Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: This week on the podcast Another Banger.
Speaker 1: Lori Heinel is executive vice president and Global Chief Investment
Speaker 1: Officer at State Street Investment Management. She oversees five point
Speaker 1: seven trillion dollars in assets and that's as of the
Speaker 1: end of.
Speaker 2: Twenty twenty five.
Speaker 1: It's obviously market has appreciated since then. She oversees index funds, ETFs,
Speaker 1: active strategies, alternatives, multi asset solutions, and really drives an
Speaker 1: incredible organization. I thought this conversation was fascinating and I
Speaker 1: think you will also with no further ado, my interview
Speaker 1: with State Streets Lori Heinel. Lori Heinel, Welcome Bloomberg.
Speaker 3: Thanks for having me.
Speaker 1: So let's start out with your early career and your
Speaker 1: academic background. You study religion at Princeton before getting your
Speaker 1: MBA at Carnegie Mellon. What was the career plan with
Speaker 1: religious studies.
Speaker 4: Well, that's a long story, but I'll try to keep
Speaker 4: it short. Bottom line is I went to Princeton because
Speaker 4: I wanted to get more of a liberal arts education.
Speaker 4: And what I realized pretty quickly is it didn't really
Speaker 4: matter what I majored in. I could major in economics,
Speaker 4: I could major in history, and I happened to take
Speaker 4: a religious studies course, which I just absolutely adored. And
Speaker 4: from a personal standpoint, I had a number of people
Speaker 4: in my family who were incredibly staunch practicing Catholics or
Speaker 4: other kinds of Christian religions, and they would do things
Speaker 4: that to me were quite odd at times, and so
Speaker 4: I thought.
Speaker 3: From a personal perspective.
Speaker 4: It would be an interesting way to get more insight
Speaker 4: into what was going on with some of these family members.
Speaker 4: So short answer is that I decided to pursue that
Speaker 4: as an academic undertaking. And then I got to a
Speaker 4: place where I needed to think about a career and
Speaker 4: my first thought was, well, geez, maybe I'll go to
Speaker 4: law school. Well, then I realized I needed to make
Speaker 4: some money. So my second thought was, well, geez, you
Speaker 4: know there's this analyst program thing that they have on
Speaker 4: Wall Street. Surely you know they recruited fine institutions like
Speaker 4: Princeton and Lo and Behold. That catapulted me into what
Speaker 4: became a really long career in finance by just moving
Speaker 4: from an institution like Princeton into an analyst program.
Speaker 2: So let's move forward.
Speaker 1: You started credit Swiss First Boston, where you ran equity.
Speaker 2: And fixed income sales.
Speaker 1: Then you ended up working on with trading at Parker
Speaker 1: Hunter in Pittsburgh.
Speaker 2: Am I getting.
Speaker 4: These Well, I didn't start by running anything, So I
Speaker 4: started out as a two year grunt right. I think
Speaker 4: most of your listeners know what these analyst programs look like.
Speaker 4: I was effectively in investment banking for public finance, worked
Speaker 4: with hospitals, airports, municipal authorities. But I did all the
Speaker 4: kind of grunt work, if you will, all the numbers
Speaker 4: crunching behind the scenes and helping to run the deal
Speaker 4: models and things of that nature.
Speaker 3: And I just found that fascinating.
Speaker 4: I thought it was really amazing to connect both you
Speaker 4: know what's going on in the world with you know
Speaker 4: how finance supports that. And so I did that for
Speaker 4: a couple of years. And then at the end of
Speaker 4: the two year program, you're typically expected to go back
Speaker 4: to business school.
Speaker 3: Well, I still.
Speaker 4: Needed to make money because I had student loans to
Speaker 4: pay off. So I decided I wanted to stay and
Speaker 4: that me led me to an opportunity on the trading
Speaker 4: desk at First Boston, which really was an incredible opportunity
Speaker 4: because that was my first real introduction to markets.
Speaker 2: So what did working on the trading floor teach you
Speaker 2: about markets?
Speaker 3: So many things.
Speaker 4: I think the first and most important thing is I
Speaker 4: was there during the eighty seven Black Monday crash, and
Speaker 4: I happened to be working in fixed income. So it
Speaker 4: was a really interesting day because, of course that time,
Speaker 4: the first Boston trading floor was on two different levels,
Speaker 4: so you had all the fixed income was on one level,
Speaker 4: all the equities was on a different level. And we
Speaker 4: went dead silent in the first part of the day,
Speaker 4: and suddenly people were starting to realize what was happening
Speaker 4: in the market, crashing you know, twenty plus percent over
Speaker 4: the course of you know, a day, which of course
Speaker 4: today we've got calibrators that don't let that happen anymore.
Speaker 4: But then all of a sudden, towards the end of
Speaker 4: the day, things on the fixed income markets started going
Speaker 4: crazy because now you had the FED coming out alan
Speaker 4: Greenspan saying, you know, we're going to go ahead and
Speaker 4: provide liquidity. We're going to make sure that there's you know,
Speaker 4: active engagement to forestall any further you know, recessions or
Speaker 4: other things that might be caused by this kind of
Speaker 4: major crash. So I guess the first lesson I learned
Speaker 4: was that there are winners and there are losers in
Speaker 4: every market event, and it's better.
Speaker 3: To be on the winning side.
Speaker 4: So I happened to be at that time on the
Speaker 4: bond side, which was the big winner that day. But
Speaker 4: then I think the other thing that I learned was
Speaker 4: that you have to be really careful about things like
Speaker 4: moral hazard, because we became accustomed in that moment to
Speaker 4: this idea of the fed put and I think many
Speaker 4: years later, we are still wondering about what that really
Speaker 4: does mean in terms of the reaction function.
Speaker 1: So take me back to nineteen eighty seven for a second.
Speaker 1: I was in grad school at the time, but I
Speaker 1: can only imagine the fixed income trading floor. Were people
Speaker 1: sitting around their feet on their desk, sipping lattes like
Speaker 1: or did anyone say let's go down to the equity
Speaker 1: floor and look at the chaos and carnate.
Speaker 4: Well, the first thing we were doing, we were sitting
Speaker 4: there doing the Crossford puzzles. There were lots of days,
Speaker 4: and I was in unibond trading, so it was a
Speaker 4: little bit of trade by appointment, very sleepy very sleepy
Speaker 4: at times. Obviously, fixing come markets got a lot more
Speaker 4: interesting throughout my career, but at that time it was
Speaker 4: not uncommon. In the early morning we do a few
Speaker 4: trades and then we'd have a little break, we'd go
Speaker 4: get some lunch, we'd do a little crossboard puzzle.
Speaker 3: So that day was different, right, So we had.
Speaker 4: Our normal morning, but by the time you got to
Speaker 4: the early afternoon, it's like, wow, something's really happening here,
Speaker 4: and you started to see major moves in bond markets,
Speaker 4: including in the MENI market, and so suddenly it was
Speaker 4: a very different, more chaotic even on our floor.
Speaker 1: So money was flying out of equities, did it roll
Speaker 1: right into just safe harbor and body.
Speaker 4: Well, cash was the big place, right, So we had
Speaker 4: these variable rate demand notes offerings which were seven day
Speaker 4: resets and so they acted like a form of cash.
Speaker 4: So we saw massive demand almost immediately in that particular
Speaker 4: market because it was a cash substitute. But with the
Speaker 4: tax advantages, when.
Speaker 2: Was the yield in eighty seven, Well.
Speaker 4: On those it would have been in the sevens, probably
Speaker 4: because you look at the spread and on a tax free.
Speaker 1: Oh man, that's twelve exactly, exactly amazing Yeah, So before
Speaker 1: after Credit Swiss, but before State Street, you had a
Speaker 1: couple of really interesting positions. You were head of investments
Speaker 1: at City Private Bank, You ran global investment products for Sei,
Speaker 1: You led new business development at Melon Financial, and you
Speaker 1: were chief investment strategist in Oppenheim Are Funds.
Speaker 2: What's the throughput?
Speaker 1: What's the common thread in all of those?
Speaker 4: Well, some of those were personal. So at the time
Speaker 4: that I was in New York, I met my then
Speaker 4: to become a husband, where since divorced, but at the
Speaker 4: time we were engaged and we ended up moving to Pittsburgh.
