making
Speaker 4: money in all sorts of other ways. Russell doesn't do that.
Speaker 4: So it does mean that we were susceptible to some
Speaker 4: of the fee compression, and our fees have narrowed. But
Speaker 4: the way I see the solution here is just to
Speaker 4: make sure that the value proposition that we're offering.
Speaker 3: The way we go about building in.
Speaker 4: Ocio, the costs that you know, it takes, the human
Speaker 4: capital that's required. You know, we put over one hundred
Speaker 4: million dollars into our technology system that allows us to
Speaker 4: build these open architecture portfolios. When clients understand what it
Speaker 4: is that they get from us, paying a slightly higher
Speaker 4: fee doesn't seem to be a big deal.
Speaker 2: What about the private markets that we're looking at. We
Speaker 2: were talking about private equity, private credit. First, is it
Speaker 2: possible that those sort of things can be indexed? And
Speaker 2: then second they've always been priceier than public markets, always
Speaker 2: started seeing fee compression along those lines.
Speaker 4: Yeah, so we haven't seen a ton of fee compression.
Speaker 4: I mean, those are cases where I think the value
Speaker 4: proposition is crystal clear, and you know, the high performing
Speaker 4: managers can charge higher fees or substantial fees because they've
Speaker 4: really delivered, and in general they continue to deliver. I
Speaker 4: think if they stop delivering and or you know, and
Speaker 4: we start seeing what look more like public markets performance,
Speaker 4: or even weak public markets performance, it's going to be
Speaker 4: much harder for them to charge those those fees. But
Speaker 4: that hasn't happened yet, you know, especially within private credit
Speaker 4: and private equity there's been you know, real out performance,
Speaker 4: especially at the top of the heap versus the public markets,
Speaker 4: so it becomes easier to justify those fees.
Speaker 2: It makes a lot of sense. So let's let's venture
Speaker 2: into the world of public policy a little bit. You've
Speaker 2: proposed national account programs to help young people start investing early.
Speaker 2: The most some big bill that passed in this administration
Speaker 2: has these accounts for babies. Every kid that's going to
Speaker 2: be born is going to get what is it, fifteen
Speaker 2: hundred or three thousand dollars, I don't know what it's number,
Speaker 2: one thousand dollars, A thousand dollars, all right, better than nothing.
Speaker 2: But where do you see these sort of programs going.
Speaker 2: And if you start investing at age one day, what
Speaker 2: potential compounding can we see fifty seventy five, one hundred
Speaker 2: years later?
Speaker 4: Now you're really talking my language. When Trump was elected,
Speaker 4: I wrote a piece that we put into Barons that
Speaker 4: Baron's published, saying that we should give a thousand dollars
Speaker 4: to every kid in America and open an investment account
Speaker 4: and let them actually learn about the power of compounding,
Speaker 4: because it's different when you actually own the assets and
Speaker 4: you know when you get people an investment account, you
Speaker 4: can find lots of ways to create some education, you know,
Speaker 4: investment education that goes along.
Speaker 2: Let me just interrupt you because it sounds like a
Speaker 2: lot of money. There are three million kids born a year.
Speaker 2: It's three billion dollars, yes, which to way thirty one
Speaker 2: trillion dollar economy and a six or seven trillion dollar
Speaker 2: government spend is surrounding out.
Speaker 3: It's nothing in the grand scheme of things.
Speaker 4: And you know, you know you're onto something because it
Speaker 4: got actually got criticized by both the right and the left,
Speaker 4: and the right said, oh, this is another entitlement program. Anyway,
Speaker 4: we put this thing into barons, and to my surprise
Speaker 4: and delight, it ended up in the big beautiful bill
Speaker 4: and it actually got.
Speaker 2: Actually passed, It passed and funded, right became.
Speaker 4: Legislation, and you know, Treasury is working hard now thinking
Speaker 4: through you know, the implementation, and we're helping along the way.
