The transcript from this week’s MIB: Sharon French, Oppenheimer Funds is below.
You can stream/download the full conversation, including the podcast extras on Apple iTunes, Bloomberg, Overcast, and Stitcher. All of our earlier podcasts on your favorite host sites can be found here.
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VOICE-OVER: The Masters in Business podcast is brought to you by Invesco. Every day at Invesco, we bring together ideas with technology, data with inspiration and investors with solutions. Let’s invest in greater possibilities together. Find out more at invesco.com/together.
VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: This week on the podcast, I have an extra special guest. Her name is Sharon French and she is the Head of Beta Solutions at Oppenheimer Funds. She has a storied career stopping at such places as JPMorgan Chase, AllianceBernstein and BlackRock, amongst others. She has been an instrumental person in the development and growth of the ETF sector as well as a very active participant in the ESG, environmental, social and governance sector of investing. She is consistently nam0065d one of the most influential people in finance, most recently Crain’s at their list of 40 Women. But find a list of 100 most influential women in markets, investing, finance, and Sharon is invariably on that list.
You will find this to be an absolutely fascinating conversation. So with no further ado, my conversation with Sharon French of Oppenheimer Funds.
VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My special guest this week is Sharon French. She is the Head of the Beta Solutions at Oppenheimer Funds where she also implements the firm’s ESG efforts as well as overseas a number of smart beta ETF products and solutions. She has previously worked at such storied firms as BlackRock, AllianceBernstein, Chase, JPMorgan Chase. She is a graduate of Wharton School of Business and serves on the Board of Women in ETFs.
Sharon French, welcome to Bloomberg.
FRENCH: Thank you, Barry. I’m glad to be here.
RITHOLTZ: We’ve been talking about doing this now for a long time. I’m glad we finally got you in the studios to have this conversation. Let’s talk a little bit about your career.
You began back at JPMorgan Chase when they were really a much smaller shop, weren’t they?
FRENCH: Yes, yes, down on Water Street, 1 Water Street, right across Staten Island Ferry.
RITHOLTZ: What — what was Chase …
FRENCH: 1987.
RITHOLTZ: Yeah, what were they like then? And what was your role with them?
FRENCH: Sure. So I graduated with a management degree with concentration in finance. I went into a sort of global training program with them. Certainly, you know, much smaller at the time, you know, still very regionally-based. You know, the — the project that I was working on is really how to define profitability for their different product lines, but I got a chance very early in my career to travel abroad to — I lived in Paris and then London. I lived in Milan, Madrid, Frankfort, doing cost days with country managers and then making a recommendation to, you know, either de-market a product or — or, you know, sort of focus in a particular area. And so I was would definitely over my skis looking back. I don’t know that I knew really what I was doing, but I certainly learned a lot.
RITHOLTZ: Well, this is — was this right out of grad school they start sending you around the world?
FRENCH: This was right out of undergrad.
RITHOLTZ: Right.
FRENCH: Yes, right out of undergrad, so I was young. Yes, yes.
RITHOLTZ: So …
FRENCH: But you have to work really hard the first year and then, you know, sort of, you know, compete to go overseas. So thankfully, you know, I’ve never been shy to hard work, and so they, you know, gave me the opportunity and I jumped at it.
RITHOLTZ: So you go from Chase to Wharton. Where did you go?
FRENCH: No, so my undergrad is from University of Delaware. Wharton is my …
RITHOLTZ: Grad school.
FRENCH: … my certified Investment Management Analyst designation. That’s right.
RITHOLTZ: And so where did you go from — from UPenn?
FRENCH: So — so then I just went straight into Chase, right? So …
RITHOLTZ: Oh, OK.
FRENCH: … I started my career in global banking, then moved into brokerage, then asset management.
RITHOLTZ: Got you.
FRENCH: Yeah.
RITHOLTZ: So all right, so then you go from — how — how do you end up with BlackRock right in the middle of the entire buildout of iShares?
FRENCH: Yeah, yeah, that was fun. That was right after Larry Fink bought BGI, so right. I think that deal closed December 2009. And look, you know, I certainly have an appreciation — a broad appreciation for financial services in general because my journey and career progression was, like I said, global banking, wealth management, brokerage platforms really share some Lehman Brothers out through what is now called Morgan Stanley. And then I went into asset management, always on the active or fundamental active side, right, which is what people like you and I grew up with, the mutual fund.
But what really drove me crazy at AllianceBernstein was that we would go into an institutional presentation, right, so you’ve got the committee there. You’ve got the chief investment officer and would be trying to sell whatever strategy. And invariably, probably 50 percent of the time, we would lose to BGI, Northern Trust, State Street because of the passive mandate. And, you know, what I was trying to articulate to the chief investment officer is that the — the real prudent way to run the pension fund, as an example, is to figure out how to combine intelligent alpha with efficient beta …
RITHOLTZ: Right.
FRENCH: … so that there’s really room for both of us.
So what again intellectually stuck in my brain is I cannot really, as a practitioner, talk about the indexed — enhanced index or — or beta side of the business. And so I got a call from a recruiter, Jamesbeck, wonderful recruiter here in New York City, and they had a position at iShares. And I loved to AllianceBernstein, Lew Sanders especially, as a leader, was — was just a legend.
RITHOLTZ: They had such a fabulous research group, especially in the 90’s right into the teeth of the …
FRENCH: Absolutely, and Bernstein …
RITHOLTZ: … dot com collapse.
FRENCH: … plus Alliance was sort of like boom …
RITHOLTZ: Right.
FRENCH: … right? It is just a fabulous combination. So I never thought I would leave. But this — I had this nagging thing in my brain intellectually as a professional that I needed to satisfy. I needed to be able to talk about both sides of the investment management industry again as — as a professional, so that’s really why I went. And I got to tell you and, of course, I got, you know, I got grilled and everybody said to me, “Oh, you’re going to the dark side.”
RITHOLTZ: Right.
FRENCH: And I guess I suppose I did, but I did it, you know, deliberately.
RITHOLTZ: Well, by dark side you mean more efficient and low-cost or dark side just the comp?
FRENCH: Dark side, anything passive …
RITHOLTZ: Right.
FRENCH: … right, from fundamental active into the dark side of indexing …
(Crosstalk)
RITHOLTZ: You are — you are dead right when you say they’re not mutually exclusive, they’re …
FRENCH: Yeah.
RITHOLTZ: … complimentary, and I don’t …
FRENCH: That’s right.
RITHOLTZ: … understand why people — I guess, when you’re losing business and we’ve seen the flows have just been …
FRENCH: Right.
RITHOLTZ: … when you started at iShares, did you ever imagine Vanguard would be $5 trillion, BlackRock would be $6 trillion, and a decade of flows would shift from active to passive the way we’ve seen?
FRENCH: No, I really did. And look, you and I both know that I think 2008 really propelled that forward dramatically. But — but when I …
RITHOLTZ: Sure.
FRENCH: … joined iShares, Vanguard and State Street were — were certainly above iShares and serves at the league tables, but iShares came on strong. And — and one of the big strategic moves that iShares made — and this is right when Mark Wiedman took over in 2011, maybe nine months after, is they — you know, they were losing the core positions to Vanguard, right? They are — they are being relegated to the satellites.
And so they came out with the core series, right, sort of replicating Vanguard’s core products …
RITHOLTZ: Lower cost …
FRENCH: … at a lower phase.
RITHOLTZ: … very basic, right.
FRENCH: And that was a big game changer. I mean, certainly USMV which rivaled SPLV and had a better construction, took a lot of assets in low vol, so they — you know, they — they really made a lot of good strategic moves.
RITHOLTZ: I’m fascinated by Larry Fink in …
FRENCH: Yeah.
RITHOLTZ: … 2009 when everybody is still stinging …
FRENCH: Yeah.
RITHOLTZ: … from the GFC, from the financial crisis …
FRENCH: Yeah.
RITHOLTZ: … says no, no, now is the time we were going to make a giant purchasing, totally …
FRENCH: Yeah.
RITHOLTZ: … reformulate the firm. That is …
FRENCH: Yeah.
RITHOLTZ: … one of the great old time …
FRENCH: I agree.
RITHOLTZ: … pivots in — in history.
FRENCH: And if you recall the time, everyone thought, oh, my gosh, he’s totally overpaying for BGI. And everybody …
RITHOLTZ: This guy has lost his mind, right.
FRENCH: … is laughing. He’s laughing all his way to the bank.
RITHOLTZ: Right.
FRENCH: Right?
RITHOLTZ: And — and now they are literally …
FRENCH: Yeah.
RITHOLTZ: … the biggest shop in the world.
FRENCH: Yeah, yeah, yeah.
RITHOLTZ: So — so you were there at a time when the growth was really …
FRENCH: Yeah.
RITHOLTZ: … ramping up.
FRENCH: Yeah, it was, it was …
RITHOLTZ: What was that experience like?
FRENCH: So here’s how I describe, and many of us who have been at iShares and have since left and gone on to really wonderful things, it’s like going to boot camp for the special forces.
RITHOLTZ: I knew you are going to use that metaphor because I have attended a number of conferences where you and I have both spoken, and that crew of ETF people all seem to have gone through the same baptism of fire.
FRENCH: Yeah, yeah.
RITHOLTZ: Is that — is that a fair way to describe it?
FRENCH: It’s absolutely fair. Again, if you have anybody else on your show who’s — who was there for a period of time and left, we all say wonderfully positive things about the experience and I mean that oh so genuinely because every single day you are walking into battle. The bar is set so high for everything that you have to achieve. And Larry Fink’s expectations are real. They — they — they are quite lofty for everybody. And so, you know, you really sharpen your skillset that when you get out, you get out like you are a green beret, you’re a Navy Seal or call it what you will, right? So therefore, you are very hirable. People love to take people from BlackRock.
Now, difficult culture because of that but, you know, I absolutely look back at that time in my life as a — a wonderful experience that shaped a lot of who I am today.
RITHOLTZ: And the proof is how successful they’ve become. Whatever they’re doing, it seems to be working.
FRENCH: Yeah.
RITHOLTZ: I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My special guest today is Sharon French. She is the Head of Beta Solutions at Oppenheimer Funds, which she oversees smart beta products as well as ESG efforts.
Before we move on to what you’re currently doing an Oppenheimer, I have one last BlackRock question. So you were Head of Private Client and Institutions of BlackRock. What did that work entail on a day-to-day basis? What — were you basically in branding and marketing or were you frontline dealing with CIOs and investment committees?
FRENCH: Yeah, frontline. Good question. Yes, so it — so institutional which was also of a — a responsibility of mine at AllianceBernstein, so institutional and private banks. So, you know, we certainly dealt with JPMorgan Private Bank quite a bit and a lot of the others, Wells Fargo, et cetera. You know them well. And so it was — it was really a strong product development client fit role.
At that time, the — the iShares, you know, product line-up, if you will, was growing pretty dramatically, but it was very closely connected and linked to certain channels. So the channel …
RITHOLTZ: Mainly retail and…
(Crosstalk)
FRENCH: … that I – exactly, that’s – now, they’re — they’re pure beta, you know, index stuff. You know, the — some institutional guys we’re using as trading vehicles, but they certainly were looking to get away from that specifically within smart beta. First Trust was coming up very fast in the — in the sort of rearview mirror at the time. So we had to sort of pivot and balance between our — our pure beta market cap strategies, which is really where they started, into how do we tilt a particular product more fundamentally. And a lot of the feedback that we were getting for that product development was driven exactly from some of the private banks that we work with in some of the larger institutions.