Speaker 4: He got a job there and so I followed him there.
Speaker 4: So the Parker hunter was really you know, personal reasons,
Speaker 4: needed to find something to do totally different city. I
Speaker 4: had grown up in Pittsburgh, so in some ways it
Speaker 4: was a real blessing because that's where we ended up
Speaker 4: having our two children, and so it was great to
Speaker 4: have that support network at a time where I wanted
Speaker 4: to continue to work through my early child childbearing years,
Speaker 4: if you will. And then I think after that we
Speaker 4: consolidated on the East Coast because we both realized and
Speaker 4: he was in finance as well. He stated in Investment
Speaker 4: banking that we wanted to have more opportunities in Pittsburgh's
Speaker 4: a great city for many many reasons, but it's not
Speaker 4: a place where you have a lot of opportunities in finance.
Speaker 3: So we ended up settling then in Philadelphia.
Speaker 4: So once again I was on the prow for a role,
Speaker 4: and that led me to first Mail in Financial, where
Speaker 4: I did business development and started from scratch, built a
Speaker 4: book over a couple of years, and then got very
Speaker 4: fortunate recruited by a head hunter to go to Sei Investments,
Speaker 4: and I would say that that was where I really
Speaker 4: got the bug in asset management. So Sei has two
Speaker 4: primary business lines. At least at the time, they were
Speaker 4: a back office outsourcing firm, and then they also had
Speaker 4: a pretty meaningful investment management arm, which was an outgrowth
Speaker 4: of their early consulting days. And so I was hired
Speaker 4: to basically build the asset management franchise for their community
Speaker 4: and regional banking division. And so I would travel around
Speaker 4: the you know, meeting with trust officers and financial advisors
Speaker 4: and other kinds of practitioners at these small regional and
Speaker 4: community banks and encouraging them to transition their business from
Speaker 4: you know, do it themselves buying individual stocks and.
Speaker 3: Bonds into a platform like SEI.
Speaker 4: So for me that was a really eye opening experience.
Speaker 4: One it just really opened up my eyes to all
Speaker 4: of America. I traveled literally around the around the country,
Speaker 4: but also just looking at the different needs that these
Speaker 4: types of clients had and how we could serve them.
Speaker 1: So you starting with the client's objectives and perhaps there
Speaker 1: are future liabilities, you have to determine what's the most
Speaker 1: efficient combination of vehicles, risk exposure, what's that process like
Speaker 1: and is that sort of the through line of all
Speaker 1: these different positions.
Speaker 4: So the major through line of all the positions is
Speaker 4: that focusing on the client first. So maybe if I
Speaker 4: can regress just a half a beat. One of my
Speaker 4: most formative experiences was when I was an investment banker
Speaker 4: at First Boston. We were working on a deal for
Speaker 4: the Arlington Airport Authority and at the time they were
Speaker 4: doing what was called a pre refunding where they were basically,
Speaker 4: you know, issuing new debt to pay for old debt
Speaker 4: and tried to reduce their debt servicing costs over time.
Speaker 4: So pretty common activity, and at the time, we kept
Speaker 4: running all these numbers and we kept showing the director
Speaker 4: these amazing discounted net present value savings that she was
Speaker 4: getting from the deal, and every time she would leave
Speaker 4: the room and say, this is not what I expected,
Speaker 4: This is not what I wanted, this is not the
Speaker 4: deal that I need to have happen.
Speaker 3: And you know, I'm the most junior person running the numbers.
Speaker 4: We've got the vps, the mds and everybody else around
Speaker 4: the room, and they're all men. Turns out and they're like,
Speaker 4: she's crazy. You know what's wrong with this woman. We're
Speaker 4: delivering amazing net present value savings. So I happened to
Speaker 4: run into her in the ladies room and said, you know,
Speaker 4: it really helped me if I understood better why this
Speaker 4: isn't working for you. And it turned out that statutorially
Speaker 4: that they could only keep the savings in the first
Speaker 4: year for the authority, and then every subsequent years of
Speaker 4: savings would basically reduce the tax leans against all the
Speaker 4: or or the fees that they were collecting at the airport,
Speaker 4: so they didn't actually get savings from anything after.
Speaker 3: The first year.
Speaker 4: I was like, okay, got that, we're going to frolload
Speaker 4: it off we go, right, So that told me a
Speaker 4: lot of lessons around one, Listen to the client.
Speaker 3: Don't just think.
Speaker 4: Because you're the expert, you know all the answers. They
Speaker 4: might need something different that you haven't thought of. And
Speaker 4: it also taught me that it doesn't have to be
Speaker 4: the most experienced person in the room that's going to
Speaker 4: have that insight, because it took me five minutes to
Speaker 4: figure out what we'd spent meeting after meeting trying to
Speaker 4: gel through. Nobody asked that question right because they just
Speaker 4: thought they knew better because every other client wanted max
Speaker 4: net present value savings period full stop. One of the
Speaker 4: I think the big threads that went throughout my entire
Speaker 4: career that sort of you got to really listen. Sometimes
Speaker 4: the problem is not what you thought the problem was.
Speaker 4: And sometimes the answer, even though it's not optimal, it's
Speaker 4: the best answer.
Speaker 1: So how did you find your way to global CIO
Speaker 1: at State Street?
Speaker 4: Yeah, Well, the good news is I once again sort
Speaker 4: of another theme in my career once I sort of
Speaker 4: got to more of a senior level was I mostly
Speaker 4: got recruited because I would have, you know, exposure, and
Speaker 4: I'd get sort of known in the industry, and so
Speaker 4: I got a call out of the blue from a headhunter,
Speaker 4: and at the time I was very happy I was
Speaker 4: living in New York City. I was actually had gotten
Speaker 4: divorced by that point in time, was living in Jersey
Speaker 4: City and working in Lower Manhattan. So I had a fabulous,
Speaker 4: you know, six minute commute across the Ferry.
Speaker 3: Which I relished.
Speaker 4: But I felt like maybe I didn't have the next
Speaker 4: step available to me at Oppenheimer Funds, which.
Speaker 3: Of course is now part of Invesco.
Speaker 4: And so I got a call and they were looking
Speaker 4: for someone who would run their investment professionals more from
Speaker 4: the sales and commercial side. The people that they called
Speaker 4: like portfolio strategists, so some people know these people as
Speaker 4: client portfolio managers. But they also wanted somebody who could
Speaker 4: be groomed for other opportunities within the investment organization. And
Speaker 4: you know, one thing led to another. I did a
Speaker 4: little flyer to Boston, had a couple of conversations, and
Speaker 4: what I really liked about, you know, what State Street
Speaker 4: had to offer at that point in time was it
Speaker 4: was a very broad platform. They covered all asset classes.
Speaker 4: State Street, as you know, had a prime position in
Speaker 4: ETFs and indexing, which you know, this would have been
Speaker 4: you know, twenty fourteen, and while certainly those instruments were
Speaker 4: very widely available and adopted by investors, nothing like that
Speaker 4: ramp up in terms of growth that we've seen over
Speaker 4: the last decade plus. And so what I saw was
Speaker 4: a place where I could have the ultimate toolkit working
Speaker 4: with the ultimate global client base to solve problems for
Speaker 4: those clients using my expertise.
Speaker 1: And just as a point, State Street has the Spiders,
Speaker 1: the Spy which is the biggest institutional ETF for the
Speaker 1: S and P five hundred, and the Gold Spiders GLD
Speaker 1: which obviously gold is way off its highs, but that's
Speaker 1: another giant ETF. What is it like overseeing what really
Speaker 1: has become the standard bearers for both index funds and ETFs.
Speaker 4: Yeah, well, look, there's a lot of complexity as you
Speaker 4: well know to running ETFs, but one of the benefits
Speaker 4: is that it's one large pool of capital, so you
Speaker 4: can run it as a single proposition if you will,
Speaker 4: you have one account. So there's definitely complexity there, but
Speaker 4: in some ways that's more straightforward than the separate accounts
Speaker 4: book of business that we manage for institutional clients.
Speaker 3: Literally every.