Speaker 4: It's it's an awesome program because fundamentally, what it does
Speaker 4: is it makes investing universal. You know, all these families
Speaker 4: in the United States that think that investing is not
Speaker 4: for them or they never had any exposure to it,
Speaker 4: and that's by the way most of America right now,
Speaker 4: to the extent they have, you know, have a kid,
Speaker 4: they are going to have an investment account. That that's
Speaker 4: you know, there is a there's one thousand dollars to
Speaker 4: kickstart it from the government, but there's going to be
Speaker 4: lots of avenues for families to make continued contributions, for
Speaker 4: employers to make contributions, for philanthropies to make contributions over
Speaker 4: time on hopefully a tax advantaged basis, and folks are
Speaker 4: going to see the way compounding really works. So it's
Speaker 4: not the one thousand dollars contribution, which, as you said,
Speaker 4: is kind of a drop in the bucket at least
Speaker 4: as it you know, as a burden on society. It's
Speaker 4: the it's you know, what can you pull together from
Speaker 4: all of the different constituents that are going to want
Speaker 4: to contribute to a program like this. So we're we're
Speaker 4: really excited, and you know, I think that ultimately, I
Speaker 4: hope this will dovetail with retirement security. You know, you
Speaker 4: said it when when you ask what can happen in
Speaker 4: fifty or seventy five years. I think initially, you know,
Speaker 4: the thought is these might help fund college education and
Speaker 4: by the way with a little bit of contributions. On
Speaker 4: an ongoing basis, it will fund a college education with
Speaker 4: the compounding. But over time, there's six or seven of
Speaker 4: these programs, and eventually, you know, maybe we can pull
Speaker 4: them all together and create a national program that actually
Speaker 4: funds people's retirement.
Speaker 2: Coming up, we continue our conversation with Zach Buckwald, he's
Speaker 2: chairman and chief executive officer of Russell Investments, discussing the
Speaker 2: state of markets today. I'm Barry Ritolts. You're listening to
Speaker 2: Masters in Business on Bloomberg Radio. I'm Barry Ridholts. You're
Speaker 2: listening to Masters in Business on Bloomberg Radio. My extra
Speaker 2: special guest this week is Zach Buckwald. He's chairman and
Speaker 2: chief executive officer of Russell Investments. The firm was founded
Speaker 2: in nineteen thirty six and runs about three hundred and
Speaker 2: seventy billion dollars. Zach joined Russell in twenty twenty three,
Speaker 2: coming from his previous career at Blackrock. I'm a fan
Speaker 2: of using milestones as an excuse to give some sort
Speaker 2: of a gift. You can see sweet sixteen's or kid
Speaker 2: turns thirteen, or whatever it is. Grandma and grandpa write
Speaker 2: a check and put it right into their account. Here's
Speaker 2: some Eli Lilly, or here's some whatever SMP five hundred.
Speaker 2: Knock yourself out, and that's going to just appreciate over
Speaker 2: the next X number of decades. It could really make
Speaker 2: a substantial difference in the retirement of people who have
Speaker 2: yet to even be born.
Speaker 4: It's absolutely true. And by the way, it's investing in
Speaker 4: the US stock market.
Speaker 2: Right, so I'm assuming the S and P five hundred
Speaker 2: would count. And any of the Microsoft or Lily or whatever, Apple, Amazon,
Speaker 2: whatever big tech company you're enthusiastic about, I would recommend
Speaker 2: a broader, more diversified approach than a single stock. I
Speaker 2: mentioned Lily because I just know a friend just put
Speaker 2: a bunch of Lily stock in his nephew's account and
Speaker 2: I'm like, oh, what are you doing there for. He's like,
Speaker 2: just doing a transfer. It's tax free and don't have
Speaker 2: to worry about it.
Speaker 4: Well, I'm not a stock picker, but but Lily's a
Speaker 4: great company. Having diversified exposure in these in these accounts
Speaker 4: is the way to go. And you know, listen, a
Speaker 4: generation ago, Barry, the version of that was not so
Speaker 4: much Lily stock. It was very typically a US Treasury bond, right,
Speaker 4: that's what you got when you turn thirteen or sixteen
Speaker 4: or had that milestone birthday, and a Treasury bond.
