The transcript from this week’s, MiB: Jean Hyne, Wellington Management’s (incoming) CEO, is below.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.
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VOICE OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. Her name is Jean Hynes and she is the incoming CEO of Wellington Management, a nearly hundred-year-old firm which manages over $1 trillion in assets.
Jean is a fascinating investor. She’s got a great history both as she started her early jobs at Wellington eventually taking over the Vanguard Healthcare Fund, the largest healthcare fund in the country. As a managing partner at Wellington and soon to be CEO, she simply has a unique perspective as to what’s going on in the world of asset management, that includes everything from governance issues, who’s becoming CEOs, whose rising up through the ranks across the entire industry, what the impact of sustainability is going to be on the entire asset management, we talk about private equity, we talk about passive versus active. Pretty much we covered everything there was to discuss about investing these days, and really there aren’t many people who have as unique a perch to look out on the world of finance and have an informed opinion.
I thought this was a fascinating conversation and I think you will, too. So with no further ado, my interview of Wellington Management’s, Jean Hynes.
VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My extra special guest this week is Jean Hynes, she is the incoming CEO of Wellington Asset Management, the firm manages over $1 trillion in plan and assets. She began as an administrative assistant at Wellington and currently also manages the $51 billion Vanguard Healthcare Fund, the country’s largest healthcare fund. She takes over as CEO this June. Jean Hynes welcome to Bloomberg.
JEAN HYNES, MANAGING PARTNER, WELLINGTON MANAGEMENT: Thank you very much, Barry. I’m happy to talk to you today.
RITHOLTZ: So I’m kind of intrigued by all sorts of parts of your career, you come out of college with a degree in economics but your first job is as an administrative assistant. Seems a little disconnected. Explain that early career choice.
HYNES: Well, Barry, if I go back and maybe just give you some context from — I am a daughter of Irish immigrants and so when I went to Wellesley College on a scholarship, I didn’t really know anything about the stock market and I remember being in the crash of ’87, that was my first experience in hearing about what the stock market did.
I took a sociology class and it was about work and so we had to find an internship at a place of work anywhere around Boston and I found an internship at a brokerage firm. That introduced me to the market which I loved and I particularly liked the research part of it, I wanted to find out what made stocks go up and down.
And so in the context of 1991 which was a mini recession if you remember, there weren’t many jobs. I went out trying to find that job where I could learn about the markets and do research. I was interviewing at two different jobs but every similar jobs, one had a much better title and one — the one at Wellington was an administrative assistant and you have to imagine back in 1991, Wellington with under 300 employees, we’re 2,700 now.
So it’s a much smaller organization, very flat. I didn’t know I was going to come in and do maybe 50 percent of my job would be more typical research assistant work. And I remember back to the headhunter telling me that “This is a special place, you are never going to regret going to Wellington. There’s going to be lots of growth opportunities for you.”
And that’s why I took the job.
And I guess, you know, I really did for the first couple of years, this maybe 50 percent of the job is administrative 50 percent was really getting to know the markets and learning how to model and then about 18 months and I started working with Ed Owens.
RITHOLTZ: So let’s talk a little bit about Ed Owens, he has been called the best investor you never heard of. He ran the Vanguard Healthcare Funds for quite a long time, what did you learn from working with Ed?
HYNES: I had the privilege of working for Ed for 20 years of my career. When I think back and as I said I started working with Ed in early 1993 and that was a period of intense IPO activity in the bio — in the biotechnology sector. He was the reason — he was the analyst, the biotech analyst, he was the pharmaceutical analyst and he also ran the Vanguard Healthcare Fund.
And so I just got to go deep with him right from the very beginning of you’re welcome when we started working together. If I had to take a step back and say what are the three things that Ed taught me that will that sort of live with me now and how I both show up as an investor and show up as a leader.
I think, one, just the concept of very deep research. You know when we’re thinking about how we’re going to make money for our clients is –you know, how will the — what will the future hold, what will change that is going to really create value for the world.
And I think Ed was early taking that perspective, I think the other one was also following all companies, any market cap, global, I think he was global before many, many investors were global and that really helped us build Mosaic. So for instance, if that company was building without working on a specific mechanism of action for drug and there was a small company in San Diego working on it, there might be a Japanese company also working on it and that has just helped us flesh out what was happening and really trying — and really help us figure out who might be the winners and whether this was really going to be a drug, is this really going to change medicine.
And so I think that sort of deep research Ed instilled in me.