RITHOLTZ: Quite interesting. So let’s talk about beta solutions, which is kind of a — a mouthful to — instead of just saying beta. So let me just start with the obvious question, what’s the difference between beta solutions and …
FRENCH: Yeah.
RITHOLTZ: … basic indexing?
FRENCH: Yeah. Well, so — and there’s a reason why it’s called that so we’re …
RITHOLTZ: I assumed there was.
FRENCH: Yeah, right. When I was hired to Oppenheimer Funds, it was a very deliberate decision by Art Steinmetz, the CEO, to really, you know, commit and go full force into the ETF business, utilizing smart beta, taking a pass on market cap because there’s certainly big players who …
RITHOLTZ: Right.
FRENCH: … you know, corner that market.
RITHOLTZ: Hard — hard to add value there if you’re …
FRENCH: That’s right.
RITHOLTZ: … a smaller or even a mid-sized player there, right?
FRENCH: That’s right. And so he sort of wanted to call the units so it’s a — this is the sort of a — a — a independently-run, if you will, operating unit within Oppenheimer Funds, which gives us the space and the focus and the commitment to sort of build our business alongside of our active business. But he wanted to call it smart beta, and I said, you know, is that really what we’re trying to do? Aren’t we — aren’t we trying to take a beta concept …
RITHOLTZ: Right.
FRENCH: … and wrap it in whatever it makes sense to wrap it in, whether it’s an ETF fund, a separate account, a UCIT. So shouldn’t this be called beta solutions because if we are pigeonholing ourselves just into smart beta …
RITHOLTZ: Right.
FRENCH: … and, you know, for the longest time, people really didn’t know what smart beta was. It had all — all kinds of names, strategic beta, alternative beta …
RITHOLTZ: Fundamental indexing …
FRENCH: Exactly.
RITHOLTZ: … probably the most descriptive. Are — are you on the side of the fence that thinks the phrase smart beta is a marketing term?
FRENCH: I am on that side of the fence.
RITHOLTZ: So you’re — you’re not a fan of that. I know a lot of people …
FRENCH: I am not.
RITHOLTZ: … just cringe every time …
FRENCH: Yeah.
RITHOLTZ: … they hear …
FRENCH: Yeah.
RITHOLTZ: … the term because if you think about it, if beta is just what the market is giving you, what is — how — how are you modifying that with smart?
FRENCH: I like alternatively weighted, right?
RITHOLTZ: OK.
FRENCH: … because I — I think of — I think of buying the market, right …
RITHOLTZ: Right.
FRENCH: … which is market cap and certainly favors certain stocks or sectors which, you know, there’s always been concentration risk in that approach.
RITHOLTZ: Sure.
FRENCH: Some people still want it, which is fine, but there’s better ways and different choices on how to drive that risk return profile through alternatively weighting the index. And I really do believe that.
RITHOLTZ: I remember way back when, I think it was Guggenheim who had the equal weighted …
FRENCH: That’s right.
RITHOLTZ: … S&P 500.
FRENCH: RSP, yeah.
RITHOLTZ: And that was suddenly like, wow, so you don’t have …
FRENCH: Right.
RITHOLTZ: … the market cap weighted.
FRENCH: Yeah, yeah.
RITHOLTZ: It was never giants, although it certainly has grown.
FRENCH: Yeah.
RITHOLTZ: But it was always — you mean there’s a different way to do this? It’s kind of surprising that the smart beta move hadn’t begun …
FRENCH: Right.
RITHOLTZ: … earlier because people were clearly thinking about ways to look at indexing that wasn’t just cap weighted.
FRENCH: That’s right. And what I’m really encouraged by, Barry, is that if you look at flows into 2017 versus 2018, smart beta of the total pie of ETF flows was about 12 percent …
RITHOLTZ: Really?
FRENCH: … in 2017. In 2018, it was 25 percent.
RITHOLTZ: That’s giant. It seems to have plateaued somewhat now, right, or is it still growing?
FRENCH: It’s still growing. Yeah, it’s still growing. I mean …
RITHOLTZ: More slowly.
FRENCH: … some of the — well, you know, I mean, this year, I mean, I haven’t seen April numbers yet …
RITHOLTZ: Right.
FRENCH: … but it’s — it’s had pretty healthy growth this year. You know, that — I know that it’s over 25 percent whether it will double. I mean, it — it doubled …
RITHOLTZ: Right.
FRENCH: … from 2017 to 2018.
RITHOLTZ: That’s a nice …
FRENCH: Whether it will double, that’s — that’s a bit of a stretch. But the point of the matter is we knew we would get smart beta market share from three places. The first is underperforming active and, you know, sort of Morningstar one and two-star-rated funds.
RITHOLTZ: Right.
FRENCH: We certainly saw there the — just the sheer growth of smart beta trying to get our unfair share of that, and that’s …
RITHOLTZ: Right.
FRENCH: … the growth I’m talking about from 2017 to 2018 doubling, and then passive. So as people got more educated about the merits of alternatively weighted, some of the, you know, sort of traditional passive buyers started to move towards and understand what they were getting by paying, in some cases, 20 basis points more to give us more beta product. They started to move parts of their portfolio to smart beta from having it be all passive.
So there are three pillars by which we gathered market share, and we’re about $5 billion today and from our — our start with — it’s about a 49 percent CAGR. So we’re pretty happy with — with those.
RITHOLTZ: So — so let’s — since you brought that up, let’s talk about what Oppenheimer’s portfolio options look like. So you have the alternative weighting you’re saying is about …
FRENCH: We do.
RITHOLTZ: … $5 billion.
FRENCH: Yeah.
RITHOLTZ: What are the other ETF offerings they have in either the beta or the …
FRENCH: Yeah.
RITHOLTZ: … non-beta opportunity?
FRENCH: Sure, sure. So we have 20 equity strategies starting out with revenue weighted.
RITHOLTZ: Revenue weighted, so that’s a traditional smart beta fundamental indexing.
FRENCH: It is, absolutely, yeah. And that is due to a small acquisition we made back at the end of 2015 of revenue shares, really kept five of those products and then built that suite out. And then we started to move into factors and we’ve got a — a really nice partnership with FTSE Russell. We introduced Dynamic Multi-Factor, which we’re super proud of. We are one of the first SM PIMCO.
RITHOLTZ: So this is an active …
FRENCH: No, it’s — well, interesting. We — it’s sort of an active overlay, so it’s a macro signal coming from our global multi-asset group …
RITHOLTZ: Got it.
FRENCH: … which takes sort of leading economic indicators as well as the sort of the momentum signals from the market, and tells us monthly whether we’re either in a recovery, an expansion, a contraction or a slowdown. And then we take the five factors and we weight them depending upon, which market regime we’re in.
RITHOLTZ: And so based on that you will alter within the ETF the weighting of the different …
FRENCH: Exactly.
RITHOLTZ: … rules.
FRENCH: So it is rules-based, but it is informed by this active signal, and it has done a phenomenal. We launched in November 2017. It’s at the top of the category.
RITHOLTZ: So this is kind of an interesting space because people have been talking about making — it’s ironic how beta has driven so much of ETFs, but we’re talking about making ETFs more dynamic and more active based on a variety of other inputs. So this one is rules-based driven by a series of economic inputs. Any other dynamic or active ETFs, current or on the horizon?
FRENCH: Well, interestingly, so we did file with the SEC for a senior loan product. We’ve got a very, very well-recognized and successful senior loan franchise.
RITHOLTZ: Fixed income or equity?
FRENCH: Fixed income.
RITHOLTZ: OK.
FRENCH: Right. So — so we were making our foray into the fixed income marketplace. We also filed for short duration ETFs, some liquidity-enhanced ETFs.
RITHOLTZ: And all these are not to a specific index. They’re all dynamic and can change.
FRENCH: Well, these are actually active so what we are doing is …
RITHOLTZ: Really?
FRENCH: … filing active fixed income ETFs with some of our key teams at Oppenheimer Funds. And had we not been bought by Invesco …
RITHOLTZ: Right.
FRENCH: … because those products are just sitting on the shelf, those approvals, by the SEC we’re sitting on the shelf …
RITHOLTZ: (Inaudible).
FRENCH: … we would have launched fixed income active to sort of, you know, build out the asset allocation.
RITHOLTZ: Sure. And all the academic research says that while active may not necessarily create a lot of value in the equity side, it really can create value on fixed income.
FRENCH: It does, absolutely. And I think, you know, firms who are thinking about that should really look at sort of what are some other core competencies on the fixed income side. Certainly, we’ve seen, you know, Gundlach and Gross do well …
RITHOLTZ: Sure.
FRENCH: … with their products when they came out, and they’re sort of leading the fixed income active ETF space. But we really believe that — that there’s something in that for investors.
I think the jury is still out on the equity side.
RITHOLTZ: Sure.
FRENCH: I mean, we saw the big, you know, Presidian approval — that was a big development — a couple of weeks ago.
RITHOLTZ: I’m not familiar with that ETF. What was the approval?
FRENCH: It’s — the company is Presidian and they — we have been working with the SEC to try to get an approval for a non-transparent solution.
RITHOLTZ: Oh, OK, I recall something like that quite, quite interesting.
FRENCH: Yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah, yeah.
RITHOLTZ: I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My special guest today is Sharon French. She is the Head of Beta Solutions for Oppenheimer Funds. She also covers environmental, social and governance efforts at the firm. She is a graduate of the Wharton School of Business and sits on the Board of Women in ETFs.
So — so let’s talk about what’s going on with women in the ETF space. Tell us a little bit about Women in ETFs, the board that you’re on, and what is that group about, what are they looking to accomplish.
FRENCH: Yeah, I would love to talk about that. Thank you for the question. So I’m co-president with Jillian DelSignore of JPMorgan of Women in ETFs. I have been a Global Governance Committee and Board Member since the beginning.
RITHOLTZ: How long has this been around for?
FRENCH: Just over five years. We just hit our five-year anniversary in January.
RITHOLTZ: That’s still — that’s still decent, you know, these days. Five years just for something to survive and grow is not a bad thing.
FRENCH: And I have to tell you we are growing so fast. We’re global, so we’re in EMEA as well as Asia-Pac and Canada. We’ve got 10 chapters. We’re just about to hit 5,000 members …
RITHOLTZ: Wow.
FRENCH: … globally.
RITHOLTZ: That’s fantastic.
FRENCH: And this — Barry, this hit at the heart of what I really think is needed within the ETF industry. There are women of Wall Street, there are women in hedge funds, but this was really something that we heard a lot as we believe that, within financial services, there are a lot of women gravitate to the ETF ecosystem, whether you’re an authorized participant.
RITHOLTZ: Why is that?
FRENCH: We have really drilled down with some theories on this, but we would love to get a research partner to prove it.
RITHOLTZ: Well, let me mansplain this to you.
FRENCH: OK, please.
(LAUGHTER)
RITHOLTZ: You’re the expert, I have no idea. I was just kidding.
FRENCH: We think it’s innovation. We think women are very drawn to innovation and evolution. There’s a lot of women in — supporting the ETF industry on the legal side. There’s a lot on the trading side, specially authorized participants and market-makers. You and I know many of them.
RITHOLTZ: Sure.