Speaker 4: SMP exposure Russell exposure BARAG exposure is going to be
Speaker 4: customized to that particular client. So what's really interesting about
Speaker 4: our platform is that we have both these you know,
Speaker 4: large scale funds if you will, ETFs, but we also
Speaker 4: have this massive separate account separate account management business which
Speaker 4: we can deliver to institut institutional clients at a very
Speaker 4: price competitive and very customized way.
Speaker 2: Really interesting.
Speaker 1: Coming up, we continue our conversation with Lori Heinel, executive
Speaker 1: vice president at State Street, discussing a day in the
Speaker 1: life of a global CIO helping to oversee five point
Speaker 1: seven trillion dollars in client assets.
Speaker 2: I'm Barry Results. You're listening to Masters in Business on
Speaker 2: Bloomberg Radio.
Speaker 1: I'm Barry Redults. You're listening to Masters in Business on
Speaker 1: Bloomberg Radio. My extra special guest today is Lori Heinel.
Speaker 1: She is executive vice president and global Chief Investment Officer
Speaker 1: at State Street, where she helps to oversee five point
Speaker 1: seven trillion dollars in assets. So let's talk a little
Speaker 1: bit about State Street. I recall way back when they
Speaker 1: launched Spy I want to say that was thirty years
Speaker 1: a something like that, the first US ETF, and they've
Speaker 1: been a pioneer of indexing and ETFs. You know, ever since,
Speaker 1: how do you look at the role of indexing in portfolios?
Speaker 1: How has this changed not only over your tenure at
Speaker 1: State Street, but over your entire career.
Speaker 4: Yeah, well, I think the first thing I would say
Speaker 4: is that once upon a time, it wasn't really possible
Speaker 4: for people to get index replication, right. So that was
Speaker 4: the great innovation of something like spy, where suddenly every
Speaker 4: individual investor could buy one security and effectively get the market.
Speaker 4: And for much of my career, particularly in the early
Speaker 4: part of my career, it was all about beating the market.
Speaker 4: Let's get the best active managers who could beat that index.
Speaker 4: And what you find in for decades now is in
Speaker 4: many markets, especially large cap us, it's.
Speaker 3: Really challenging to do that net of fees.
Speaker 4: And so I've thought for many decades now that this
Speaker 4: combination of index exposure where it was really hard to
Speaker 4: find managers who could consistently outperformed, coupled with maybe some
Speaker 4: satellite managers or specialist managers or managers and other parts
Speaker 4: of the market, think emerging markets, small cap adding your
Speaker 4: risk budget and your active management budget there just made
Speaker 4: a lot of sense So when I think about portfolio construction,
Speaker 4: it really is I want to accomplish some sort of outcome,
Speaker 4: some sort of risk based outcome for that client, but
Speaker 4: I also want to do it in a way that
Speaker 4: covers fees, provides opportunities for alpha or outperformance, but does
Speaker 4: so in a kind of measured way.
Speaker 1: So stage treats or record inflows in twenty twenty five
Speaker 1: into I think this is the ETF and index business.
Speaker 1: One hundred and eighty billion net inflows, management fees up
Speaker 1: thirteen percent, and engross growth.
Speaker 2: Where do you see the growth.
Speaker 1: Coming from in the space I keep hearing indexing is over.
Speaker 1: ETFs have had their day, and yet year after year
Speaker 1: it seems to be the big winner.
Speaker 4: Well, I think there's still lots of room for indexing
Speaker 4: to run, because if you think about places like fixed income,
Speaker 4: we've only started to scratch the surface relative to what
Speaker 4: you see on the equity side of things. So increasingly
Speaker 4: or even seeing quote unquote exotic fixed income things like
Speaker 4: emerging debt, things like high yield, which we've had index
Speaker 4: products for quite a long time, become much more adopted
Speaker 4: by clients globally because they see that as a great
Speaker 4: way to get access again to a market in a
Speaker 4: way that they can really understand the risk and manage
Speaker 4: it within the portfolio context. So I think there's still
Speaker 4: plenty of room for indexing to run. I think the
Speaker 4: other thing is we've seen a major shift in terms
Speaker 4: of the client segmentation, if you will. So once upon time,
Speaker 4: the big investors were the large institutional investors, you know,
Speaker 4: the defined benefit plans, sovereign wealth funds. Those investors are
Speaker 4: still important, but increasingly the net incremental dollar is coming
Speaker 4: from the retail client, whether it's through defined contribution or
Speaker 4: rollovers or you know, other kinds of assets that they
Speaker 4: might have, And that's happening globally, and those investors are
Speaker 4: really early to the ETF if you will, journey and
Speaker 4: have lots of opportunity there. And then most recently you'll
Speaker 4: have seen that we were selected for the Trump accounts
Speaker 4: as the default investment. So that's another vector of investor
Speaker 4: that we think comes online into the indexing platforms.
Speaker 1: Really really interesting. I want to I want you to
Speaker 1: push back on my understanding of indexing in equity and
Speaker 1: indexing in fixed income. So here's what I have been
Speaker 1: led to believe over many, many years of acad study
Speaker 1: and research and lots and lots of great academic analysis.
Speaker 1: It's really really hard to beat the market through active
Speaker 1: management of equities. It's relatively easy to beat the market
Speaker 1: through reducing risk, changing duration, reduced improving credit quality through
Speaker 1: active management of fixed income. How accurate or inaccurate are
Speaker 1: those statements.
Speaker 4: So this is a classic of it depends on how
Speaker 4: you think about the problem, right, So first, it is
Speaker 4: absolutely empirically true that in many spaces and equities, the
Speaker 4: average manager just does not outperform. We have all those
Speaker 4: studies from all the various you know, research that that
Speaker 4: substantiate's at in fixed income. To your point, there is
Speaker 4: more evidence that active managers can add value. But what's
Speaker 4: been interesting over the last decade or so is this
Speaker 4: rise of better understanding of factor based investing at a
Speaker 4: lot of fixed income factors. As I mean, factor investing
Speaker 4: has been around for a long time decades, but within
Speaker 4: fixed income in particular, I think we've gotten more and
Speaker 4: more sophisticated models that help us to disaggregate where those
Speaker 4: returns are coming from. And what we found is that
Speaker 4: a lot of those active alphas, if you will, out
Speaker 4: of fixed income managers are really one of two things.
Speaker 4: They go down in credit quality or the extenduration, and
Speaker 4: when you actually neutralize for those two things, suddenly the
Speaker 4: active fixed income managers don't look quite as heroic as
Speaker 4: they did before you adjust for those things. So one
Speaker 4: of the big trends that we're really leaning into in
Speaker 4: fixed income is that applying that factor based lens to
Speaker 4: fixed income to be able to more stylize the portfolio,
Speaker 4: but do so at a very competitive feed level and
Speaker 4: deliver alpha, but alpha through indexing plus some factor exposures
Speaker 4: versus kind of just classic fundamental bottoms up kind of
Speaker 4: secure selection.
Speaker 2: Really interesting.
Speaker 1: So what's kind of fascinating about your role is much
Speaker 1: of the capital you oversee is deliberately designed to not
Speaker 1: take an active view.
Speaker 2: What does it mean to be a CIO at a
Speaker 2: firm like that? Where do your views show up?
Speaker 3: Yeah?
Speaker 4: Well, the first thing I need to just make sure
Speaker 4: everybody understands is that we.
Speaker 3: Do have active capabilities as well.
Speaker 4: They're certainly not the massive amount of the assets that
Speaker 4: we oversee, but if you look at our fixed income,
Speaker 4: equity and multi asset class strategies that are active in
Speaker 4: some way, that's a couple hundred billion dollars, so it's
Speaker 4: not tiny. It would still make us a pretty significant
Speaker 4: player in this market even if that's all we did.
Speaker 4: So we do believe that there are opportunities for active
Speaker 4: managers to outperform. It's just one of those things where
Speaker 4: you need to understand, you know, how much to allocate
Speaker 4: to those active managers, make sure you're picking the very best,
Speaker 4: because obviously there are some that cannot perform. But I
Speaker 4: think from a view perspective, it's actually very valuable having
Speaker 4: all the different perspectives at the table. We have a
Speaker 4: chief economists and chief geopolitical analyst. They really help us
Speaker 4: with what are the expected growth rates around different economies
Speaker 4: in the world, what are inflation expectations going to look like,
Speaker 4: what's the sort of backdrop against which we're against which
Speaker 4: we're trying to invest, so that we have some sense
Speaker 4: of our rates likely to move up or down? You know,
Speaker 4: our is growth likely to be supportive for earnings? Some
Speaker 4: of those sort of macro factor setting types of things.