Secondly, if you — you know, what value is. So Ed is a value investor, I consider myself a value investor and that is very much linked to trying to see what the future is. So what is this company going to be worth it if this drug is successful or they gained this market share in the medical device, and it is not necessarily out a low-key type of investing, it’s really what companies are worth.
And then just really tying that to what the stock is at so our job is not to predict the future medicine our job is to buy stock, not concept, so where is that — where is that value versus fundamental and there has be room in the value of the enterprise for us to make money for our clients.
And just finally, flexibility. Ed was a very long term low turnover investor that he was anything but complacent. He was just very flexible to change his mind when something change on a long-term thesis. I think I am much better at that in the past decade. I think that is something you learn over time. I think it’s a very important, important in my leadership as well as we think about the firm that sort of flexibility is very key.
RITHOLTZ: So I want to flesh out some of the results from that approach to investing in healthcare with some numbers.
When Ed retired in 2012, the Vanguard Healthcare Fund that he was managing was the top performing fund over the previous 25 years, over 3000 percent for an annualized return of more than 14.8 percent, far ahead of its benchmark or the S&P 500.
So what sort of pressure was it like taking over a fund that had those sort of numbers?
HYNES: Well, I worked with Ed, as I said, for 20 years on that fund. So I was integral — you know, I was very much — very closely tied to the research as well as some of my colleagues on the team.
So I guess when I took over the fund, I just felt very comfortable that we had built a team we had learned from Ed, We had the privilege of learning from Ed for 20 years that we would make him proud and carry on this – you know, carry on the great result over the long term that he has created.
I would say a couple of things as well.
He, as I said, he – for over 25 years, he really brought that very science based long-term bet, healthcare is a growth industry, I think it will continue to be a growth industry going forward so that is you know, really bringing that lens to the fund.
He was also very much a contrarian and again a value investor when you think back to big moves in the index, he made — had made a big move in 1999 and 2000 towards healthcare services and medical technology which had been very much out-of-favor for many years.
And that was – let’s say 20 percent to 25 percent of the index back in 1999 and 2000, now it’s closer to 50 percent. So that shift to looking broader than just the pharmaceutical companies also served us well during that period.
RITHOLTZ: Really interesting. And in 2014, you became one of Wellington’s three managing partners. What has that experience been like knowing the you’re the key troika that’s responsible for directing over a trillion dollars?
HYNES: So one of Wellington’s core edges is our private partnership structure and that structure than is in place now for almost 42 years, it’s gone global and it scaled up to $1 trillion.
And I would say, you know, the concept of the private partnership structure had been in place now for 40 years — 40 plus years. And three managing partners are responsible for the governance of the partnership and I guess — in my seventh year being a managing partner, I just really appreciate, you know, one, the brilliance of our partnership structure, the fact that you know the partners, those — the partners and the employees need to trust us to do our homework and leave our biases, you know, we leave our biases behind.
So again when I think about my last seven years, I just learned so much about the business, (technical difficulty) is about people becoming partners and becoming managing directors and it’s about sharing the economics of the firm and so again, those two things (technical difficulty) knowing the business (technical difficulty) things that have helped be – helped me be one of those managing partners that our partners trust.
RITHOLTZ: Quite interesting. So let’s talk a little bit about Wellington. I know they have a big birthday coming up, soon to be 100 years old. Having that sort of history, what does that mean to the firm?
HYNES: So our hundred year anniversary it still a few years off, we trace our roots back to 1928 when Walter Morgan founded the First Balance Mutual Fund which is now the Wellington Fund that is sponsored by Vanguard.
Our modern history of the firm is almost 42 years old when we formed our private partnership and took the company (technical difficulty) private partnership back in 1979.
RITHOLTZ: And the firm currently is running over $1 trillion in client assets. Tell us about some of your clients? I know that pensions and endowments and foundations as well as other global wealth managers are some of the clients of Wellington.
HYNES: So we do one thing at Wellington and that is to manage money for our clients. We have a large sub-advisory business in the US and around the world. We have a very large institutional business and that is from government around the world to pension funds, to endowments and foundations, we, as you mentioned, we have a growing private wealth business for private banks.
Again our singular focus is on providing investment, content investment products. I think that singular focus really helps us deliver investment excellence over time for our clients around the world.
RITHOLTZ: So one of your largest clients is Vanguard, that’s a long-standing relationship. Obviously Jack Bogle came out of Wellington to launch Vanguard. Tell us about the relationship between Wellington Management and the Vanguard Group?
HYNES: So Barry, as you said, Vanguard and Wellington had very similar roots back in 1928 when Walter Morgan founded the company and we went different paths in the 1970s with Wellington focused on investment management and investment content and Vanguard focusing on the mutual fund distribution business.