FRENCH: There a lot of women leading ETF businesses. There are a lot of women in distribution, again like my co-president Jillian DelSignore over at JPMorgan. There are also, you know, heads of products. I mean, their — the head of the ETF business at JPMorgan also used to be the head of product both at iShares and — and JPMorgan. So — so there is just a — a huge concentration of women within the ETF industry that we felt the need to get connected. So our mission is to connect, support and inspire. So it’s really having some of the more senior executives within ETFs mentor, and sponsor and connect the — the women who are joining us who are just starting out in the industry. And we have events all over the world.
And by the way, we do encourage men. They’re — well over 10 percent of our membership is men. We’re hoping to get it up to 20, 25 because we are trying to continue to push forward the agenda of gender equality and the diversity of thought. And so one of our big things that we do every International Women’s Day is ring the bell at every stock exchange around the world with the …
RITHOLTZ: That’s great.
FRENCH: … the sustainable stock exchange and the U.N. And that’s a fabulous, fabulous high profile way to promote gender equality within the ecosystem. And it’s our five-year anniversary, so we’re going to be doing events both in Hong Kong, San Francisco, Chicago, New York and Toronto.
RITHOLTZ: So it — it’s funny you mentioned five years. July will be five years that this show has been around. And when I was first beginning and was able to wrestle up a — a female guest, one of the questions was always something corny like, so what’s it like being a gal in a man’s industry? And I’m being a little sarcastic, and I’m thrilled that I get to ask a question. So tell us about how you’re driving …
FRENCH: Yeah, yeah.
RITHOLTZ: … the growth of ETFs. You can see just over the past five years how much things have — have changed. It’s really so different. And I’m curious, do you think it’s the fact that the ETF space was so new you did not have that sclerotic old boys network cemented in place. It was …
FRENCH: Yeah.
RITHOLTZ: … easier to breakthrough into that space without the — the usual obstacle?
FRENCH: I think that’s very valid. I think that’s a very big part of it. I mean, look I — you know, I’ve been around for over 30 years so I did grow up in the environment you just noted.
RITHOLTZ: You started when you were nine, right?
FRENCH: Exactly. And, you know, you sort of — because of — of that, you know, for me personally, I’ve sort of become Teflon-coated because you …
RITHOLTZ: Right.
FRENCH: … needed to be.
RITHOLTZ: That’s your rep.
FRENCH: But you — you know, now it’s much more supportive. I mean, the industry has changed. I do have to say glacially it is better today, but I would have …
RITHOLTZ: Right.
FRENCH: … preferred it to be in leaps and strides. But — but — but whether it’s, you know, women on Wall Street, the Financial Women’s Association, 100 Women in Hedge Funds, Women in ETFs, I mean, there’s now organizations that have a genuine interest in continuing to promote women, give them the tools and resources in order to advocate for themselves, negotiate for a job or a better raise. We have a speakers’ bureau, so we have a lot of people in media like you …
RITHOLTZ: Tell us about the speakers’ bureau.
FRENCH: Yeah.
RITHOLTZ: … because I introduced them to one of the women who work for me who actually speaks all around the world that is a highly sought after speaker, Blair DuQuesnay. She started working with the speakers group who — who …
FRENCH: Right.
RITHOLTZ: … put together — together the speakers group.
FRENCH: So, yes, yes, so thank you. And — and look we’re — we are sort of spoon-feeding the media who are …
RITHOLTZ: Right.
FRENCH: … are — are having a hard time finding female speakers. So Elizabeth Kashner with FactSet and Linda Zhang with (inaudible) …
RITHOLTZ: Right.
FRENCH: … firm, Purview. We’ve talked a lot about it and that’s what we do (inaudible). We just get it done. So they came together and they reached out to everybody. You have to — you have to apply and you have to be qualified …
RITHOLTZ: Right.
FRENCH: … in certain topics and media-trained in order to be part of our speakers’ bureau. I think we’re up to Linda last said on her last call I think we’re up to 40, you know …
RITHOLTZ: Wow.
FRENCH: … professionals who are, you know, very well-experienced in certain key segments of the market. So we’re taking this list and we’re giving it to people like you. We’re giving it to inside ETFs. We’re giving it to — inside ETF trends — we’re giving it to whoever needs female speakers to try to get more diversity of thought and equal representation in the media.
RITHOLTZ: I won’t — I won’t mention the group, but there was an article not too long ago about a conference, and they — the photo is the panel on diversity and its six white dudes.
FRENCH: Exactly.
RITHOLTZ: And it’s pretty …
FRENCH: Yeah.
RITHOLTZ: … hey, listen, you guys really, you got to make a little bit more …
FRENCH: Yeah.
RITHOLTZ: … of an effort than …
FRENCH: That’s right.
RITHOLTZ: … look, I found six white guys, let’s — let’s have a conference.
FRENCH: Yeah, that — that one is exactly which one you’re talking about. That won’t happen again.
RITHOLTZ: Right.
FRENCH: But again, we …
RITHOLTZ: Did you guys tag them and say …
FRENCH: Oh, absolutely.
RITHOLTZ: … boys, what do you idiots doing?
FRENCH: We — we absolutely did, yes, yes.
RITHOLTZ: That’s kind of embarrassing …
FRENCH: It is, it’s embarrassing.
RITHOLTZ: … look, on — on diversity.
FRENCH: That’s right.
RITHOLTZ: I might be exaggerating slightly, but the photo I saw was like, what?
FRENCH: Yes.
RITHOLTZ: No, that’s got to be the — you know …
FRENCH: Yes.
RITHOLTZ: … how to raise money for a hedge fund or something else …
FRENCH: Yeah.
RITHOLTZ: … male-dominated type of a …
FRENCH: Yeah, yeah.
RITHOLTZ: … a panel. That was pretty hilarious.
FRENCH: Yeah. And so sometimes you just need to take action. That’s what we did. We have a — a list of 40 women and growing. So depending upon the topic, we certainly will have three to five women to choose from.
RITHOLTZ: That — that — that makes a whole lot of sense. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Sharon French. She runs the Beta Solutions group at Oppenheimer Funds. Let’s talk a little bit about environmental, social and governance investing.
What I keep hearing is we’re on the leading edge of a 30 plus trillion dollar generational wealth transfer. Millennials and women are the people most interested in investing in the environment and social-based causes, and yet the pick-up has been so slow. What do you make of that?
FRENCH: Yeah. And — and if you look at the numbers in retail, in the U.S., right, so you always have to peel the onion, the adoption has been slow within what I call the “sustainable investing universe.” To really understand why that is — and, by the way, this is the first really trend, if you want to call it a trend, where the growth outside the U.S. is really driving it. So it’s typically there’s big pension funds within the Nordics, within Europe or EMEA, so institutionally in EMEA driving a lot of the adoption. There is a very high expectation, in some cases, a mandate that you have to have a very well-thought-out ESG process within your portfolio management structure.
RITHOLTZ: Is it a specific percentage or is it just some of that.
FRENCH: It’s — it’s most of the market, institutional …
RITHOLTZ: Really?
FRENCH: … outside the U.S., yes. Of the $8 trillion or so that’s in that market today, most of it is institutional outside the U.S. So as you know, most of the growth is driven by the U.S. and the adoption happens usually in EMEA first and Asia-Pac second.
RITHOLTZ: EMEA being …
FRENCH: Europe, Middle East and Africa.
RITHOLTZ: OK.
FRENCH: Yeah. So Europe pension funds specifically driving deeper in the Nordics is what’s driving the overall global growth of sustainable investing. In the U.S., there has been a — a legacy understanding that we’re trying to unwind with SRI. So SRI …
RITHOLTZ: Socially responsible investing.
FRENCH: Exactly, but it’s been sort of the days of Calvert (ph) where it is exclusionary investing. So …
RITHOLTZ: Right, in other words, they take a broad index, they screen out …
FRENCH: Guns …
RITHOLTZ: … we don’t want guns, we don’t want tobacco, we don’t want gambling.
FRENCH: … sin stocks, exactly.
RITHOLTZ: Whatever happens today.
FRENCH: That’s exactly right.
RITHOLTZ: Right.
FRENCH: And therefore, they — when you carve out big segments of the market, in many cases, not all but many cases, it impacts performance.
RITHOLTZ: Sure.
FRENCH: So it has — sort of has this negative inertia attached to it that has really evolved. So that’s one end of the spectrum.
RITHOLTZ: SRI.
FRENCH: That’s right. The middle part is ESG investing or ESG integration. And what that is is looking at the environmental, social and governance factors that impacts a corporation using that within a portfolio management process so they’re really called the “intangibles.”
RITHOLTZ: Right.
FRENCH: Typically, you’ll get the tangible balance sheet, right, financial metrics. Adding to that, the intangibles really tells you and gives you a full picture of how the firm is run, also exposes you to some potential errors of vulnerability or risk. So ESG integration within a portfolio management process is a great risk management tool.
RITHOLTZ: I’ve heard a number of people, in fact, that some of the events we both attended together talk about ESG as being misunderstood that it’s really a fundamental screening method to look for risk and control for it …
FRENCH: That’s …
RITHOLTZ: … for — and the perfect example was a lot of companies that have no diversity, no women on their boards, very little women in management, oh, and they managed to get caught in the Me Too debacle — self-inflicted wound.
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RITHOLTZ: What a coincidental correlation or apparently not, right? That — that’s a fundamental screen, isn’t it?
FRENCH: That is absolutely right. The other sort of common ones are, you know, the Volkswagen example with its emissions issues.
RITHOLTZ: The diesel cheating scandal.
FRENCH: That absolutely could have been uncovered if you start to really dig deeper into some other governance practices, in some cases, with some of the oil companies that have been vulnerable to oil spills. So, you know …
RITHOLTZ: Isn’t that really all of them though? Can you screen for preventing oil spills to ESG?
FRENCH: If you can screen for practices, right?
RITHOLTZ: OK.
FRENCH: So some have more robust practices on others, right? So would — would you exclude a company from your portfolio or would you overweight another that you feel is more robust and — and more tightly controlled? So, you know, the — and then the — the further on the spectrum is impact investing. So impact investing is taking a particular cause that you believe in — rainforests in Sudan, carbon emissions, very sort of narrowly-focused and — and weighting the portfolio towards that or buying just that.
So, you know, a lot of private equity money is directed towards impact investing. So — so again, if you look at the spectrum, you have SRI and exclusionary on one side, which again has been sort of …
RITHOLTZ: Falling out of favor, is that a fair way to describe?
FRENCH: Well, I mean, I think there’s just a better understanding that people believe that there’s a better way to do it, right?
RITHOLTZ: Right.
FRENCH: So — and then there’s the ESG integration which was where a lot of the people in U.S. retail are focused, including us. And then there’s impact investing, which we actually have a — a — a company that we bought that does custom municipal portfolios, and we allow them to do an impact overlay on that custom unit portfolio.
RITHOLTZ: For — for equity or fixed income?
FRENCH: Fixed income.
RITHOLTZ: Really?
FRENCH: Yes.
RITHOLTZ: So you can actually get green bonds …
FRENCH: You can.
RITHOLTZ: … on other words.
FRENCH: Yeah, yeah.
RITHOLTZ: Quite — quite intriguing. So — so what do you think is going to be required for ESG to take off or are we contextualizing it the wrong way and it’s just going to be something that’s implemented into the risk screening approach?
FRENCH: Yeah. I actually think it’s both, so let’s take the latter first. I believe that the asset management industry will just become ESG.
RITHOLTZ: Just — just integrate it like you’re no longer an Internet company, everybody uses the Internet.