Speaker 3: In the long term, you know, you'd rather be in
Speaker 3: the stock market.
Speaker 2: You get you don't want to two and a half
Speaker 2: percent I had above inflation. That doesn't excite you.
Speaker 3: I'd rather have the long term return of the S.
Speaker 2: And P for sure, especially if it's a new born
Speaker 2: or even a teenager, their investment window is sixty seventy years.
Speaker 3: That's exactly right.
Speaker 4: And the trick here is you have to get people
Speaker 4: to actually understand because that's sixteen year old. When they're
Speaker 4: twenty two, they're going to get a job that's going
Speaker 4: to have a four to one k and there I
Speaker 4: have to understand, why am I taking six percent out
Speaker 4: of my you know, out of my paycheck when you know,
Speaker 4: my starting salary might not even be enough to get
Speaker 4: you know, to pay my rent and my other bills.
Speaker 3: Why would I want to do that?
Speaker 4: And they really, if they understand the power of compounding
Speaker 4: and the long term implications of that, they're gonna they're
Speaker 4: going to buy into it.
Speaker 2: I really didn't think about my four oh one K
Speaker 2: in televis in my thirties, Right, But if I actually
Speaker 2: had money put in account when I was born, by
Speaker 2: the time you're twenty five, you're going to see some
Speaker 2: impact from compounding.
Speaker 4: One hundred percent. Well, I'm not too worried about you, Barry. Well,
Speaker 4: I'll be all right, You'll be you'll be all right.
Speaker 4: But you know, but think about all those folks that
Speaker 4: don't you know, the average income in America is still
Speaker 4: seventy thousand dollars, right, all those folks that don't have
Speaker 4: access to uh to investments, and they're not thinking about
Speaker 4: am I going to be able to make my contribution
Speaker 4: at age twenty two, because they're thinking about can I
Speaker 4: can I.
Speaker 2: Pay my rent?
Speaker 3: Afford to pay my rent?
Speaker 2: Right, the bottom half of the economic strata in this country,
Speaker 2: And we're having this conversation on election day in New
Speaker 2: York where it looks like at least the leader up
Speaker 2: up until today has been someone who describes themselves as
Speaker 2: a socialist and has made affordability their their key campaign theme.
Speaker 2: This is going to be an ongoing issue, especially for
Speaker 2: the bottom half of earners and savers.
Speaker 3: That's right. We're not a political organization at Russell.
Speaker 4: But I do concur affordability is the issue, and I
Speaker 4: think it's not a left issue. I think it's an
Speaker 4: issue for everybody, almost everybody in this country, and we're
Speaker 4: going to be hearing a lot about it from all sides.
Speaker 2: You know.
Speaker 3: I wrote a piece after the Baby.
Speaker 4: Accounts, which they call the Trump accounts, by the way,
Speaker 4: after that became part of the legislation, I wrote a
Speaker 4: piece that The Washington Post published that essentially described what
Speaker 4: these accounts are and the impact that it can have
Speaker 4: in terms of helping to educate our population about the
Speaker 4: power of investing and compounding.
Speaker 3: And it was very interesting to see the commentary.
Speaker 4: You know, when you publish something in the journal or
Speaker 4: you get a lot of you get a lot of comments,
Speaker 4: and by and large, the vast majority of the comments said,
Speaker 4: why wouldn't you just write us a refund check, which
Speaker 4: is what we got during COVID, by the way, like
Speaker 4: stimulus type checks.
Speaker 3: And it was the opposite of the point that I
Speaker 3: was trying to right.
Speaker 2: We don't want you to spend this, we want you
Speaker 2: to save this.
Speaker 4: I have to say it again to understand what the
Speaker 4: difference is from a savings account or a treasury bond
Speaker 4: and versus investing it into the markets and getting to
Speaker 4: see long, long term compounding. So it was honestly, it
Speaker 4: was a little bit of a refresher for me that
Speaker 4: we have a lot of work to do to help
Speaker 4: people understand why a program like this can actually help them.