I would say we have a very, very strong partnership, they are our largest client. I just have enormous respect for how well they have done as a business.
And so you know, our goal at Vanguard is to really make sure that we’re delivering investment excellence over the long term and I would say one of the things that I really appreciate — appreciate about Vanguard is they really have a very long-term horizon, and they are evaluating us on 5 years and 10 years.
And I think that sort of partnership has fared us well over time.
RITHOLTZ: Interesting. You mentioned earlier that Wellington is a partnership, not publicly traded, I have to imagine that overtime, there were offers to either go public or to be sold. Why stay private? What’s the advantage of that?
HYNES: So, one of the most important advantages of staying private is that we can be very long-term, long-term in our investment horizons, long-term in how we evaluate our talent, and that — that really does align with the long-term objectives of our clients.
So what are our — what are we trying to do? We are trying to deliver investment results, investment outcome for our clients and ultimately, their end beneficiaries which could be retail individual investors around the world, it could be pensioners and may have very — their time horizons are extremely long term.
And so again, I think our private partnership serves us quite well and it might be the optimal structure to run an investment asset management business.
And I would say the other thing is that this is not a capital heavy business that we — that we don’t rely on the financial markets or banks or to run our business and so again there was never any necessity – and maybe one final thing is that we have grown organically (inaudible) since 1991, we were approximately 60 billion and as you said, we’re over $1 trillion now, that has all been through organic growth adding talent along the way to grow – to globalize or grow our fixed income business.
And again, we haven’t needed — I mean we now have at our size, we have the global scale to invest in our business without relying on the market.
RITHOLTZ: So tell us a little bit about the firm’s morning meeting, it’s been described as a quote “signature event.” Tells a little bit about that.
HYNES: So we start — the morning meeting has been going on since 1958, it is something that has started in our Boston office but now also happens — we have a Eurasian morning meeting the happens in our London — a Eurasian meeting that happens in our London and that connects to our Asia offices.
It’s really a place to get together and debate what’s happening in the markets whether that individual stocks or individual credits or individual or what is happening on a macro level.
It really does bring the firm together in terms of a focus on how you know, the news of the day sometimes those meetings are very topical and sometimes they are forward-looking and we try to share unfinished ideas.
I think most importantly, Barry, if I can leave you with one thing about our firm is that we have a very collaborative culture and what that means is that there is no chief investment officer, each individual portfolio manager, we have about 50 plus boutiques and can go back and practice their own philosophy of process but we have this open collaborative platform in the morning meeting is a critical part of that.
And what you want is debates and challenge on any topic and I think over that I think the morning meeting has allowed that forum where portfolio managers and analysts can have debates and have different views and different perspective, I think that has really helped our collaborative platform.
RITHOLTZ: And you mentioned attracting talent. What has it been like this year to extract or develop and retain talent given the challenges of the pandemic and having to work remotely, not necessarily being able to interview people face-to-face, what’s it been like this past year?
HYNES: So we have — so again, as you said, it’s surprising how you we’re almost a year into really having to work from home and we’ve been able to run the firm virtually and that includes attracting talent from all over the globe. So we have on boarded well over 100 people in 2020 and even more starting in 2021.
And so that has seemed seemless, but again the most thing is how do you integrate and how do to integrate them into your teams?
We’ve had 2 new team members on the healthcare team. So I know firsthand were trying to integrate them into our processes and into our team culture, and again I think it takes work, it takes work to make sure that you’re connecting and you are getting to know them and that you’re spending a lot of time with them.
I think the apprenticeship model is one of the things that we will — as we think about the future of work, that will be very important to having — the combination of both in person and potentially more flexibility in the future. But again, we’ve done — we have tried a lot of different things that makes us who we are, both integrating new talent as well as keeping teams together during this pandemic.
And technology has really helped and it’s really a lot of every day making sure people are connecting either through our morning meeting as we talked about or through more team meetings or through one-on-one conversations.
RITHOLTZ: So you are founded in Philadelphia, headquartered in Boston, how has the pandemic changed how you recruit and retain people? Does it open up more opportunities.
I do think what we’ve learned from working from home is that you know, one, the technology works so we can work more virtually and we can be more flexible in terms of how we use technology to interact.
So I would suspect first of all, there will be more stability in the workforce and that does allow us to think about other locations where we can attract talent. So other parts of the US were we don’t have we don’t have offices, that’s something we’re looking at, no division have been made but that’s something that I would suspect we’ll look at over time as well as other parts of the world where we don’t have offices.