FRENCH: Yes, there were — there were no longer be ESG or non-ESG because millennials and women demographically are driving the desire and the requirement to incorporate ESG screening within their portfolios is a big, big driver.
The other is data democratization. Most companies now …
RITHOLTZ: Meaning what?
FRENCH: … well, there’s a — a variety of different data providers that now collect that information from companies. So now most of the S&P 500 are reporting to data providers on those three measures — their environmental practices, their social practices and their governance practices. So we now have access to all kinds of data to be able to screen on those dimensions.
RITHOLTZ: Now don’t you run into the same sort of issue we get with hedge funds reporting performance? Well, if it’s good, you’re reporting it. If it’s not so good, we’re not going to make that filing this quarter.
FRENCH: Well, so here’s the issue, this is — this is going to impede the group. So again, I think to your latter question we’re going to be asset management. I can’t say exactly when. I think it’ll be somewhere between five to 10 years from now.
RITHOLTZ: And you think that’s a gradual just one day will turn around and say, oh, we’re all ESG?
FRENCH: Yes, I do, I do and there’s a — a variety of people who — who agree with that premise. The issues today are there’s no uniformity, right? There’s a variety of different approaches. Even the data provider they go out collecting the data and reporting the data in a variety of different ways, so lack of uniformity in data.
The second is benchmarking, right? We always want to try to especially on the active management side, we always want to …
RITHOLTZ: Sure.
FRENCH: … find a benchmark. So people are struggling with how to benchmark ESG strategies. And, you know, consulting organizations like a Mercer who does due diligence on these strategies …
RITHOLTZ: Right.
FRENCH: … they’re — they’re struggling to answer that question, which is sort of a traditional method of, you know, rating a particular strategy. So I think it’s — those two things that are slowing down the growth, but once we, you know, come closer to solving those two, I think the growth will start to be, you know, sort of more profound in U.S. retail.
RITHOLTZ: So — so that’s the second part of the question, which is will there still be ESG focus funds and — and who are going to be the purchases of these?
FRENCH: Yeah, I think there will be. Well, first of all, institutions within the U.S. certainly are following Europe. And so look, I mean, I have to say just looking at the last six months to a year, most of the RFPs we get — request for information of a new strategy for institutional clients — they all have ESG questions in there, and the portfolio management has to be able to describe specifically their ESG process. And so institutions are moving first within the — the U.S. And, you know, retail will follow closer behind once we figure out these issues that I talked about, which is uniformity and benchmarking.
RITHOLTZ: What do you think about the dedicated ESG ETFs that have come out?
FRENCH: Yeah, we have a couple …
RITHOLTZ: Paul Tudor Jones has wonderful just …
FRENCH: Yeah, yeah.
RITHOLTZ: … what — what are the ones that you guys …
FRENCH: Yeah, so we have ESGL and ESGF, and that’s where we’re taking our revenue weighted strategies.
RITHOLTZ: L and F, what’s the difference?
FRENCH: That’s foreign and domestic.
RITHOLTZ: Local, is that the L?
FRENCH: We use L for local, that’s right. I think D was taken.
RITHOLTZ: Right.
FRENCH: But we went to look for a ticker.
RITHOLTZ: So my — by the way, my theory is you — you not only need a good investment idea, but a — a good ticker is just crucial.
FRENCH: Absolutely.
RITHOLTZ: Right? It seems like that makes the giant difference, doesn’t it?
FRENCH: It does make a giant difference. It cuts through all the clutter. Look …
RITHOLTZ: Yeah.
FRENCH: … and a lot of this is cutting through the clutter. There’s a lot of players who’ve gotten in the game.
RITHOLTZ: Three thousand ETFs, all right.
FRENCH: Yeah. So …
RITHOLTZ: So ESGF is foreign. ESGL is local.
FRENCH: Yeah, that’s right.
RITHOLTZ: And they’re — they’re broad-based. There’s a lot out there that are more narrowly-based, again specifically as we talked about before based upon, you know, climate change …
RITHOLTZ: Right.
FRENCH: … climate risk, carbon emissions, things of that nature. We want to be more broad-based. This is revenue weighted ESG strategies, but there are many and there are many mutual funds. We have a mutual fund where we partner with Pictet, and it’s a geo-environmental …
RITHOLTZ: Pictet being …
FRENCH: … an ESG shop in Europe …
RITHOLTZ: OK.
FRENCH: … who’s very — they’re sub-advisor to us and we like them a lot actually. And so there are strategies that are coming out in separate account mutual fund and ETF fashion that, I think, are a good start. You know, again the institutional clients are looking for more of the separate account, in some cases, mutual funds. They’re not buying the ESG ETFs quite yet. There are people like the U.N. partnering with firms and developing some of their ESG strategies. And there’s big pensions like CalPERS who partnered with State Street on SHI (ph).
RITHOLTZ: Sure.
FRENCH: They ceded SHI (ph) to the tune of, you know …
RITHOLTZ: Was that CalPERS or CalSTRS?
FRENCH: It was CalPERS.
RITHOLTZ: So who did CalSTRS …
FRENCH: I’m not sure.
RITHOLTZ: I kind of remember them being involved or I could just particularly …
(Crosstalk)
FRENCH: I don’t know. I know CalPERS ceded $250 billion.
RITHOLTZ: Yeah, it was a — it was a big chunk of …
FRENCH: Yeah, it was.
RITHOLTZ: Whatever it was, it was a big chunk of …
FRENCH: Yes, it was.
RITHOLTZ: … change. $250 billion or million?
FRENCH: $250 million, excuse me. Thank you.
RITHOLTZ: Yeah, it was — it was definitely a — a …
FRENCH: Yes, $250 million.
RITHOLTZ: … which is still not an insignificant amount of money.
FRENCH: No, exactly, exactly.
RITHOLTZ: So — so our mutual friend, Dave Nadig, is a huge fan of direct indexing.
FRENCH: Yes.
RITHOLTZ: I’m slowly warming up to the concept.
FRENCH: Yeah.
RITHOLTZ: And where I see it having so much potential is exactly what you just described, the SMAs from individuals that want to have an overlay of this. How do you see that space developing?
FRENCH: Yeah, yeah. So I — I actually agree with Dave. You know, getting — instead of buying the index, sort of buying the — the, you know, underlying holdings of the index, that creates a great opportunity for tax efficiency, tax harvesting, customization. There are some firms out there. They are very good at it. Parametric has been around for a while; Aperio. There are others.
And so, you know, look, people are looking for more of those things. And you have more flexibility in getting access to that through direct indexation. It is a little bit more efficient from a cost perspective, you’re — because you’re not paying an index provider three to five basis points. So the — the index landscape is changing as well as fees are getting drive down there as well.
People are doing self-indexing. There are self-indexing providers out there who are calculation agents. And so the world of indexation as it exist to 10 years ago was also changing because of self-indexing and direct indexation. I agree with Dave, I think it’s going to grow.
RITHOLTZ: Quite — quite fascinating. So before we began, we were talking about music …
FRENCH: We were.
RITHOLTZ: … because you happen to see my picture tweeted of Eagles’ guitar non-Felder, I have to tell you that was a ridiculous amount of fun.
FRENCH: Oh, I’m sure, it was. I’m jealous.
RITHOLTZ: You’re — you’re …
FRENCH: Music is my thing. Everyone who knows me knows that music is my thing.
RITHOLTZ: Me, too. I don’t know how far apart in age we are …
FRENCH: We’ll talk about that later.
RITHOLTZ: … because you’re deceptively — you’re like …
FRENCH: Be careful, be careful.
RITHOLTZ: … you are hard to pin an age on …
FRENCH: OK, that’s fair.
RITHOLTZ: … like 39 is always a safe …
(LAUGHTER)
FRENCH: I’ll take it.
RITHOLTZ: … a safe bet.
FRENCH: I’ll take it.
RITHOLTZ: I said you start — well, that would — you said you’ve been in the business 30 years, and I said you started at — at age nine so …
FRENCH: Thirty-nine, there you go.
RITHOLTZ: … that’s how I came to that. But I’m a — I listen to a lot of stuff from jazz to classical, but really — and a lot of punk and reggae, but I’m really a classic rock guy. What — what’s your musical over?
FRENCH: Classic rock.
RITHOLTZ: OK.
FRENCH: You know, classic rewind or classic vinyl on …
RITHOLTZ: Deep tracks.
FRENCH: … on X.M., you know …
RITHOLTZ: Right.
FRENCH: … exactly.
RITHOLTZ: So you’re not a coffeehouse sort of …
FRENCH: No, actually it depends on the mood. I like …
RITHOLTZ: Right.
FRENCH: … coffeehouse as well. Thank you for bringing that up.
RITHOLTZ: That’s a — yeah …
FRENCH: Absolutely.
RITHOLTZ: Well, you’re a Jack Johnson fan, that’s a great …
FRENCH: I love Jack Johnson, yeah.
RITHOLTZ: … sort of a — a great sort of channel. So I’ve had — I don’t know how this has worked out, it’s been a dumb accident, but I have a series of guitars. So it’s been Don Felder and Steve Miller …
FRENCH: Wow.
RITHOLTZ: … so Steve Miller is, Laurence Juber and John Pizzarelli, so those are the four guitarists I’ve had and actually reached out to Jack Johnson because I love his writing.
FRENCH: Why not?
RITHOLTZ: He’s a great — so these things …
FRENCH: So …
RITHOLTZ: … come up completely randomly.
FRENCH: So Derek Trucks, can we talk about Derek Trucks?
RITHOLTZ: Sure.
FRENCH: Oh, my gosh.
RITHOLTZ: So you’re a southern sort of roots.
FRENCH: So, look, I mean, I also love southern rock, but my two — so I think Derek Trucks is one of the most gifted guitarist. And, you know, he is …
RITHOLTZ: So that’s your pick for greatest guitarist there?
FRENCH: Well, no, he actually is not. He’s — he’s sort of next-generation my pick, but my two picks which I can’t decide on …
RITHOLTZ: Yeah.
FRENCH: … is Carlos Santana.
RITHOLTZ: I love Santana. He’s technically a brilliant guitarist and a very good song writer. I don’t know if many people would put him up as in the top five because it’s usually the hyper technical guys like Joe Satriani or …
FRENCH: Right.
RITHOLTZ: … go down the list, Montrose or — and, of course, you know, we could talk about Clapton or Jimi …
FRENCH: Well, so that’s my second …
RITHOLTZ: … or — or — or Hendrix or …
FRENCH: … so — so — so my second is Clapton. I would probably — to your point, I’d probably edge Clapton over Santana a little bit.
RITHOLTZ: Right.
FRENCH: But I got to tell you, Derek Trucks is, you know, he — he’s — he’s got, I think, a good rival to everybody.
RITHOLTZ: Right.
FRENCH: He’s just a little bit younger.
RITHOLTZ: I asked — by the way, if you like that sort of swampy southern, are you familiar with JJ Grey and the Mofro?
FRENCH: No.
RITHOLTZ: Oh, so that’s a …
FRENCH: Wow.
RITHOLTZ: … band you have to check out.
FRENCH: Thank you.
RITHOLTZ: It’s swampy, bluesy southern …
FRENCH: OK.
RITHOLTZ: … roots rock. And they have a number of great albums, but you can never go wrong with that first down this JJ Grey and the Mofro. They’re just …
FRENCH: I will do that today.
RITHOLTZ: … sort of like a southern version of — do you remember the album Thickfreakness by — I’m drawing a blank on the band’s name, but that — Black Keys.