Speaker 2: As someone who's been writing in public for nearly thirty years,
Speaker 2: my best advice to he is simply never read the comment.
Speaker 2: There was a golden era of blogs and like the
Speaker 2: early to mid two thousands where the comments were these
Speaker 2: like fantastic communities. All of that is kind of migrated
Speaker 2: to Reddit. If you want to see lightly moderated, intelligent
Speaker 2: debates with some nonsense and is thrown in along the way,
Speaker 2: that's that's what's left of that sort of issue. I
Speaker 2: think even YouTube used to do a better job at
Speaker 2: moderating the comments. The spam and the bots still slip
Speaker 2: in every now and then.
Speaker 4: It does give you a perspective on what's on people's minds, though,
Speaker 4: even though some of the comments are like unhinged, you
Speaker 4: can tell like what's coming through what what are people's
Speaker 4: you know, fears and worries and concerns. If you can,
Speaker 4: if you can read it through the you know, the craziness.
Speaker 2: Yeah, you have to. You have to fight your way
Speaker 2: through it. It's kind of fascinating because I'm going to
Speaker 2: just digress for a moment. We all are subject to
Speaker 2: these cognitive errors and these behavioral biases, and and it
Speaker 2: very much shows up in people's portfolios and the decisions
Speaker 2: they make. I wake up on a daylight today where
Speaker 2: Nasdaq is down one and a half percent, I know
Speaker 2: I'm gonna see a bunch of emails. A told us
Speaker 2: to stay long, and look, we're down one and a
Speaker 2: half percent today. I knew I should have gotten out
Speaker 2: of the market. So what are you talking about? We're
Speaker 2: up seventeen percent for the year, and then Nazdek's up
Speaker 2: twenty three percent. This is the price of admission. You
Speaker 2: have to deal with some volatility.
Speaker 4: I mean this is a place, by the way, where
Speaker 4: technology has not actually served people in their retirement portfolios.
Speaker 4: Because if you can pull up your phone and in
Speaker 4: three seconds, you know you work as a teacher or
Speaker 4: a nurse or whatever, and you pull up your phone
Speaker 4: and in three seconds you see your portfolio is down
Speaker 4: one and a half percent, and at some level it
Speaker 4: flips a switch and you think my portfolio is in
Speaker 4: trouble or I should sell. Like that's how you get
Speaker 4: to really bad decisions because we all you know, we
Speaker 4: all know long term like if you're men, if you're.
Speaker 2: Do we all know that, because I'm not sure everybody does,
Speaker 2: and there's such an inherent bias towards action. Don't just
Speaker 2: sit there do something right that that just seems to
Speaker 2: be human nature.
Speaker 4: It's anathma to how you're supposed to manage a retirement portfolio. Though,
Speaker 4: by the way, you can make adjustments over time, but
Speaker 4: the goal is not to pull out when you think
Speaker 4: the market is going to be down. We all know
Speaker 4: that the bounce backs, by the way, happen faster and
Speaker 4: stronger than ever. I mean, you think about like what
Speaker 4: the bounce back looked like during the financial crisis of
Speaker 4: during the dot com bus, it took years to bounce back,
Speaker 4: and then you think about COVID or even April or
Speaker 4: Liberation Day, Right, the bounce back happened a week, yeah,
Speaker 4: almost instantly and stronger than before. So you know, this
Speaker 4: is a case where the phone really does not help you, right,
Speaker 4: if you're going to make a decision to pull out
Speaker 4: because you see something going on in the markets on
Speaker 4: an off day, and you know, as we're as we're
Speaker 4: thinking through how to implement new programs like the Trump accounts.
Speaker 4: You know, my goal is you want to have like
Speaker 4: lots of transparency, but you don't want to make it
Speaker 4: easy for people to make bad decisions. You have to
Speaker 4: help them make good long term decisions.