Speaker 4: And then I think within our active teams, and we
Speaker 4: have a multi asset class team in particular, they're deploying capital.
Speaker 4: They're deploying capital indequities, fixed income, sub sectors, commodities, gold, cash,
Speaker 4: and so they have a view on which of those
Speaker 4: areas are going to do best. And obviously we have
Speaker 4: lots of discussion amongst ourselves about whether, you know, I
Speaker 4: personally agree with those views or don't agree with those views,
Speaker 4: But ultimately it really is a committee that gets together
Speaker 4: and makes those macro calls. And then within our individual
Speaker 4: active capabilities we've got fundamental and quantitative equity and fixed income.
Speaker 4: Those portfolio managers are basically charged with doing the hard
Speaker 4: work to figure out how they are going to generate alpha,
Speaker 4: and we've been quite successful. About sixty five percent of
Speaker 4: our strategies are out performing on a trailing one three
Speaker 4: year basis really interesting.
Speaker 1: You mentioned a variety of different colleagues and portfolio managers
Speaker 1: and economists and strategists, but really it's just the tip
Speaker 1: of the iceberg. You lead a team of over six
Speaker 1: hundred investment professionals and they're located around the world. How
Speaker 1: do you keep an investment organization that large and that dispersed,
Speaker 1: all on the same page, all coherent, all moving together.
Speaker 4: Well, I have a lot of help, So I think
Speaker 4: any manager will appreciate that the most important job. You
Speaker 4: do it once you're in a leadership position like mine,
Speaker 4: as you hire well right, and you let your good
Speaker 4: people do their work, and you pressure test their thesis,
Speaker 4: and you make sure, as you said, that everybody's singing
Speaker 4: from the same hymn book where they need to be,
Speaker 4: or that they're doing their own thing when that's appropriate,
Speaker 4: and you provide a sort of guidance and oversight opportunities
Speaker 4: to collaborate all those good things.
Speaker 3: You know, our.
Speaker 4: Business in one sense is a simple business. We're here
Speaker 4: to serve our clients. We have all the tools at
Speaker 4: our disposal to serve our clients. We you know, gather
Speaker 4: together routinely to develop thematics and market outlooks and other
Speaker 4: kinds of collateral that both myself and the other senior
Speaker 4: executives can take to our clients as ways to engage
Speaker 4: with them and demonstrate our facility with markets and our
Speaker 4: capabilities and insights. And then you know, basically, I let
Speaker 4: the team do what it does best, which is deliver
Speaker 4: the results.
Speaker 1: So walk us through a day in the life of
Speaker 1: a global CIO with five point seven trillion dollars. I
Speaker 1: would imagine that day to day of fans are just
Speaker 1: so overwhelming.
Speaker 2: No, two days really look exactly alike.
Speaker 4: No, it's a bit of a crazy day. It's one
Speaker 4: of the things I love about the job. But I
Speaker 4: would say the first thing is I spend a lot
Speaker 4: of time with clients. So in the first quarter of
Speaker 4: twenty twenty six, I was on forty five planes traveling
Speaker 4: around the globe Middle East luckily before the war started, Asia, Europe,
Speaker 4: multiple times across the US as well. So I spend
Speaker 4: a lot of time talking to clients of all types.
Speaker 4: So we have, as I mentioned earlier, a large institutional
Speaker 4: base of business that some of the largest central banks,
Speaker 4: sovereign wealth funds across the globe. But we also have
Speaker 4: a lot of private clients. We have private banks that
Speaker 4: we work with, you know, large broker dealers that we
Speaker 4: work with. Sometimes I'll even meet directly with end clients
Speaker 4: depending upon the forum. So's I would say that's probably
Speaker 4: a good chunk of my time. I do a lot
Speaker 4: of time, or spend a lot of I'm rather on
Speaker 4: things like strategy. So we have an executive management team
Speaker 4: which gets together and talks about from a business standpoint,
Speaker 4: where do we want to emphasize, what does that require
Speaker 4: all of us to do so for investments, one of
Speaker 4: our big efforts at the last couple of years.
Speaker 3: Has been innovation.
Speaker 4: Since Ya Shin Hung joined us as CEO in twenty
Speaker 4: twenty two, we've been very aggressive in terms of launching
Speaker 4: new products in new spaces, including partnerships with firms like
Speaker 4: Bridgewater and Apollo. So a lot of the strategy for
Speaker 4: what do we want to do to be relevant to
Speaker 4: our clients globally, Ultimately it comes from the investment team's
Speaker 4: ability to execute against those mandates, and so we spend
Speaker 4: a lot of time talking about what kind of resources
Speaker 4: do we need, what kind of research can we do
Speaker 4: that addresses the client problem we're trying to solve. How
Speaker 4: do we partner effectively with these third parties where they
Speaker 4: might contribute some content, we ultimately own the portfolio construction,
Speaker 4: and we might have our own own research that we
Speaker 4: want to bring into the mix. And so one plus
Speaker 4: one equals three, but ultimately we're accountable to that for
Speaker 4: our clients. And then talent. I mentioned earlier that you know,
Speaker 4: you need to have really good people. So we just
Speaker 4: came off of our annual talent reviews where I get
Speaker 4: all my CIOs in a room we work with our
Speaker 4: HR business partner, we go through our top talent succession planning.
Speaker 4: What kind of vectors do we see coming on the horizon?
Speaker 4: AI right now is a huge theme. So how are
Speaker 4: we readying our teams to be good stewards and users
Speaker 4: of AI and adopt that in ways that we can
Speaker 4: you know, make better efficiencies and better judgments. And then
Speaker 4: the last part of it is there's a lot of reading, listening,
Speaker 4: consuming information. Again, I am expected to, you know, be
Speaker 4: the face of State Street investment management from a client standpoint,
Speaker 4: and so I didn't know what's going on in the world,
Speaker 4: and as you know, the world's been a really crazy
Speaker 4: place this year.
Speaker 1: It certainly has. You mentioned Apollo and Bridgewater. The criticism
Speaker 1: about privates and things like four oh one k's or
Speaker 1: target date products is they're expensive, all right, so you
Speaker 1: don't have the liquidity issue, but they're complex. What's the
Speaker 1: case for putting private assets into a four oh one k?
Speaker 4: I think there are a couple of things, you know,
Speaker 4: first and foremost, if you look at the equity side
Speaker 4: of the ledger, more and more capital creation is happening
Speaker 4: in private markets, meaning pre ipopah I mean back in
Speaker 4: my early part of my career, and I'm sure yours
Speaker 4: as well. If a company came public at one hundred million,
Speaker 4: that was a big number, let alone like a billion,
Speaker 4: that was a well now yeah, so so fast forward,
Speaker 4: you know, and now we're talking literally in hundreds of
Speaker 4: not you know, hundreds of billions or even a trillion dollars.
Speaker 4: So if you think about just that magnitude of opportunity
Speaker 4: that's lost if you can't participate in as mark, it's
Speaker 4: just incredible. So that's number one. If you look on
Speaker 4: the fixed income side, I think you know, we've launched Prive,
Speaker 4: which is a collaboration with Apollo, and there again, this
Speaker 4: is investment grade credit that just happens to be issued
Speaker 4: in private markets instead of public markets for all manner
Speaker 4: of reasons. It could be that the company wanted to
Speaker 4: move quickly, or they didn't want to go through the
Speaker 4: you know, the filing process, or there might be some
Speaker 4: specific assets that they want to collateralize with the loan.
Speaker 4: And so those are really high quality investment grade assets,
Speaker 4: but they collect a premium for an investor because they're
Speaker 4: done through the private.
Speaker 3: Markets instead of the public markets.
Speaker 4: So to us those are just natural extensions of what
Speaker 4: clients should have access to.