FRENCH: Oh, sure.
RITHOLTZ: That’s the first album. And I …
FRENCH: OK.
RITHOLTZ: … and I …
FRENCH: I think I know what …
(Crosstalk)
RITHOLTZ: … so — so I asked Henley — let me — we can talk about music for hours but …
FRENCH: I know.
RITHOLTZ: … let me wrap this up. I asked Henley who do you think — what sort of guitarist do you like? Who do you really appreciate? And he said, I love the Triple Threats. I love people who are great songwriters, can sing and really good performers. And I knew exactly where he was going to go with that. I thought he was going to say Clapton.
FRENCH: Yeah.
RITHOLTZ: But he kind of surprised me and said, well, this generation it’s John Mayer is that Triple Threat. And I said that’s because that’s he’s — this generation is Eric Clapton.
FRENCH: That’s right, that’s right.
RITHOLTZ: So who else do you …
FRENCH: Again, so I — don’t forget I put Derek right up there .
RITHOLTZ: Yeah.
FRENCH: But, you know, and again I’m a big Allman Brothers fan.
RITHOLTZ: Right.
FRENCH: You know, I mean, that story, you know, has — has been a bit of a sad story but I get to …
RITHOLTZ: Of course, Duane Allman taught Don Felder to play slide guitar. And they’re all from …
FRENCH: Ah, wow.
RITHOLTZ: … the music scene from Gainesville …
FRENCH: Yeah.
RITHOLTZ: … was crazy.
FRENCH: Yeah, yeah, absolutely.
RITHOLTZ: So it was him and I think it was Stephen Stills and Tom Petty …
FRENCH: Yeah, yeah.
RITHOLTZ: … and it was just a — like — like wait, why are all those people coming from Gainesville, Florida?
FRENCH: Right.
RITHOLTZ: And then Duane Allman on top of that.
FRENCH: Yeah, yeah.
RITHOLTZ: So …
FRENCH: And then, of course, you know, Greg just died which was a very sad day for me but — so, you know, Eat a Peach was my favorite Allman Brothers album of all time.
RITHOLTZ: I remember, that was giant when I was in high school.
FRENCH: Yeah, yeah.
RITHOLTZ: Giant.
FRENCH: Yeah, yeah.
RITHOLTZ: That was a — who else do you listen to today? Give me a newer …
FRENCH: (Inaudible) — you know, today I have to tell you, I’m sort of evolving a little bit to, you know, sort of this newer country.
RITHOLTZ: Right, such as …
FRENCH: So, you know, Dierks Bentley, Zac Brown.
RITHOLTZ: Zac Brown, I know. Dierks Bentley, I don’t know that one.
FRENCH: Yeah, yeah. A lot of those guys …
RITHOLTZ: You got a little more of an edge than traditional country?
FRENCH: Yeah, so No Shoes Radio, I mean, Kenny Chesney obviously is terrific. So, you know, I — so I’m really pushing myself to appreciate other genres, and I — I didn’t like the old twangy country stuff.
RITHOLTZ: Right, Chet Atkins sort of — well, he was a brilliant guitarist, but the — I know exactly I love — my dog died and my truck got stolen …
FRENCH: Exactly.
RITHOLTZ: … my wife left me. That — so there’s a really — do you ever — we were talking about XM Satellite before. Do you have ever play with Pandora?
FRENCH: I — I found there — that’s my actual music of choice. I have sonos in my home.
RITHOLTZ: So do I.
FRENCH: And I — and I go to Pandora, yeah.
RITHOLTZ: So what I love about Pandora is if you want to discover something new …
FRENCH: Yeah.
RITHOLTZ: … like you take those three newer country …
FRENCH: Right.
RITHOLTZ: … create a channel, call it whatever you want, new country and seed it with five songs that you like, and it’s really great for music …
FRENCH: Yeah.
RITHOLTZ: … discovery. I’m always hearing things, wow, what’s that? I haven’t heard that.
FRENCH: That’s right.
RITHOLTZ: So it’s a fun thing to play with.
FRENCH: That’s right, yeah.
RITHOLTZ: All right. Back to — back to ETFs.
(LAUGHTER)
Sorry — sorry to drag you back to …
FRENCH: Like you said I could talk music all day long.
RITHOLTZ: Same here, it’s — it’s just fascinating. I — anything aside from country rock and classic rock? Do you listen to jazz? Do you listen to reggae?
FRENCH: I do, I listen to both, but I have to say my — my world is really dominated by those two today, but I — I used to listen to a lot more classical.
RITHOLTZ: Right.
FRENCH: … than I do today. I’ve always listen to jazz. Miles Davis is my hero.
RITHOLTZ: Really?
FRENCH: Miles Davis is my hero for sure.
RITHOLTZ: He is not — I always want people who are like — you’re — you’re a jazz head. What — what should I listen to? Should I listen to Miles Davis? Not the most accessible, like I always say start — start slow, walk before you run because …
FRENCH: Like who — who is your walk slow person?
RITHOLTZ: Gerry Mulligan.
FRENCH: OK.
RITHOLTZ: Like Coltrane, I — I …
FRENCH: John Coltrane.
RITHOLTZ: … build a little further out halfway between.
FRENCH: Yeah.
RITHOLTZ: Even Thelonious Monk, Paul Desmond, you can’t — that’s really totally accessible, very easy …
FRENCH: OK, OK.
RITHOLTZ: … for most people. If you — if you listen to like Time Out …
FRENCH: Yeah, yeah.
RITHOLTZ: … or — so there’s — there’s a way to — to ease into jazz.
FRENCH: Yeah, yeah.
RITHOLTZ: But if you start with Bitches Brew or — you know, that’s a tough …
FRENCH: Yeah, it is.
RITHOLTZ: … it’s like …
FRENCH: It is, I agree.
RITHOLTZ: … it’s the equivalent of starting out in rock music by listening …
FRENCH: That’s fair.
RITHOLTZ: … to Frank Zappa.
FRENCH: Yeah, that’s fair …
RITHOLTZ: It’s like wait …
FRENCH: … or Jethro Tull, yeah. That’s fair.
RITHOLTZ: Even Tull is — is, you know, you could listen, you know, Aqualung or Locomotive …
FRENCH: Right.
RITHOLTZ: … Breath.
FRENCH: Gosh.
RITHOLTZ: Yeah, that’s straightforward rock and roll.
FRENCH: Oh, that is scary.
RITHOLTZ: But it’s hard to find outside of — Joe’s garage, it’s hard to find a Zappa song that you could just slide right into and say, “I’m interested in rock music. Play something for me… ”
FRENCH: Right, right.
RITHOLTZ: … because — although since we — you mentioned some of your favorite guitarists, if you ever have a chance, gets the Zappa album, shut up and play your guitar, YER (ph) guitar.
FRENCH: OK.
RITHOLTZ: It’s just three discs of him doing leads.
FRENCH: OK.
RITHOLTZ: And he’s amazing.
FRENCH: Right.
RITHOLTZ: People don’t realize what a spectacular …
FRENCH: Yeah.
RITHOLTZ: … technical musician he was.
FRENCH: Yeah. No, I didn’t. And if I can just make one plug for — for a female …
RITHOLTZ: Sure.
FRENCH: … the modern-day Bonnie Raitt is Derek Trucks’ wife …
RITHOLTZ: Oh, really?
FRENCH: … Susan Tedeschi so that they have a band …
RITHOLTZ: I know the name, sure.
FRENCH: … they have a band, Tedeschi Trucks.
RITHOLTZ: Oh, OK.
FRENCH: She is — you would not know the difference. I think she’s got more soul; Bonnie Raitt has a ton of soul. But if — if you can believe that Susan Tedeschi even has more soul than Bonnie Raitt, so I would — I — I need to make my female plug before we move on.
RITHOLTZ: All right. Last female guitarist reference, go to YouTube. I can’t remember the girl’s name, and I say girl because she’s like 11. There is this girl on YouTube who just shreds. It’s unbelievable. There’s probably multiple people in that age group who are just spectacular guitarists. And it’s mind blowing. You just …
FRENCH: OK.
RITHOLTZ: I’ll send you some links.
FRENCH: OK.
RITHOLTZ: Some of them are just like what? All right. So — so now — now back to ETFs.
FRENCH: We go drag our self away from music.
RITHOLTZ: Right. Well, because — you know, I — this is a conversation over a beer. The one question I forgot to ask you during the broadcast portion that I meant to ask is you began your career in 1987, right? What was …
FRENCH: Stock market crash.
RITHOLTZ: Yeah, what was that like when you’re …
FRENCH: Yes, I have been through a couple.
RITHOLTZ: And, by the way, there are a few people who I know of. David Rosenberg is one and I’m trying to remember who the other person was, who literally begin their career that fall and bang right into its disaster.
FRENCH: Yeah, it’s their fall. I started in I think at the end of May or June, but yeah …
RITHOLTZ: OK.
FRENCH: … is that a fall. I mean, certainly look, I mean, it was — it was a great learning experience for me, right? I mean, I — am I right? It was a 500 points. It was — you know, percentage-wise, it was big.
RITHOLTZ: Twenty-three percent …
FRENCH: Yeah, yeah, yeah.
RITHOLTZ: … and 22.8 percent, something like that. I — I think it was 600 and something points …
FRENCH: Was it?
RITHOLTZ: … but it’s easy enough to look up.
FRENCH: I don’t know why 500 sticks in my mind, but …
RITHOLTZ: Which we call today a Tuesday.
FRENCH: Yeah.
RITHOLTZ: Right? That’s — that’s nothing.
FRENCH: Exactly, exactly. That’s why — that’s why I brought it up, it’s — it’s sort of interesting to look back and, you know, it’s a blip in today’s world. But — but look, so I wasn’t really tied to the market at that time. Remember I was Chase Manhattan Bank and I was doing all these cost studies. I still was domestic. At this time, I wasn’t yet in Europe. And so …
RITHOLTZ: By the way, you’re correct, 508 points.
FRENCH: Thank you. I — I don’t know why that stuck in my head but, you know, I was there so, you know, these things are important. And so it was a great learning experience for me. I was still learning about the market, right? And so, you know, Chase Manhattan Bank, you know, took — had some exposure so they obviously took a hit, but recovered.
RITHOLTZ: Sure.
FRENCH: I think Don Boudreau was the — the CEO or president at the time. But so, you know, there was a lot to learn in terms of the — you know, how the market factors into sort of the, you know, the — the — the capital markets and what a driver they are, and why that happened, and how to avoid it and how to put, you know, stops in place by the New York Stock Exchange. And so I was young and, you know, what behind the ears as they say, and so it was just a great learning experience for me.
RITHOLTZ: Don Boudreau, why is that name familiar? Is — is he still around and publishing?
FRENCH: No, he’s been retired a long time.
RITHOLTZ: OK, so I’m thinking somebody else.
FRENCH: He’s been retired a long time.
RITHOLTZ: So you — you looked at it as a learning experience.
FRENCH: I did. I didn’t have any personal exposure, I had no money …
RITHOLTZ: Right.
FRENCH: … so, you know, it didn’t affect me.
RITHOLTZ: So it was a best practice.
FRENCH: Exactly. Now, the next one, 2000 …
RITHOLTZ: I was in — by the way, I was in grad school and I watched it with such clinical …
FRENCH: Yeah.
RITHOLTZ: … detachment.
FRENCH: Right.
RITHOLTZ: It was like, oh, that seems to be kind of interesting.