Speaker 2: A little bit of choice architecture that prevents those sort
Speaker 2: of things. Last question before I get to the standard questions,
Speaker 2: we ask all of our guests, what do you think
Speaker 2: investors are not talking about but perhaps should be What
Speaker 2: the important overlook topics, assets, geography, policy, whatever that that
Speaker 2: should be getting a little more following.
Speaker 4: Yeah, well, Barry, I'm still really positive on AI and
Speaker 4: how much more room to run we have. You know,
Speaker 4: there's been so much to talk about about how we
Speaker 4: haven't seen a broadening in the markets. You know, most
Speaker 4: of the value capture has happened within the technology industry.
Speaker 4: But you know, but I think every sector is going
Speaker 4: to be transformed. Almost every sector transformed by AI as
Speaker 4: much as it was by by the Internet, and we
Speaker 4: just haven't seen that come through yet. But I can
Speaker 4: tell you every company that we invest in is thinking
Speaker 4: about this and working on it behind the scenes, even
Speaker 4: if it's not showing up yet in their in their
Speaker 4: quarterly earnings reports. But it's all happening, and you're going
Speaker 4: to start seeing by the way, you'll see winners and
Speaker 4: losers both, you know, sort of specific companies and sectors.
Speaker 4: But there's going to be enormous amounts of efficiency gains
Speaker 4: and enormous amounts of you know, sort of value creation
Speaker 4: that happens as a result of that. And I don't
Speaker 4: think it's going to be a straight but I do
Speaker 4: think it's coming shorter term rather than rather than just
Speaker 4: longer term.
Speaker 2: Back in twenty nineteen, I interviewed Joe Davis, who's the
Speaker 2: chief economist at Vanguard, and they had this fascinating research report.
Speaker 2: Eventually it became a book that all technological innovations take
Speaker 2: place in two phases. The first phase is kind of
Speaker 2: what we're experiencing right now in AI, which is wild prices,
Speaker 2: a couple of everybody knows a handful of companies very
Speaker 2: boom boom, like some people have been too many. A
Speaker 2: lot of people have been calling it a bubble. The
Speaker 2: second phase is where the value creation spreads out to
Speaker 2: the rest of rest of the market, rest of the industry,
Speaker 2: rest of the economy. I see it the same way
Speaker 2: you do. This is just going to make all of
Speaker 2: us more efficient, more productive, more profitable.
Speaker 4: Right, That's exactly how I see this playing out. And
Speaker 4: you still have to pay attention because you know, we
Speaker 4: all remember during the first the first dot com phase,
Speaker 4: before every company started incorporating the Internet into its business
Speaker 4: strategy and its operations, they were winners and they were losers,
Speaker 4: and and the winners are still around and there, you know,
Speaker 4: they essentially, you know, run global commerce today and the
Speaker 4: losers went away. We're going to see some of that
Speaker 4: across sectors, and you know that's something that investors need
Speaker 4: to pay close attention to. But you know, writ large,
Speaker 4: I see a lot of value creation.
Speaker 3: Huh.
Speaker 2: I'm always like to hear that sort of stuff. So
Speaker 2: let's jump into our favorite questions that we ask all
Speaker 2: of our guests, starting with tell us about your mentors
Speaker 2: who helped shape your career.
Speaker 4: Sure, I had a great mentor at Blackrock, a guy
Speaker 4: called Mark Mcomb who's a vice chairman of the company,
Speaker 4: and he put me into a couple of jobs, and
Speaker 4: he nurtured me and supported me. But he also he
Speaker 4: encouraged me to, you know, think like the outsider that
Speaker 4: I am. You know, when he put me into the
Speaker 4: insurance job without having an insurance background, he sort of said,
Speaker 4: bring you know, bring all the capabilities and the perspective
Speaker 4: that you have from all the other things that you've
Speaker 4: done and that you know, really helped us. I think
Speaker 4: like an external provider and grow that business. By the way,
Speaker 4: I'm a I'm I'm a gay guy in finance, So
Speaker 4: I come at it from a from an outsider's point
Speaker 4: of view kind of looking in and and that has
Speaker 4: informed just about everything that I do at you know,
Speaker 4: at Russell and and before that is thinking about what's working,
Speaker 4: what isn't working, What do I think we might be
Speaker 4: able to do better? What have we not you know,
Speaker 4: the question that you asked, what are people not talking about?