Speaker 1: It makes a lot of sense. And we mentioned earlier
Speaker 1: GLD what an incredible run gold had in the twenty tens,
Speaker 1: pretty much right up through last year. It's since so
Speaker 1: off on about twenty twenty three percent something like that.
Speaker 1: When you were thinking about equity and fixed income and alternatives,
Speaker 1: and you see a medal which has been widely traded
Speaker 1: for thousands of years, can I say ten thousand years
Speaker 1: that some people have been called barbaric? How do you
Speaker 1: contextualize how GLD trades and what is driving the psychology
Speaker 1: of those investors versus all these other asset classes.
Speaker 4: Yeah, So again I want to take us back a
Speaker 4: little while, because we were advocating for a position in
Speaker 4: gold and client portfolios for six seven years, so long
Speaker 4: before we had this run up to five thousand and plus.
Speaker 4: And the basis at the time obviously, interest rates were
Speaker 4: very low, so you didn't have an opportunity cost. Today
Speaker 4: that's different, but what we were seeing was that fixed
Speaker 4: income wasn't likely to play the role if historically played
Speaker 4: or supplying portfolios. You had no income, you likely didn't
Speaker 4: have a lot of diversification. Benefit from fixed income, because
Speaker 4: how much lower could rates go, you know, if the
Speaker 4: market crashed, and we weren't even sure it was going
Speaker 4: to provide capital preservation, and we were right if you
Speaker 4: fast forward a couple of years. That turned out to
Speaker 4: be a bit of a challenge as well, and so
Speaker 4: we were looking for other ways or other exposures to
Speaker 4: put into the portfolio that would provide some of that
Speaker 4: cocktail of diversification benefit that fixed income just wasn't likely
Speaker 4: to provide. And so we set on gold for lots
Speaker 4: of reasons. And oh, by the way, we were also
Speaker 4: writing a lot at that point in time about concerns
Speaker 4: with fiscal profligacy and the fact that the US dept
Speaker 4: Burden was getting large, and this is you know, several
Speaker 4: years ago. Now it's obviously much bigger now, and gold,
Speaker 4: to us was kind of an interesting asset that would
Speaker 4: benefit from any kind of debasement concerns or any of
Speaker 4: these other sort of issues. So we advocated clients to
Speaker 4: add it many years ago. Of course, very few of
Speaker 4: those clients did so until it went up to you know,
Speaker 4: three thousand, then suddenly started to see more interests, and
Speaker 4: then four thousand, you start to see a bit more interest.
Speaker 4: But I would say gold still plays an important role
Speaker 4: in a portfolio.
Speaker 3: It doesn't have to be a huge exposure.
Speaker 4: It protects against a number of different tail risks in
Speaker 4: a portfolio. Yes, it's expensive from a carry cost standpoint
Speaker 4: right now, given the give up and fixed income, but
Speaker 4: we still have in our strategic allocation portfolios, you know,
Speaker 4: a couple percent allocated gold because we do think that
Speaker 4: it provides very distinctive benefits in certain kinds of crises.
Speaker 1: So today we have bitcoin cut in half from the
Speaker 1: high and a lot of the narrative around crypto sounds
Speaker 1: like sort of a digital refresh of the historic narratives
Speaker 1: around gold.
Speaker 2: How do you think about crypto?
Speaker 1: Some of your competitors have aggressively pushed into it, others
Speaker 1: have very much steered clear. It might be a little
Speaker 1: early to declare which side is winning, although anything that
Speaker 1: gets cut in half kind of comes with a little
Speaker 1: bit of a black mark on it. How do you
Speaker 1: think about crypto these days?
Speaker 4: Yeah, So I want to just first share a story.
Speaker 4: So back in twenty twelve, so this is many years
Speaker 4: ago now, my daughter and her boyfriend started mining bitcoin,
Speaker 4: and of course being in this industry.
Speaker 3: I thought they were crazy.
Speaker 2: Like, you can't just was it one hundred bucks?
Speaker 4: It was, It was under a thousand. I think it
Speaker 4: might have been five or six hundred, so it wasn't
Speaker 4: quite as low.
Speaker 3: But it was still very, very low.
Speaker 4: And I thought, you can't, just like manufacturer money doesn't
Speaker 4: grow on trees, you can't just manufacture it, you know,
Speaker 4: on a computer.
Speaker 2: But at the time you can.
Speaker 3: It turns out you can. So it's very skeptical.
Speaker 4: But I kicked myself for not having at least bought
Speaker 4: a couple because at the time I could have put
Speaker 4: ten thousand dollars into it and I'd be, you know,
Speaker 4: ten million. We might not even be having this conversation today.
Speaker 2: Who knows we would. It would just be on your
Speaker 2: yacht off, well you.
Speaker 4: Go, which wouldn't be half bad, right, It wouldn't be
Speaker 4: half bad. So in an event, I've never really understood
Speaker 4: the case. Now, what I will acknowledge is that over
Speaker 4: the years I did learn of a couple use cases
Speaker 4: that made sense to me. So I can remember seeing
Speaker 4: a woman from Pakistan present and she was talking about
Speaker 4: like why bitcoin is so popular in Pakistan. It was
Speaker 4: because at least they had a stable currency because it
Speaker 4: was pegged to the dollar effectively, and so people preferred
Speaker 4: being paid in bitcoin instead of getting paid in Pakistani.
Speaker 4: So so I thought, okay, well that's interesting, but that's
Speaker 4: a you know, a tiny little use case.
Speaker 3: But I never really.
Speaker 4: Understood because you don't have anybody who's got the taxing
Speaker 4: authority or the backing of it, whereas even with gold,
Speaker 4: it's sort of got the central bankers as a collective
Speaker 4: in some sense back gold. Sure, there's still massive buyers
Speaker 4: of gold. In fact, that's U S. Treasury holdings. So
Speaker 4: I never really got it. But you know, you fast
Speaker 4: forward and suddenly you've got an asset that's up to
Speaker 4: thirty thousand, forty thousand, you know, over one hundred thousand
Speaker 4: at one point in time, and you're like, am I wrong?
Speaker 4: Like what am I missing? So I don't know, the
Speaker 4: jury's out. We do believe in the sort of the
Speaker 4: digital ecosystem very much. We're trying to, you know, work
Speaker 4: on tokenization, and we're working on all kinds of other
Speaker 4: sort of digital finance types of endeavors.
Speaker 3: So there's something.
Speaker 4: About the digital that is very compelling, and in a
Speaker 4: weird way, it may be that once that digital infrastructure
Speaker 4: gets more evolved, it'll make bitcoin even less important, right
Speaker 4: because now suddenly you'll get all the benefits of bitcoin
Speaker 4: in terms of the tradeability and all those kinds of
Speaker 4: things without having to have the exposure to an asset
Speaker 4: that I don't know how to price that asset.
Speaker 1: Wildly volatile to say the very really really interesting. Coming up,
Speaker 1: we continue our conversation with Lori final Global CIO at
Speaker 1: State Street talking about the current market environment.
Speaker 2: I'm Barry Ridults.
Speaker 1: You're listening to Masters in Business.
Speaker 2: On Bloomberg Radio. I'm Barry Ridults.
Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My
Speaker 1: extra special guest this week is Lori Heinel. She is
Speaker 1: executive vice president and Global Chief Investment Officer at State
Speaker 1: Street Investment Management, the asset management arm of State Street
Speaker 1: with five point seven trillion, with a t trillion in assets,
Speaker 1: and that says of year end twenty twenty five, and
Speaker 1: we're up ten twelve percent since then in the market.
Speaker 2: So do the math. I'm going to say over six trillion.
Speaker 1: Let's talk a little bit about the current market environment.
Speaker 1: Your global market outlook was titled Forward with Focus that
Speaker 1: sounds like you were constructive on risk assets. I always
Speaker 1: put a question mark where I see but you must
Speaker 1: stay agile.
Speaker 2: Explain what that means.
Speaker 4: Yeah, well, so to your point, we did see twenty
Speaker 4: twenty six as being still a pretty good year for investors.
Speaker 4: We thought that earnings were going to continue to do well.