FRENCH: No, I was fascinated.
RITHOLTZ: Yeah.
FRENCH: But, you know, thankfully I was at a place where I can learn more about it. That was really my first like ouch when you — when you — when you accidentally, you know, touch a burner on the stove.
RITHOLTZ: Right.
FRENCH: It was sort of like a — the, you know, learning about the capital markets by being stung by it, but thankfully it didn’t affect me personally.
RITHOLTZ: How about 2000? How did that …
FRENCH: Two thousand, definitely affected me.
RITHOLTZ: … did that leave a mark?
FRENCH: Yes, and so did 2008. And obviously 2008 was the worst, but 2000 …
RITHOLTZ: No, that was the best one of all.
FRENCH: … 2000 left a mark.
RITHOLTZ: Yeah.
FRENCH: Yeah.
RITHOLTZ: So 2008 was a fabulous learning experience.
FRENCH: Yeah.
RITHOLTZ: Can we describe it as that?
FRENCH: Yeah.
RITHOLTZ: Because it was — we’ll — we’ll take that off-mike. I — I found that to be of all the market crashes …
FRENCH: Yeah.
RITHOLTZ: … I live through the one that was most …
FRENCH: Yeah.
RITHOLTZ: … fascinating.
FRENCH: Yeah. No, it certainly was. There’s millions of stories that have come out of that one.
RITHOLTZ: Countless.
FRENCH: It’s really shaped — it shaped, you know …
RITHOLTZ: A whole generation.
FRENCH: Absolutely.
RITHOLTZ: You alluded to this earlier. Let me circle back to that. My pet theory is all of the — the scandals, the annual scandal, the IPO spin, all those things kind of led mom-and-pop to say, you know, this Wall Street thing is, you know — I’m just going to give the money to Vanguard and be done. I kind of felt like the cherry on that cake was the ’08, ’09 crash, but you even took it further. You said this really drove people into passive. Explain why.
FRENCH: Absolutely, absolutely. You know, part of it is they sort of didn’t want to deal with it anymore. Just let me — let me just give it to an index, let me give my money to …
RITHOLTZ: Right.
FRENCH: … an index. They didn’t trust the institutions that were running their money in a lot of cases.
RITHOLTZ: Especially the ones that got bailed out.
FRENCH: That’s exactly right.
RITHOLTZ: That had to impact the thought process, right?
FRENCH: That’s exactly right. And so I think it — it just shocked people. People woke up. I think previous to that they dabbled in ETFs post 2008, 2009 when — when we finally recovered. I think they made it a — a prominent part of their portfolio construction. And part of it I think was a risk mitigation at least from what they understood to be more of a risk mitigation …
RITHOLTZ: Right.
FRENCH: … because of, you know, I mean, look at the time I was at AllianceBernstein, Bernstein — a part of AllianceBernstein’s deep value. And, you know, the Bernstein manager specifically, Lew Sanders, is an investor himself, the CEO at the time. They rode financial services down all the way to the bottom …
RITHOLTZ: Right.
FRENCH: … because they were looking for that. You know, they talked about the sustainability of earnings with growth companies and they talked about the recoverability of earnings …
RITHOLTZ: Right.
FRENCH: … with — with value companies. And so, you know, fundamental active managers, I think, at the time, were just riding the wave to see if they can pick up some assets at the cheap and then that was a very, very tough ride for a lot of investors. So I think part of it was trust. I think a lot of it was risk mitigation.
RITHOLTZ: Quite — quite interesting. So again, looking at the lack of faith in the institutions, is that something that eventually comes back or is that a permanent scar and people change their behavior for a generation?
FRENCH: Yeah, yeah. I know I think 10 years later I think it is bouncing back. And I think part of it is, you know, government-led because of everything that’s put in place in terms of safeguards.
RITHOLTZ: Meaning the — the regulatory environment or the federal reserve environment?
FRENCH: I think the regulatory environment in terms of the requirements that they have, so they forced some of it. And I think CEOs — I mean, now on the executive committees of organizations, whether it’s a bank or asset managers, the chief risk officer reports to the CEO.
RITHOLTZ: And that wasn’t a position that …
FRENCH: Yeah.
RITHOLTZ: … necessarily exist 15 years ago.
FRENCH: It didn’t, it didn’t, it didn’t. So — and I agree with that, right? I mean, the general counsel reports to the CEO. Why shouldn’t the chief risk first officer? It’s — we are stewards of our client’s capitals. We are fiduciaries. We need to take that particular function seriously. And so, you know, whether it’s a different governance structures for running an ETF business or fundamental active business, I think whether it was regulatory, you know, pushed or forced upon or firms just taking this more seriously and then becoming a key role of the CEO, I think that certainly those institutions are starting to earn back trust 10 years later.
RITHOLTZ: Do we — do we run the risk when we elevate the chief risk officer to that C-suite with the CEO’s ear of stifling innovation or making companies risk-averse?
FRENCH: Sure, no, I think that’s a great question, and I think it has to. We — and we talk about this a lot at Oppenheimer Funds, and I think thankfully we’ve struck the balance because the portfolio management teams on the fundamental active side or, you know, there’s a little bit of a push-pull there, right? So our Chief Investment Officer Krishna Memani, you know, he — he works very, very closely with our chief risk officer on behalf of making sure that we don’t do just that, that we give the prudent degree of freedom. Now how do you define prudent degree of freedom?
RITHOLTZ: No leverage, that’s how I define that.
(LAUGHTER)
FRENCH: Right. And, you know …
RITHOLTZ: I mean, really it’s so much easier to get into trouble when you’re running …
FRENCH: There’s …
RITHOLTZ: … 40 to one.
FRENCH: … there’s …
RITHOLTZ: If you’re putting on ETFs that are more interesting in — in the way they are assembled and built …
FRENCH: Yeah.
RITHOLTZ: … and they’re not relying on a ton of leverage …
FRENCH: Yeah, yeah.
RITHOLTZ: … there’s really very modest risk there, right?
FRENCH: Yeah, yeah.
RITHOLTZ: The product works or it doesn’t, it finds an audience or it doesn’t …
FRENCH: Right.
RITHOLTZ: … it accumulates assets or it doesn’t, but none of your ETFs are ever going to blow up Oppenheimer. That’s …
FRENCH: Oh, yeah.
RITHOLTZ: … that’s a non-issue, right?
FRENCH: Yeah, we would never put — we would never — I don’t want to say play that game, but that — that wasn’t our — that was not our space. And I agree with you, it’s tough. I don’t think investors understand it. I don’t think they understand the impact of the levers we’re taking on.
RITHOLTZ: It’s easy if you’re 50 to one and you drop two percent, you’re gone, you’re done.
FRENCH: Right.
RITHOLTZ: Right? Like wait, a two percent drop wipes me out.
FRENCH: Yeah.
RITHOLTZ: Oh, I don’t want leverage. That’s the bad thing.
FRENCH: Yeah, yeah, yeah, yeah, yeah, yeah, yeah.
RITHOLTZ: And I think everybody — that was the one big takeaway I thought everybody learned from — from the financial crisis. But you’re saying risk is now thought of a little more differently at financial institutions.
FRENCH: Absolutely. And again part of it is because they knew they needed to — to build back trust with clients. I mean, again back to RFPs, you know, in the very beginning of the RFP, it asks about their risk management process whether it’s the firm overall from a centralized perspective, whether portfolio management specifically, you’ve got to articulate your risk management process. And we have that and we’re running our rules-based strategies.
RITHOLTZ: Sure.
FRENCH: We — we have that in there as well, right? And index providers have that as well. So it’s an important part of the story. You know, again we are stewards of capital and we are fiduciaries and we need to take that role seriously.
RITHOLTZ: No, to — to say the least. The dominance in the ETF space by — I almost want to say Trilogy, but really it’s Vanguard and BlackRock are the …
FRENCH: The tri heads.
RITHOLTZ: Yeah. State Street is — is up there, but the two big ones are really all the muscle in the space. How is it that this sector has evolved where it’s such a — an even distribution, a winner take all distribution?
FRENCH: I mean, look, you know, those three firms got started way before everybody else. As you know, SBY (ph) is over 25 years old.
RITHOLTZ: Right, right.
FRENCH: So, I mean, there — there — there is — there is a — a advantage by …
RITHOLTZ: First mover advantage.
FRENCH: Absolutely. So part of it is that. You know, they certainly won over the early adopters of ETFs specifically, and they grew their passive business for the first decade.
RITHOLTZ: So they just had a giant head start and everybody else is playing catch-up.
FRENCH: I mean, there’s — well, and then the players that got in the market after them, have a belief set, many of them that, you know, we actually can evolve our fundamental active franchise. We can do enhanced index, we can do active ETFs, so they — they’ve sort of bypassed the passive to go to alternatively weighted or active …
RITHOLTZ: Right.
FRENCH: … something more active. And so there’s not a lot of — unless you are putting out, you know, these vehicles that are for free that you use to allocate internally within your organization, whether you’re using them to build model portfolios and charging an overlay fee, people are jumping on the passive bandwagon by which State Street, Vanguard and iShares a very strong really start, too. So — and most of the pie of the flows every single year go to that.
So there are people who are dabbling around the edges to try to offer a more sort of, you know, fully built-out suite to their clients, but nobody has the scale or can buy or build a scale in a short period of time where they can even make a dent in the market share that — that those three organizations have. And I do believe a lot of it was the head start that they got.
RITHOLTZ: Makes sense. Before I get to my favorite questions, there’s one other question I want to ask you about. So you’re an F-Squared when they ran into the little difficulties. What was your role and what was your reaction when you heard about …
FRENCH: Yeah.
RITHOLTZ: … what was happening elsewhere?
FRENCH: Yeah. So that was a big segment of the market as you recall ETF strategy segment, which is defined by, you know, model portfolios where at least 50 percent or more has to be within ETFs. It grew to over $100 billion. Actually, Obscure (ph) was a big client of iShares, so that’s how I knew them. They probably gave iShares directed $68 billion a year.
RITHOLTZ: Wow.
FRENCH: The number might be slightly off. But anyway, so I — they had outsourced everything and they wanted to build their own discretionary business internally. So I was hired as the president of F-Squared Capital and I had to build our — our trading system, hire a trader, put in place to portfolio management system with the client service group, assemble a client service group, sales to talk to Wells Fargo separate account platform business. So I built that business.
RITHOLTZ: Lots of moving parts.
FRENCH: Lots of moving parts, really fun. We grew to almost $30 billion but …
RITHOLTZ: Wow.
FRENCH: … the SEC came in in the summer of — I hope I get this right — summer of 2013 to do a routine audit …
RITHOLTZ: Right.
FRENCH: … and had discovered that the track record we are marketing — this is really important — the track record we are marketing was — went back to 2001. The time period in question was 2008 back to 2001. In 2008, the CEO of F-Squared bought a signal from a firm and was told that the signal was run against live client money …
RITHOLTZ: Right.
FRENCH: … so therefore it was a live signal.
2008 forward, that was now in the — in the domain of F-Squared and they ran that money — that signal against live client money and live client portfolios. It was GIPS-compliant. It was audited by a big accounting firm. So the SEC had no issue with the track record from 2008 forward. That was valid.
RITHOLTZ: So it was all based on the purchase and what was …
FRENCH: Exactly …
RITHOLTZ: … represented as …
FRENCH: … exactly. That’s — that was the crux of the matter.
RITHOLTZ: Wow.