Speaker 4: What have we not asked about? And that's you know,
Speaker 4: often my my starting point. And I think if I
Speaker 4: had come in with the insider status, it would have
Speaker 4: been harder for me to take that perspective.
Speaker 2: That's really interesting. It's affected your perspective. You see the
Speaker 2: world both as a participant but also an outsider.
Speaker 3: Yeah, that's right.
Speaker 4: And you know, this is the first time I've been
Speaker 4: to Bloomberg in a couple of years. But when I
Speaker 4: when I took the job at at Russell, even before
Speaker 4: i'd started, Bloomberg invited me to come speak at a conference.
Speaker 4: And I was, you know, flattered and excited. And then
Speaker 4: I learned it was their diversity conference and I was
Speaker 4: the gay CEO, and and I said, invite me back
Speaker 4: five times to talk about investing in retirement, and on
Speaker 4: the sixth time, I'll come talk about diversity.
Speaker 2: Huh, that's interesting. You know in all the research we
Speaker 2: do that did not come up in anything. It's not
Speaker 2: it's not anything that bubbles up to the top of search.
Speaker 2: Although the old joke is if you if you want
Speaker 2: to hide something, disclose it at the end of an
Speaker 2: hour long podcast. Now, no, I'll hear it. But you
Speaker 2: know what it's like with all the YouTube there's a
Speaker 2: drop off. But I always find that that amusing. Let's
Speaker 2: talk about books. What are some of your favorites. What
Speaker 2: are you reading right now?
Speaker 4: Yeah, so I read a lot of fiction, like you know, Kormick,
Speaker 4: McCarthy and Tyler. I'm reading a book called The inheritance
Speaker 4: right now, which is like a family drama. It's an
Speaker 4: escapist for me to get away from. I don't read
Speaker 4: a lot of finance books.
Speaker 2: I'm the same way every now and then something will
Speaker 2: you know, come across that I have to read that's
Speaker 2: finance related. I have a big stack of fiction waiting
Speaker 2: to go on vacation with me next month. Let's talk
Speaker 2: about streaming. What are you watching or listening to? What's
Speaker 2: keeping you entertained? It's either on Netflix or Amazon or whatever.
Speaker 4: Yeah, it's all toddler fair right now. I've got two
Speaker 4: three year olds in the house, so we've got twins.
Speaker 3: Twins.
Speaker 4: Yeah, it's you know, all full time Moana and Frozen
Speaker 4: and Daniel Tiger, bubblegup bees that sort of stuff.
Speaker 2: Huh so, so a lot of Moana. That's that's my
Speaker 2: idea of a nightmare.
Speaker 3: It's just Mowana's pretty awesome.
Speaker 2: Actually the first three times you see it.
Speaker 4: The first three times, and Frozen about twice.
Speaker 2: So our final two questions, what sort of advice would
Speaker 2: you give to a recent college grad interest in the
Speaker 2: career in either finance or investing. H What would you
Speaker 2: tell them?
Speaker 4: Yeah, first, like, you know, be yourself, like we look
Speaker 4: for people at Russell from all different kinds of backgrounds,
Speaker 4: not just economics or finance background. Study what you want
Speaker 4: to study, do well, and you know, be committed. But
Speaker 4: you know, if you come at it from an outsider's
Speaker 4: you know, stay or point of view and embrace that
Speaker 4: that's you know, this is a world where we want
Speaker 4: folks that have different kinds of backgrounds and approaches. You know,
Speaker 4: I studied English Barry and one advantage that that actually
Speaker 4: gave me early on in my career was that I
Speaker 4: knew how to write. And you know, you think about
Speaker 4: how much of our of our business is done through writing,
Speaker 4: through email and other ways.
Speaker 3: Everything you write, this is the advice.