Speaker 4: We thought that inflation, while not quite back to the
Speaker 4: two percent target that the Fed had set, was marching
Speaker 4: in that direction, would possibly give some more room for
Speaker 4: rate cuts in twenty twenty six. And so when we
Speaker 4: talk about being agile, it was focus on equities over
Speaker 4: fixed income, but do so in a bit more broad
Speaker 4: based way, like don't just put all your eggs into
Speaker 4: the large cap US trade. Look at small caps, maybe
Speaker 4: even look at things like emerging markets, places where you
Speaker 4: might get a bit of broadening out of the market
Speaker 4: as we saw maturation in twenty twenty six. Of course,
Speaker 4: the altercation war with Iran turned out a bit on
Speaker 4: its head, and so for a short moment we were revisiting.
Speaker 3: Whether that was going to be true.
Speaker 4: Obviously, inflation became a bigger sticking point one again or
Speaker 4: a bigger concern once again. Concerns about whether you're going
Speaker 4: to get that broadening out, or whether investors would just
Speaker 4: sort of go back to the trades that they knew
Speaker 4: and loved and had, you know, more security. And but
Speaker 4: I think as we get into the middle of the year,
Speaker 4: we're seeing that our views were largely rewarded that sort
Speaker 4: of moving to small cap and other parts of the
Speaker 4: market certainly have done quite well on a year date basis.
Speaker 4: And you know, we obviously are still worried about fixed
Speaker 4: income and rates and what that might mean as inflation
Speaker 4: remains a bit more tricky. But you know, the prints
Speaker 4: that we're having every month are all over the place.
Speaker 4: Just as we're speaking, we're having a good CPI print,
Speaker 4: right So while we think that the FED is likely
Speaker 4: on hold for the balance of the year, we don't
Speaker 4: see rate hikes in the offing.
Speaker 2: Huh.
Speaker 1: Kind of interest, And we'll talk a little bit about
Speaker 1: CPI and PPI in a bit. You mentioned something that
Speaker 1: I want to explore because it's so interesting. So the
Speaker 1: Magnificent seven and twenty twenty five, I've only two of
Speaker 1: the seven outperformed the S and P five hundred. I
Speaker 1: think it was nvidiaan Google and this year, if you're
Speaker 1: looking at small cap or MidCap, you're looking at growth
Speaker 1: or value. You're looking at Europe, you're looking at developed
Speaker 1: x US, you're looking at em Everything seems to be
Speaker 1: outperforming large cap US growth. Is this just the reason
Speaker 1: to have a diversified portfolio or is it indicating is
Speaker 1: this a cyclical shift, or is this suggesting something else?
Speaker 4: Yeah, well, our view is generally to have a diversified portfolio.
Speaker 4: At the margin, we might favor large cap, or favor Europe,
Speaker 4: or favor emerging markets at different points in time based
Speaker 4: on relative value trading, but we do think that it's
Speaker 4: incredibly difficult to time those inflection points perfectly. And as
Speaker 4: you noted, coming into this year, you still had a
Speaker 4: lot of momentum and flows into the things that have
Speaker 4: done well in the past, including some of those large
Speaker 4: cap names that you mentioned. So, you know, I'm kind
Speaker 4: of a traditionalist in that way. I do believe you
Speaker 4: want to be diversified and have exposures to multiple places.
Speaker 3: But I do think that this AI enthusiasm.
Speaker 4: I believe in it in terms of a technology. But
Speaker 4: when you look at the massive amount of spending that
Speaker 4: is now being undertaken by some of these companies, you
Speaker 4: know they've gone from leveraging balance sheet cash to make
Speaker 4: those investments to now accessing fixed income markets in a
Speaker 4: massive way and even in some cases issuing equities. So
Speaker 4: you do have to sort of wonder whether that you
Speaker 4: know that vein alone is going to be where the
Speaker 4: money is going to be made going forward. I'm not
Speaker 4: saying that you know they can't still generate good earnings,
Speaker 4: but there are plenty of other places.
Speaker 3: If you think about energy, if you think.
Speaker 4: About utilities, you think about all the ecosystem required to
Speaker 4: enable that AI transformation, and then perhaps most importantly, you
Speaker 4: know the real economy and how sectors like finance or
Speaker 4: healthcare or other things are going to benefit from these technologies.
Speaker 3: I think we're just.
Speaker 4: At the tip of the iceberg in terms of what
Speaker 4: that will mean for innovation of productivity.
Speaker 1: So, when you're looking at this enormous capital spend that
Speaker 1: you referenced, and we didn't even bring up all the
Speaker 1: private credit that's been pouring hundreds of billions dollars into that,
Speaker 1: how do you judge when the spending is productive in
Speaker 1: producing sufficient returns. Given how the fire hose of capital,
Speaker 1: there has to be some misallocation and there are going
Speaker 1: to be some winners and losers. But when does the
Speaker 1: next incremental dollar become bad money after good?
Speaker 2: How can we tell.
Speaker 4: We're watching for when does that capex not translate into
Speaker 4: incremental earnings?
Speaker 1: So let's stay with the idea of artificial intelligence. You
Speaker 1: work at a very large asset manager. I would imagine
Speaker 1: the biggest shops have a little bit of an lasting
Speaker 1: advantage in deploying AI, not only looking at their own
Speaker 1: language models that they've created internally, just the ability to
Speaker 1: deploy that capital way that makes them more to deploy
Speaker 1: that technology in a way that makes their capital more efficient,
Speaker 1: more productive.
Speaker 2: How are you.
Speaker 1: Looking at AI from the perspective of the finance set?
Speaker 4: This is a whole podcast in its own right, but
Speaker 4: let me just I guess share a couple of thoughts.
Speaker 4: First and foremost, we've been on the AI journey for
Speaker 4: over a decade. We've been using machine learning and natural
Speaker 4: language processing and other types of technology in our active.
Speaker 3: Strategies for over a decade.
Speaker 4: And I think it's important to also know as a GCIFI,
Speaker 4: we're a highly regulated institution, so we've also spent many,
Speaker 4: many years on the infrastructure, governance other things deploy these
Speaker 4: types of tools, being mindful of cybersecurity threats, privacy, all
Speaker 4: the other things that you would expect a large bank
Speaker 4: to be worried about.
Speaker 3: So where we are.
Speaker 4: Now, I would say the biggest places that we're seeing
Speaker 4: AI support our business are in more things that are
Speaker 4: operational in nature, that are repeatable processes, where we can
Speaker 4: deploy some technology and free up people to do other
Speaker 4: more interesting things. If you think about some of the
Speaker 4: marketing elements, things like r FPS or commentary writing or
Speaker 4: other kinds of client servicing elements, they lend themselves beautifully
Speaker 4: to leveraging this technology. Because you have a database of information,
Speaker 4: the question might get asked in a slightly different way,
Speaker 4: and the AI can actually feedback the most relevant answers.
Speaker 4: And then you have a human in the loop, always
Speaker 4: in our environment today that ultimately owns the final product.
Speaker 4: But those are I think the sort of early wins
Speaker 4: for us is that kind of of efficiency gain leveraging
Speaker 4: people to do more higher order things down the road.
Speaker 4: Will this get more integrated into our investment process. In philosophy,
Speaker 4: we're experimenting with a lot of things. We've got the
Speaker 4: concept of a research copilot, which let's a portfolio manager
Speaker 4: you know, survey hundreds, dozens whatever, you know, research reports
Speaker 4: and do so very efficiently using an AI.
Speaker 3: Type of a tool.
Speaker 4: They still have to you know, pressure tests, whether the
Speaker 4: results are getting back makes sense, and they still ultimately
Speaker 4: make the decision about what they're going to do with
Speaker 4: that information from a portfolio standpoint. But we see lots
Speaker 4: of opportunities for that kind of augmentation of the human
Speaker 4: as well.
Speaker 1: Let's talk a little bit about inflation. We've had a
Speaker 1: series of things that have contributed to it.
Speaker 2: Tariffs, war in the Middle East, et cetera.
Speaker 1: Here we got the best CPI print we've had in
Speaker 1: five years, but that's primarily been because we briefly thought
Speaker 1: the war was over. An oil price is plummeted now
Speaker 1: the war is back on, and I track things like
Speaker 1: the producer price index is six and a half percent.