FRENCH: So, you know, there was a disagreement …
RITHOLTZ: Wow, I would be furious.
FRENCH: Yeah, so there was a disagreement. Certainly, the CEO of F-Squared continued to fight that — that it was misrepresented, but the SEC does — what the SEC did …
RITHOLTZ: Right.
FRENCH: … I mean, they get trade blotters and they get everything they need to do to subpoena people and …
RITHOLTZ: Right.
FRENCH: … get to the heart of the matter.
RITHOLTZ: Even if it is represent — if it’s misrepresented to you and you are represented, that’s what they’re going to hang their hat on.
FRENCH: That’s exactly right.
RITHOLTZ: So, hey, you relied on someone who lied to you, you’re bad.
FRENCH: Right, so you should’ve done …
RITHOLTZ: Right?
FRENCH: … deeper due diligence or whatever …
RITHOLTZ: Right.
FRENCH: … you will get furious. So, unfortunately, you know, we I — I still believe to this day that what we were doing in the way in which we were doing it, which was the office sector products was a prudent way to run a portfolio. Clients certainly agreed with that as we grew very quickly.
However, once they stopped to fight on and they got rid of our CEO and sort of banned him from the industry, one of the board members came off of the board to be the interim CEO. We really needed to kind of wind the firm down.
RITHOLTZ: Is it …
FRENCH: There was too much damage done.
RITHOLTZ: I was going to say, is that recoverable even if it’s an innocent mistake …
FRENCH: Yeah.
RITHOLTZ: … and I don’t have any information whether it is or isn’t.
FRENCH: Yeah.
RITHOLTZ: But when the SEC drops that sort of hammer …
FRENCH: Right.
RITHOLTZ: … you — is there anything that could be done — done to save a company at that point or is it just all bets are off?
FRENCH: Yeah. You know, look, so to your point, Barry, all 200 employees — approximately 200 employees were completely innocent.
RITHOLTZ: Right.
FRENCH: But thankfully the industry recognized that and gave everybody a free option, and everybody is — has gone on to be — into really great jobs at other firms. But I think what happened is the trust was just eroded …
RITHOLTZ: Sure.
FRENCH: … from the clients, so clients were starting to pull money. And it was — it was too difficult to save. And so we — what we did is we hired a banker to do an asset purchase agreement and so sell the remaining assets off. And, you know, we’re just — it was — it was too difficult. So …
RITHOLTZ: Yeah.
FRENCH: … you know, look, I — I — what I learned through that process was — I mean, it was excruciating certainly.
RITHOLTZ: Sure.
FRENCH: But, you know, managing through crisis and trying to, you know, keep everybody on the boat until such time that you got to get everybody safely off the boat.
RITHOLTZ: OK.
FRENCH: And just being really open and honest with clients. I mean, clients would take me out to dinner and say what really happened, and I had to say to them, “I actually have no idea. I mean, I wasn’t here. I joined in 2013.
RITHOLTZ: Right.
FRENCH: But again be — be — seek solace in knowing that 2008 forward since F-Squared has been running your money, it’s been — it’s been done in a — in a prudent way. So it was tough but, you know …
RITHOLTZ: That’s an amazing story.
FRENCH: Yeah, it’s — it’s certainly the most excruciating chapter of my career.
RITHOLTZ: It’s fortuitous that everybody below the CEO managed to …
FRENCH: Yeah.
RITHOLTZ: … continue their career …
FRENCH: Everybody is doing great.
RITHOLTZ: … without that being a black mark. So …
FRENCH: No, no, everybody understands it now. It was sort of isolated to the CEO.
RITHOLTZ: Huh, amazing.
FRENCH: Yeah.
RITHOLTZ: So let’s jump to our favorite questions. These are the things I ask all of our guests. Let’s start out with what was the first car you ever owned, year, make and model?
FRENCH: Aha, 1974 Volkswagen Super Beetle.
RITHOLTZ: Really? I had a Super Beetle myself.
FRENCH: Yes. I love my car.
RITHOLTZ: They were indestructible.
FRENCH: Absolutely.
RITHOLTZ: I had 300,000 miles on mine.
FRENCH: I had over 200.
RITHOLTZ: It was just — yeah, ’68, not a ’74.
FRENCH: It was a Super Beetle.
RITHOLTZ: Seventy-four by then, they had breaks and …
FRENCH: Yeah, yeah.
RITHOLTZ: … radios and air-conditioning. I didn’t have any of that.
FRENCH: Mine was light blue, which hard to (inaudible).
RITHOLTZ: I had a light blue one also.
(LAUGHTER)
I had a white bug and then a — it was a light blue Super Beetle.
FRENCH: Yeah.
RITHOLTZ: The Super Beetle, for about six months, I was broken, did not have a battery. And I would start — parked on a hill and just drop the clutch and that’s how I would start the car.
FRENCH: Oh, my goodness.
RITHOLTZ: It’s — literally. So — so …
FRENCH: Yeah, I had no heat so that was tough. Anyway …
RITHOLTZ: They — but they were pretty, pretty indestructible.
FRENCH: Absolutely.
RITHOLTZ: … until the floorboards rusted out and became like a Flintstone mobile.
FRENCH: That’s right.
RITHOLTZ: Right?
FRENCH: I had one of those for sure.
RITHOLTZ: Yeah, absolutely. So tell us the most important thing people don’t know about Sharon French.
FRENCH: It was funny, the word important. I mean, the most important thing in my life for sure is that I’m a mom and — but I think most people know that.
RITHOLTZ: I would guess, yeah.
FRENCH: Yeah, so I think most people know that. What else is important? I mean, some things people don’t know, I don’t know how important is, I — I have a titanium hip. So a lot of people call me the Bionic Woman.
RITHOLTZ: When you go through the airport security, does that set stuff off?
FRENCH: Yes, it does. I have to — I have to do the walk through thing where you hold your arms above your head.
RITHOLTZ: I hate the naked machine. That is the only..
FRENCH: Yeah.
RITHOLTZ: … non-invasive imaging technology that has not been FDA-approved. And you’ll notice when they set the button they kind of lean back — lean — lean away from it …
FRENCH: Yeah.
RITHOLTZ: … because they know that stuff is going to kill them.
FRENCH: Yeah, yeah.
RITHOLTZ: So I’m — I’m — the beauty of a TSA pre or even better clear …
FRENCH: Right.
RITHOLTZ: … is that you don’t have to do the naked machine, which does — God knows — what it’s going to do.
FRENCH: But — but because of my hip and I carry …
RITHOLTZ: You have no choice.
FRENCH: … I carry a card in my — in my wallet that shows the hip, I have a striker hip and my doctor’s name and everything …
(Crosstalk)
RITHOLTZ: Right.
FRENCH: But I — actually just thinking about it and this could set-up a whole — this could set off a whole another series of questions, an important fact about me that nobody knows that I just found out …
RITHOLTZ: Yeah.
FRENCH: … and that’s a little bit of a family controversy, family of origin. My — my 5 brothers and sisters — there were six of us — is I did 23andMe …
RITHOLTZ: Right.
FRENCH: In my whole life, I thought I was a pure bred Irish …
RITHOLTZ: Right.
FRENCH: … woman. Apparently not, I am 25 percent Ashkenazi Jew.
RITHOLTZ: Really?
FRENCH: Yes.
RITHOLTZ: That’s fascinating.
FRENCH: That’s fascinating. So we had a — an unbelievable, you know, family conversation over Thanksgiving and made my mother — unfortunately, my dad has passed away — we made my mother take the test and she surprisingly …
RITHOLTZ: Yeah.
FRENCH: … is 50 percent Ashkenazi Jew …
RITHOLTZ: Wow.
FRENCH: … which means one of her parents has to be 100 percent.
RITHOLTZ: Yes, right, that’s right.
FRENCH: So, you know …
RITHOLTZ: And she doesn’t know which?
FRENCH: She doesn’t. They’re — they’re both deceased. But we — we think it’s my grandfather. But, you know, somebody went astray or …
RITHOLTZ: This is post World War 2 or maybe not?
FRENCH: So they were born in the — my mother was born in the 30’s …
RITHOLTZ: Because after the war people stopped — some people stopped talking.
FRENCH: Yeah, they were born in 19-0 — my grandparents were born in 1905, ‘06 around there. So anyway, so that’s an important fact that, quite frankly, I don’t even know until recently.
RITHOLTZ: Right. If you want to have some fun, Google Ashkenazi Jewish Nobel recipients. It’s — there’s just vastly disproportionate, and I don’t know what that’s about, but it’s kind of …
FRENCH: OK.
RITHOLTZ: … it’s kind of fascinating.
FRENCH: I just went to the Nobel museum in Stockholm in the fall.
RITHOLTZ: Yeah.
FRENCH: It was — it was fabulous so …
RITHOLTZ: I can imagine.
FRENCH: Yeah, I learned a lot.
RITHOLTZ: Tell us about some of your early mentors, who …
FRENCH: Yes.
RITHOLTZ: … helped shape your career?
FRENCH: Yes, yes. So Bob Schulman, Robert Schulman, so he was an executive at E.F. Hutton, he was in Lehman Brothers. I think he left before the Smith Barney acquisition to become president and CEO of Tremont Advisers. But he was a very, very shrewd, tough boss. He had — I had moved into a number of different positions throughout my decade at that organization and really, really tough. Ran a number of different business units, new product development, he actually was one of the early executives who ran the — the Smith Barney consulting group, which was ultimately sold off to, I think, Bank of New York Mellon. And he was tough as nails.
And so the — and we still meet for coffee and — and lunch today. He’s retired. But he was — he was instrumental to me because he was so tough. I didn’t need coddling, I needed to understand how to be better and do better and held — he gave me all kinds of runway. And so my reputation today is sort of somebody who can, you know …
RITHOLTZ: Fixer.
FRENCH: Right.
RITHOLTZ: That was a question I didn’t get to. Your reputation is …
FRENCH: Yeah.
RITHOLTZ: … something’s messed up, send Sharon …
FRENCH: Yeah, yeah.
RITHOLTZ: … and she’ll face it.
FRENCH: Yeah. Well, and it’s — and it’s fixing and growing or doing the diagnostic in order to remove the obstacle for growth. I mean, I — I hope that, at some point, people see me as somebody who drives profitable growth, but that was Bob, and that was — that is who gave me those early, you know, sort of runways and taught me how to go at the heart of the issue and keep running harder, keep running stronger. I mean, I certainly — he wasn’t — a lot of people are afraid of him, so I wouldn’t say that he was the mentor in my life who taught me how to socialize issues and how to get the right key stakeholders involved and get their buy and that came later.
RITHOLTZ: Right.
FRENCH: I had a female mentor at AllianceBernstein. I had a male mentor also at AllianceBernstein who I think helped me along in that regard as well. So I’m a big believer in mentors. I’m a big believer in sponsorship. And I have mentored a ton of mostly women in my career, which I continue to do and I really believe in, because at this stage of my career, Barry, to me, it’s all that paying it forward. I mean, I — I still have a lot more to accomplish, but it’s all about inspiring the next generation, which I started a — a unit called University Outreach within Women in ETFs, which is actually going to universities at the undergraduate level and mentoring in them and raising their awareness around asset management and ETFs specifically.
There’s a lot of — a lot of women who are going into business have nowhere to go from there. And business is hard for women. Financial services is still pretty difficult. It’s getting better, but I — I really want to inspire the next generation at the undergraduate level and then mentor younger females who are incredibly smart and promising within this industry.