Speaker 4: Now, everything you write is a reflection of you, and
Speaker 4: it can come up and you know, something you put
Speaker 4: down on paper can come up again and again in
Speaker 4: all sorts of different ways.
Speaker 3: We all know that when you put something on.
Speaker 4: The Internet, it lives forever, truly, and you know your
Speaker 4: careers are long. You want to make sure that you're
Speaker 4: you're properly reflecting the image that you want to create.
Speaker 2: Good advice And our final question, by the way that
Speaker 2: advice applies not only to writing, yes, but my wife
Speaker 2: is a recently retired teacher and she used always one
Speaker 2: of the kids. All the stuff you're putting on Facebook
Speaker 2: and Instagram and TikTok, be aware the colleges you're applying
Speaker 2: to are looking at that, and the jobs you're going
Speaker 2: to apply to they going to find that, especially as
Speaker 2: you work your way up up the corporate ladder, that
Speaker 2: stuff never goes away.
Speaker 4: That's right, And now I'll give you a counterpoint. You know,
Speaker 4: we do three sixty reviews at Russell and sometimes you know,
Speaker 4: people that are relatively new in their careers, twenty five
Speaker 4: or twenty eight year old will write a review on
Speaker 4: somebody that they work for a couple levels up that
Speaker 4: I read. And when I read a review that somebody
Speaker 4: has put a lot of thought into and there's some
Speaker 4: you know, praise and constructive criticism, how to make things better?
Speaker 4: I say to myself, this person would make a good manager,
Speaker 4: and I think about how can we use them in
Speaker 4: other places in the company. So it's not just about
Speaker 4: like when you're writing about avoiding the things that you
Speaker 4: don't want out there in the world that can harm you.
Speaker 4: It's also making sure that you're putting the time and
Speaker 4: the effort into writing things that are really going to
Speaker 4: help you.
Speaker 2: Really really interesting observation and good advice for people just
Speaker 2: entering the workforce. Final question, how do you know about
Speaker 2: the world of investing today that would have been useful
Speaker 2: thirty years ago when you were first getting started.
Speaker 4: I wish that thirty years ago I had the confidence
Speaker 4: to know that, you know that as an outsider, as
Speaker 4: a gay person, as an English major, someone coming at
Speaker 4: it from a different background, that I could make it
Speaker 4: in this business, that I didn't have to constantly think
Speaker 4: about how am I going to prove myself, but just
Speaker 4: by being a good, productive contributor by raising my hand,
Speaker 4: you know, and showing a little bit of ambition, by
Speaker 4: finding ways to help that that can be enough. And
Speaker 4: sometimes that being an outsider can actually be a good thing.
Speaker 4: You know that it can help you re underwrite situations
Speaker 4: and come at it from a different angle. And if
Speaker 4: you know that and you're confident in it and you
Speaker 4: use it to your advantage, it can really help you
Speaker 4: in your career. I figured that out along the way.
Speaker 4: It would have been helpful to know when I first started.
Speaker 2: Really really fascinating stuff. Thank you, Zach for being so
Speaker 2: generous with you your time.
Speaker 3: We have been.
Speaker 2: Speaking with Zach Buckwald. He's chairman and chief executive officer
Speaker 2: of Russell Investments. If you enjoy this conversation, check out
Speaker 2: any of the five hundred and eighty nine we've done
Speaker 2: over the previous eleven years. You can find those at iTunes, Spotify, YouTube, Bloomberg,
Speaker 2: wherever you find your favorite podcasts, And be sure and
Speaker 2: check out my new book How Not to Invest The ideas,
Speaker 2: numbers and behavior that destroy Wealth and How to Avoid
Speaker 2: Them at your favorite bookstore. I would be remiss if
Speaker 2: I do not think the correct team that helps put
Speaker 2: these conversations together each week. Alexis Noriega is my video producer.
Speaker 2: Sean Russo is my researcher. Anna Luke is my producer.
Speaker 2: I'm Barry Ridolts. You've been listening to Masters in Business
Speaker 2: on Bloomberg Radio.