Speaker 1: We know that's just going to push into final prices over.
Speaker 2: The next few quarters.
Speaker 1: So how do you think about inflation and fixed income
Speaker 1: and specifically, and has macroeconomic forecasting in this environment just
Speaker 1: become I don't want to say impossible, but so challenging.
Speaker 4: Well, macroeconomic forecasting is always difficult, and I would say
Speaker 4: what we've also seen over the last several years is
Speaker 4: data revisions coming in at a massive level too, So
Speaker 4: what you see in a print one day, whether it's
Speaker 4: the payroll data or the DDP or whatever, a quarter
Speaker 4: or later, might be changed pretty dramatically. So you have
Speaker 4: to be a bit humble in this kind of environment
Speaker 4: when you're making any kind.
Speaker 3: Of bold calls.
Speaker 4: But I would say our core view is that inflation
Speaker 4: will still trend lower over time. We think it might
Speaker 4: not get back to the two percent level, but we
Speaker 4: aren't necessarily thinking that six percent is something that's sustainable.
Speaker 4: Good and the bad news here is that when you
Speaker 4: have inflation shock coming from things like commodity prices, they rebase,
Speaker 4: so you get that one time shock and then you're
Speaker 4: done unless there's another shock on top of that. So
Speaker 4: at some point that sort of recalibrates in its own right.
Speaker 4: I think the thing that we've been most surprised by
Speaker 4: this year is the underlying resilience of the US economy.
Speaker 4: In particular, we were thinking that labor markets were going
Speaker 4: to be under a lot more pressure than they ultimately
Speaker 4: have been, at least so far. We thought that the
Speaker 4: inflation coming from the war would filter into other places
Speaker 4: like fertilizer and food and other things which may still happen. Right,
Speaker 4: we haven't gotten through the farming cycle here in the US,
Speaker 4: but we're not seeing the consumer while they're stretched.
Speaker 3: We're not seeing the consumer.
Speaker 4: Necessarily pull back the way that we thought that they might. So,
Speaker 4: you know, the second half will be a very interesting
Speaker 4: second half.
Speaker 1: To say the least. Let's stay with the consumer. There's
Speaker 1: a couple of things that I've noticed that's kind of interesting.
Speaker 1: If we look at the second quarter sector breakdown, consumer
Speaker 1: discretionary worst performer of the group, essentially flat. If you
Speaker 1: look at consumer spending, there's a greater reliance on short
Speaker 1: term credit and credit cards. Then just salary increases, and
Speaker 1: then consumer sentiment, and I think we can all agree
Speaker 1: the University of Michigan sentiment measure has become broken over
Speaker 1: the past few years. But still, what whether you call
Speaker 1: it the vibes, the sentiment, whatever, seems to be shockingly negative.
Speaker 1: I don't disagree with you about the resilience of the economy,
Speaker 1: but how do we figure out what's going on with
Speaker 1: the consumer and their importance to the ongoing resilient economy.
Speaker 4: Well, I think the first thing is that I agree
Speaker 4: with everything you're saying, but they are also offsets. So
Speaker 4: people are getting tax refunds, You've got, you know, other
Speaker 4: benefits coming through from the one big beautiful bill, so
Speaker 4: you do have some other things that are still propping
Speaker 4: up the consumer at the margin.
Speaker 3: And employment still is.
Speaker 4: Is pretty strong here in the USA, so you still
Speaker 4: have pretty good sort of underpinnings, if you will. But
Speaker 4: it's clear that the average consumer is feeling like they're
Speaker 4: losing ground right there. Been you know, lots of articles
Speaker 4: about even couples that are making over one hundred thousand
Speaker 4: dollars feeling like they have food insecurity. Well, that's a
Speaker 4: problem for sure, and it probably means they're going to
Speaker 4: pull back somewhere else. But my point is that in
Speaker 4: the aggregate, whether it's from Capex and other corporate spending,
Speaker 4: the sort of K shaped consumer economy where the upper echelon,
Speaker 4: if you will, is being benefited by housing prices, which,
Speaker 4: while they're plateauing, have come up a lot, but outset
Speaker 4: prices that are going up a lot, still, there's still
Speaker 4: a lot of resiliency there.
Speaker 2: So I'm glad you work both of those up.
Speaker 1: The pushback I get from bearish colleagues are A, Yeah,
Speaker 1: the economy looks good, but it's almost all driven by
Speaker 1: the upper quarter, and I think that's being generous on
Speaker 1: the quartel side. But the other criticism is, hey, all
Speaker 1: of this AI related cap x is masking underlying weakness,
Speaker 1: although I don't see that weakness in much of the data.
Speaker 1: What's your response to those sort of criticisms.
Speaker 4: Look, I think that the good and the bad news
Speaker 4: is that you don't need one hundred percent of the
Speaker 4: consumers to participate to have the consumer economy.
Speaker 3: Doing just fine.
Speaker 4: So that's a sad thing in a lot of ways,
Speaker 4: but it's just the reality. And by the way, companies
Speaker 4: are generating productivity from things like the deployment of AI already,
Speaker 4: and we think that that's very constructive.
Speaker 1: And then speaking of productivity, we really haven't talked about
Speaker 1: you know, everybody talks about the Magnificent seven. What about
Speaker 1: the other for NAT ninety three companies in spy that
Speaker 1: are becoming more efficient, more productive, more profitable. How do
Speaker 1: we contextualize that.
Speaker 3: Well, we think we're in the very very early in things.
Speaker 4: So I mentioned earlier, we've got active teams, right, and
Speaker 4: this is their domain. Right. So these are people who
Speaker 4: are in the tech sector, in the healthcare sector, in
Speaker 4: the finance sector, doing the hard work to understand.
Speaker 3: Who the winners and losers are going to be.
Speaker 4: And the mantra over and over again is that the
Speaker 4: companies that adopt technology for efficiency, gain for innovation, to
Speaker 4: create competitive modes are going to have a really good
Speaker 4: runway from that deployment. So we are quite optimistic in
Speaker 4: terms of what that means for long term prospects.
Speaker 1: So before I get to my favorite questions, there were
Speaker 1: a couple of items I had to talk to you
Speaker 1: ask you about that are a little more off the
Speaker 1: beaten path. You were chosen to lead State Streets Fearless
Speaker 1: Girl campaign. Explain what that is and why you were
Speaker 1: chosen to take that role.
Speaker 3: Yeah, so this is true serendipity, right.
Speaker 4: So, as with anything, these things take a village, right.
Speaker 4: And so we had this placement of what is now
Speaker 4: the iconic statue of the Fearless Girl, initially down on
Speaker 4: Bowling Green facing off against the bull. And I had
Speaker 4: been one of several people who had been involved in
Speaker 4: that effort and got a call the night before the
Speaker 4: statue was going to be placed and somebody said, can
Speaker 4: you go to.
Speaker 3: New York like now and be there when.
Speaker 4: We place this statue, just in case there's a tension,
Speaker 4: just in case some of the networks pick it.
Speaker 2: Up, and just to just to flesh that out a
Speaker 2: little bit.
Speaker 1: Everybody knows the Wall Street Charging Bull is actually not
Speaker 1: on Wall Street. It's on Lower Broadway. It's a massive
Speaker 1: twenty five ton statue. The Fearless Girl is proportional real life.
Speaker 1: A little girl just standing up to the bull, their
Speaker 1: little hands on our hips, so almost like a big
Speaker 1: goulp exactly staring down the bull.
Speaker 2: So tell us what happened with Yeah, to New York.
Speaker 4: So I fly down, I you know, show up the
Speaker 4: next morning, bright and early, and you know, there's a
Speaker 4: little bit of milling around. Happened to be a rainy day,
Speaker 4: so there weren't too many people out and about. But
Speaker 4: suddenly it started to get a little bit of interest,
Speaker 4: and so we had a couple of reporters, you know,
Speaker 4: come by and say what's happening. We explained to them
Speaker 4: that this was a moment where we were trying to
Speaker 4: advocate for everybody's future and used it as an opportunity
Speaker 4: given it was international Women's Day specifically that that was
Speaker 4: the timing of the placement, and so one thing led
Speaker 4: to another, and before you know it, I'm booked on
Speaker 4: three or four or five news programs over the next
Speaker 4: forty eight hours and telling the story about how the
Speaker 4: Fearless Girl came about and why we did it, and
Speaker 4: how important it was to stand up for those who
Speaker 4: perhaps couldn't stand up for themselves.