RITHOLTZ: What about investors? Who influenced the way you look at assets, markets …
FRENCH: Yeah.
RITHOLTZ: … and investment?
FRENCH: When I was young, it was Bill Sharpe and Harry Markowitz, right, modern portfolio, Barry.
RITHOLTZ: Could do — do lot a worse than both of them.
FRENCH: Yes, in 1962, so the only start-up I did in my career was mPower. That’s when I left my wealth management brokerage experience in New York and moved to San Francisco right AOL went public in 1996.
RITHOLTZ: Right, sure.
FRENCH: Remember that? That really started whole Internet place. And so that start-up experience was — was really, really strong, and we partnered with Harry Markowitz. Our competition was Financial Engines who partners with Bill Sharpe.
RITHOLTZ: Right.
FRENCH: I mean, more recently over the — that was probably my second decade, my third decade was more Fama and French at the University of Chicago and a lot of their factor work. I really do believe in the persistence of factors as a more precise way to get at the key drivers of return.
RITHOLTZ: Right, Eugene Fama at Chicago, I think Ken French is at Dartmouth.
FRENCH: And Ken French, yes, exactly.
RITHOLTZ: Currently, a top school, I’m not positive, right.
FRENCH: That’s right, that’s exactly right.
RITHOLTZ: That’s quite interesting. Everybody’s favorite question, what are some of your favorite books, be they fiction, non-fiction, investing-related or whatever?
FRENCH: Yeah. So I’m — I really love to learn about people, so I love reading biographies. And so I — the one I just read was “I Love Capitalism” by Ken Langone.
RITHOLTZ: Oh, really?
FRENCH: It was fabulous.
RITHOLTZ: He’s a really interesting albeit crusty guy. I mean, he’s sort of like a classic curmudgeonly. How’d the book read?
FRENCH: He was scrappy.
RITHOLTZ: Scrappy, that’s a better word.
FRENCH: Scrappy.
RITHOLTZ: Forget crusty, scrappy.
FRENCH: Scrappy, I mean …
RITHOLTZ: Right.
FRENCH: … I could not put it down; I read it in three days.
RITHOLTZ: Home Depot is just amazing success story.
FRENCH: Oh, I mean, he did so many other things have been at (ph) Home Depot.
RITHOLTZ: Really?
FRENCH: Absolutely. I mean, he put capital together on Wall Street. That’s …
RITHOLTZ: Right.
FRENCH: … what he did. He was scrappy, he was fearless, he was amazing. So anyway, so I just read Michelle Obama’s book, which I thought was great, “Becoming.” Also read that one in three days. Katharine Hepburn, certainly Michael Bloomberg …
RITHOLTZ: I’m a giant joint Katharine Hepburn fan.
FRENCH: Yeah, as am I.
RITHOLTZ: Was this her biography or autobiography?
FRENCH: It was her biography.
RITHOLTZ: Yeah.
FRENCH: It’s her biography.
RITHOLTZ: Who — who wrote that?
FRENCH: Oh, gosh, you’re testing me.
RITHOLTZ: I just …
FRENCH: I just don’t remember.
RITHOLTZ: … because there’s a dozen Katharine Hepburn biographies out there.
FRENCH: Yes, I don’t remember, Barry, I’m sorry, I don’t remember.
RITHOLTZ: Email it to me. I’ll add it to the list …
FRENCH: OK.
RITHOLTZ: … while we go.
FRENCH: And — but even Anne Keller, I mean, you know, I mean, I — you know, so I’m fascinated by people, so my — my — my favorite books are actually reading the — you know, the biography channel, I love to listen to. I mean, I certainly have read a lot about the Grateful Dead, going back to music, you know, Jerry Garcia …
RITHOLTZ: Right.
FRENCH: … Phil Collins. So I — I typically read not all the time.
RITHOLTZ: That’s a weird — that’s a weird juxtaposition the dead into Phil Collins.
FRENCH: I know, I know.
RITHOLTZ: Not exactly …
FRENCH: I’ve got an eclectic, you know …
RITHOLTZ: Right.
FRENCH: … palate. I think we …
RITHOLTZ: See I go back to the early days …
FRENCH: … I think we established that.
RITHOLTZ: … of — of Genesis and Peter Gabriel.
FRENCH: Oh, sure.
RITHOLTZ: Not that I — not that I mind …
FRENCH: Oh, Supertramp, Genesis, that whole — that was high school for me, yeah.
RITHOLTZ: That was my freshman year in college …
(LAUGHTER)
… Breakfast in America.
FRENCH: All right, good, so you’re older than me.
(LAUGHTER)
RITHOLTZ: A touch — just a touch. So what do you — tell us about a time you failed and what you learned from the experience? Are there any other books before we jump to the next one?
FRENCH: No, that’s — that’s good.
RITHOLTZ: All right. So …
FRENCH: I mean, certainly, I read other things other than just biographies, but I think that’s the thought I’d like to leave you with.
RITHOLTZ: OK. So let’s discuss the time you failed, business or not, and what you learned from the experience.
FRENCH: Gosh, OK. So it — it’s sort of business and personal at the same time. So during that period of time where I was in San Francisco, where I was working for mPower, we were — we were growing fast. Again, Harvard Business case study loved it, we ended up selling the business to Morningstar ultimately in 2001. But I was running global sales. I was one of — of the, you know — I was on the management team, you know, fifth member of the management team. And we had built our business domestically and I was starting to establish our business globally, so we — I set-up a — I was going back and forth from San Francisco to Tokyo and San Francisco to London, put up joint ventures in London to grow that and build a subsidiary bricks and mortar in — sorry in Asia, we did joint ventures. London, we put up a subsidiary.
We — we were a finalist for — so Mizuho really came together in 2001. It was IBJ, Industrial Bank of Japan, Dai-Ichi Kangyo, DKB, and Fuji Bank. Those three individual banks came together to form Mizuho. While they were forming, they were looking for online investment advisory services. We were as one of many things on this platform they’re building, we were a finalist. There was two of us.
At that time, I was pregnant with my daughter …
RITHOLTZ: Right.
FRENCH: … very pregnant. Well, started out not so pregnant but over the course of eight months I …
RITHOLTZ: That’s …
FRENCH: … ended very pregnant.
RITHOLTZ: … that tends to be the progression, right.
FRENCH: Exactly. And I needed to — and as — if you understand the Japanese culture, they are very much into relationships, right? Not that we are in the U.S., but even more so, much deeper. So when you start with them you have to end with them or you might as well not compete.
And so I was the one who had to fly to Tokyo to do this finalist presentation, and I was eight months pregnant.
RITHOLTZ: Out of here, right.
FRENCH: Yeah, right. So P.S., forged the doctor’s note, bad idea. I remember at the time my husband — and my son was two — saying, you know, if you go you don’t get it, we will not be here when you get back. Do you I understand that when you fly to New York or London or New York, you’re flying over land. So if …
RITHOLTZ: Right.
FRENCH: … you go into labor you have to lay on the plane and you can land the plane.
RITHOLTZ: Right, you can land the plane when you’re over the Pacific.
FRENCH: That’s right. So stupid me, I went. Thankfully, the — the story ends well. We did win the business and I didn’t go into labor, but I went into labor prematurely two weeks after I got back.
RITHOLTZ: Right.
FRENCH: And my daughter was fine; she was six pounds. My husband and little boy was — were still there although he didn’t talk to me for the following month.
(LAUGHTER)
But the lesson learned — and, Barry, I — I said that I mentor people and women and on many of the things that I said to them is look, avoid the mistakes I made.
RITHOLTZ: Right.
FRENCH: What was I thinking? Our number one priority is ourselves, our health and our family.
RITHOLTZ: Right.
FRENCH: That was the stupidest thing I ever did. I put my life at risk and my unborn child’s life at risk. Wow, like stupid.
RITHOLTZ: That’s …
FRENCH: Yeah.
RITHOLTZ: … that’s a …
FRENCH: That’s pretty bad.
RITHOLTZ: That’s a horrifying …
FRENCH: Yeah, yeah.
RITHOLTZ: … horrifying story.
FRENCH: Again, it worked out but …
RITHOLTZ: Still.
FRENCH: Yeah.
RITHOLTZ: What do you do for fun?
FRENCH: What I do for fun? Listen to music.
RITHOLTZ: Yeah.
FRENCH: Look, I’m very sporty as you say, so I — I used to run but now I have a new hip so I can’t do that anymore. But I do yoga. I do, you know, stand-up paddle boarding. I ski. I — I, you know, snorkel. I power glide. I — I do anything. I don’t say no to anything.
I don’t scuba dive. I’ve got to get my — over my fear of scuba diving, but I’m very sporty. So, you know, I’ll — I’ll be on a softball team or I’ll, you know, I’ll — I’ll always say yes if anybody want. My son just jumped — jumped out of a plane, I don’t know if I’m going to do that but …
RITHOLTZ: You did the risk reward on that one is not my …
FRENCH: Yeah, yeah.
RITHOLTZ: … my favorite …
FRENCH: Yeah, yeah, yeah.
RITHOLTZ: So our last question because we have to wrap. What sort of advice would you give any millennial who was thinking of going into a career in finance?
FRENCH: Yeah. So look, it’s interesting. Millennials, you and I grew up with the mutual fund in the 80’s; millennials are growing up with ETFs, right?
RITHOLTZ: Right.
FRENCH: And they’re growing up with digital advice. So one of the things I like about that is it’s — it’s a lot of the burden of that falls on their shoulders in terms of how they learn to, you know, think about portfolio construction. So I think data and — I mean, look, we’re sitting at Bloomberg, this is the epicenter of data and intelligence.
RITHOLTZ: Right.
FRENCH: I am big into how the financial world meets the technology world, so I certainly — my passion and my love deep down is asset management, but I love the intersection of finance and technology, so I certainly would, you know, advise them in that direction.
RITHOLTZ: And our final question, what is it that you know about the world of investing today that you wish you knew 30 years ago when you first started?
FRENCH: I — I wish I understood risk a little bit more. You know, I sort of thought trees grew to the sky back then and, you know, I think I was a little bit idealistic at that time. So I’m — I’m — I’ve — I’ve been sobered and I’ve been burned. I mean, I’ve been through three market corrections that are pretty significant, ’87, 2000, 2001 and 2008, as well as market timing schedules and all the things you mentioned. So, you know, I’m — I’m much more practical now, much more pragmatic. And I wish I knew that back then.
I think a lot of the younger generation, especially millennials, are super idealistic. But having been through what I’ve been through throughout my career, you know, I wish I learned more earlier on about, you know, managing risk better.
RITHOLTZ: Really, really interesting answer. We have been speaking with Sharon French. She is the Head of Beta Solutions at Oppenheimer Funds.
If you enjoyed this conversation, well, be sure and check it up at iTunes and look up or down an inch where you can see any of the other 250 or so such conversations we’ve had previously. You can find that at iTunes, Stitcher, Overcast, bloomberg.com.
We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net. I would be remiss if I do not thank the crack staff that helps put together these conversations each week. Madena Parwana is our audio engineer/producer. Atika Valbrun is our Project Director. Michael Boyle is our Booker. Michael Batnick is our Head of Research.
I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.
VOICE-OVER: The Masters in Business podcast is brought to you by Invesco. Every day at Invesco, we bring together ideas with technology, data with inspiration and investors with solutions. Let’s invest in greater possibilities together. Find out more at invesco.com/together.