Speaker 1: So very successful campaign. And where's the Feeliss Girl today?
Speaker 4: Well, she is now opposite the New York Stock Exchange.
Speaker 4: So one of the things that happened is that she
Speaker 4: started to attract so much attention that they were worried
Speaker 4: about the safety risk because as you know where the
Speaker 4: bull is that it's a very narrow street there, and
Speaker 4: people were milling onto the street. So we got a
Speaker 4: permanent or semi permanent at least for now placement in
Speaker 4: front of the New York Stock Exchange.
Speaker 3: And that's where she's been sent.
Speaker 1: That makes a lot of sense, that's a good location
Speaker 1: for that. So I know, you serve on a couple
Speaker 1: of boards. The one that really jumped out at me
Speaker 1: the Boston Ballet tell us a little bit about what
Speaker 1: that's like.
Speaker 4: Yeah, So I've always been a great fan of the arts.
Speaker 4: I was a gymnast as a child. I wasn't a ballerina,
Speaker 4: but I think there's a lot of rhyming there. And
Speaker 4: I've always been a fan of ballet as an art form,
Speaker 4: and the Boston Ballet is very interesting because they are
Speaker 4: trying to consolidate both the legacy classical repertoire with a
Speaker 4: lot of more modern, contemporary, avant garde kinds of repertoire.
Speaker 4: And so they did a collaboration with the Rolling Stones,
Speaker 4: for example, where we did a ballet set to some
Speaker 4: of the Rolling Stones music.
Speaker 3: And so it's just been a great way to.
Speaker 4: Meet people in the cultural community in Boston but also
Speaker 4: be part of art making that you know, I find
Speaker 4: just fascinating.
Speaker 1: Huh, really really interesting. So I only have you for
Speaker 1: a few more minutes. Let me jump to my favorite questions,
Speaker 1: starting with who were your early mentors?
Speaker 2: Tell us about who helped shape your career.
Speaker 4: Yeah, so I would say I didn't really think about
Speaker 4: mentors when I was younger. I would say my bosses
Speaker 4: were my mentors in the sense that they stretched me,
Speaker 4: they gave me opportunities. I talked earlier about that situation
Speaker 4: at first Boston where we were in front of the
Speaker 4: airport authority, and you know, I would not have had
Speaker 4: the opportunity to be in a room like that in
Speaker 4: a lot of companies. But I think my boss felt
Speaker 4: that I'd done the work and I deserved a place
Speaker 4: at the table. So throughout, particularly my early career, I
Speaker 4: would say it was my bosses who stretched me, gave
Speaker 4: me opportunities. And then I would say about mid career,
Speaker 4: with another colleague created this group called Connected Women. It
Speaker 4: was a very informal type of a thing where a
Speaker 4: number of women and sort of similar vintages got together
Speaker 4: regularly and we became vintages. We drank a lot of wine,
Speaker 4: so I could use the word vantages, so it was
Speaker 4: really a wine drinking club. But there was a benefit
Speaker 4: that we got to know each other well our professional
Speaker 4: and our personal stories, and so we could help each
Speaker 4: other out. So when we were, you know, looking at
Speaker 4: career situations, it was a good circle of friends that
Speaker 4: I could turn to who were in similar states in
Speaker 4: their careers and trying to make it on the corporate ladder,
Speaker 4: that I could lean on.
Speaker 2: Really really interesting.
Speaker 1: Let's talk about books. Are what are some of your favorites.
Speaker 1: What are you reading currently?
Speaker 4: Yeah, so, you know, I tend to like biographies. Read
Speaker 4: a bunch of the you know, Churnou and you know
Speaker 4: Titan and House of Morgan and the Walter Isaacs and
Speaker 4: you know, Steven Jobs. And I like biographies because they
Speaker 4: meld history with leadership, with whatever.
Speaker 3: The you know topic is.
Speaker 4: So obviously, with the you know, the Titan and House
Speaker 4: of Morgan, it's a finance centric kind of a story,
Speaker 4: and with Jobs it was a technology centric. But seeing
Speaker 4: how those leaders navigated you know, innovation, their time, the
Speaker 4: people around them, I just find that fascinating much better
Speaker 4: than reality TV in my opinion.
Speaker 3: Well is reality TV?
Speaker 2: Speaking about TV?
Speaker 1: Are you streaming any Netflix or Amazon Prime type? Yeah?
Speaker 4: Yeah, So right now I am on a bit of
Speaker 4: a hiatus. I've been trying to read some fiction, so
Speaker 4: I'm doing some Tony Morrison right now. I went to Princeton,
Speaker 4: as you probably remember, and so I've been trying to
Speaker 4: do a bit more reading in my spare time.
Speaker 1: Our final two questions, what sort of advice would you
Speaker 1: give to a recent college grad in a career in
Speaker 1: either investing or asset management.
Speaker 4: Well, the first thing I would say is it's a
Speaker 4: fantastic career.
Speaker 3: You can do so many different things.
Speaker 4: You get access to technical acumen, you have the interpersonal
Speaker 4: piece of things. You have to solve problems. I love
Speaker 4: the problem solving aspect of it, and I think it's
Speaker 4: something where no matter what your preferences are, you can
Speaker 4: find your vein right. You know, I happen to make
Speaker 4: my way to global Chief Investment officer, but there are
Speaker 4: people in marketing, or people in distribution, or people in processing,
Speaker 4: and all of those are just absolutely fascinating careers.
Speaker 3: It's never a dull moment.
Speaker 1: And our final question, what do you know about the
Speaker 1: world of investing in asset management today? Might have been
Speaker 1: useful back in the nineties when you first getting started.
Speaker 4: Yeah, well, I wish I had started investing earlier and
Speaker 4: more often. I was a net creditor for many, many,
Speaker 4: many years because I wanted to.
Speaker 3: Have nice clothes and jewelry.
Speaker 1: I can't tell you how often I hear that, which
Speaker 1: is really just a backdoor ad mission of the power
Speaker 1: of compounding.
Speaker 4: And maybe that bitcoin that was my other thing. I
Speaker 4: probably should have done well twelve if you had.
Speaker 1: A crystal ball, But what's the big insight that that
Speaker 1: would have been useful to know generally about marketing.
Speaker 4: You know, I'm not joking about the early and often,
Speaker 4: and truth be told, I'm one hundred percent equity invested
Speaker 4: even now, so.
Speaker 2: You know I'm a big fan back in my day.
Speaker 4: You know, it was the one hundred minus your age,
Speaker 4: which would put me squarely not in one hundred percent
Speaker 4: equity category if I followed that rubric. But I think
Speaker 4: a lot of people would just be served by being
Speaker 4: in equities, you know, for the long term, unless you
Speaker 4: only have a couple of years and who knows, uh,
Speaker 4: that's where the money is.
Speaker 1: This is a little hindsight biased, but I am always shocked.
Speaker 1: It's literally a chapter in the book of people who
Speaker 1: are twenty thirty, forty years old that have a substantial
Speaker 1: fixed income. I understand it's ballast that offsets the volatility
Speaker 1: of equity, but really, until you're over fifty, maybe even
Speaker 1: over sixty, do you and getting closer and closer retirement,
Speaker 1: do you really need to have forty percent of your
Speaker 1: portfolio in bonds. It doesn't make a whole lot of sense.
Speaker 4: Well, look, I mean for a lot of institutional clients,
Speaker 4: it makes perfect sense. They're liability matching right, and they
Speaker 4: need that fixed income. And I think if you need liquidity,
Speaker 4: or you're going to have your children's college education or
Speaker 4: weddings or things like that in a couple of years,
Speaker 4: absolutely fixed in come plays a role. But if you
Speaker 4: have the ability to not touch that investment capital, I
Speaker 4: think equities.
Speaker 3: Is a way to go.
Speaker 1: Thank you, Laurie for being so generous with your time.
Speaker 1: If you enjoy this conversation, well check out any of
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