Like, how do we take a fresh look? We have a group of our leaders now studying — they have a business challenge studying the future work I think in the next couple of months. we will see what bares, they’ve done such extensive work in terms of surveying other companies and surveying our employees and I think they will come with recommendations about how we will work in the future I and I soon will have more flexibility in that will allow us to think more broadly about where our employees are located.
RITHOLTZ: So what’s going on, Jean, in the healthcare industry today, what insights do we have on vaccine and innovation. This has this really been a hell of a year for healthcare.
HYNES: Yes, Barry, I think that when you think about healthcare and I did mention earlier that healthcare is a growth industry and what I mean by that is that when you think about demand with the population aging as well as in many emerging markets such as China more people entering the middle-class, that just increases up-tier demand.
So the healthcare demand is increasing at a brisk rate in and then we have payers around the world and try to figure out how to control that natural growth of healthcare. So that’s what’s on the demand side. I think on the on the supply side, we are in and I would really like to say, we are in a revolutionary period of biology and so when you when you talk about the biopharma side, the biopharmaceutical side of healthcare, this is the most exciting period in my 25 plus years of following the industry.
And I think in 2020, that technology, the power of that technology really came through when we think about how fast the vaccine and antibodies in you know how fast they were able to be developed during this pandemic.
RITHOLTZ: So last year, MRNA was the new tech, it really showed its stuff in developing the COVID vaccine, what are some of the next great healthcare technologies, when or the nano bots going eat the cholesterol that’s built up in people’s vascular systems or is it something else entirely?
HYNES: Yes, I think if we take a step back and think about the history of biopharmaceutical and you had small molecule drug that — those are small drugs like Advil or aspirin and then in the 1990s, you had the discovery of that you could deliver proteins in the late 1990s, you had a discovery that you could deliver monoclonal antibodies which went after much larger receptors in the body.
That has opened up biology. So again. we think about the past 20 years, the growth in the industry and really being able to treat many different diseases has been about using these biologics to treat diseases.
I think we’re in a completely new era now in 2020 when you think about the ability to target DNA in a completely new way. So we think about those the history of all medicine — those 3 modalities and now we have of small interfering RNA as you mentioned messenger RNA, gene therapy, eventually CRISPR, we have new modalities called biospecific antibodies which targets two target at once.
And even small molecules, because you understand biology at a completely new level, small molecules are becoming more targeted with less side effects.
And so when you look forward to the next 20 years, as we unraveled biology, we’re just going to have many, many more modalities.
I’m not sure if we’re going to have nano bots but I do think that these technology platforms will be used broadly across all diseases to treat diseases and I think if we look back 20 to 30 years from now, we will have made a substantial inroads into disease and then treating disease and that is very exciting and encouraging and we will create a lot of value for the industry.
RITHOLTZ: What about oncology and cancer we have seen a lot of progress but it turns out cancer is not one disease but hundreds of diseases, what are we looking at in that space and how important is genomics for pursuing a broader cure for cancer?
HYNES: When you think back to 10 years ago, cancer was treated with chemotherapy which are like poisons and chemotherapy really has resulted in really controlling cancer or treat — helping to treat cancer but in the past 10 years where you’ve used you have the ability to use genomics and use genetic information to both understand how why cancers grow and like you said, you have breast cancer or lung cancer — not just — just because it’s in the lung doesn’t mean it’s being driven by the same kind of mutation.
And so just a better understanding of why patients — what’s driving their cancers has led to much better identification of targets and much better identification of drugs and so when you think about cancer now, you have — you still have chemotherapy as a backbone, you have immuno oncology which help the immune system overcome the cancer that you have targeted therapies in terms of driver mutations, the ability to target those driver mutation.
I think in the future, some of the interesting areas are going to be antibody — antibody drug conjugates which is more precisely delivering chemo through antibody, those platforms I think will expand going forward. You have –you know they are the first of the CAR-Ts, I think though those could possibly be used much more broadly in other and other diseases as well.
So I think we are on the brink of really making dramatic changes in oncology and interestingly when you look at the industry, you look at the biotechnology industry I think half the companies are oncology based and approximately half of — or half of R&D spending in the industry is oncology. So when you think about the combination of really unmet medical need and being very susceptible or driven by genetic mutation, that’s the perfect marriage in terms of really making progress.
RITHOLTZ: Quite interesting, so what does this mean for longevity and future lifespans? Are we looking at someone being born today with the high probability of reaching a hundred?
HYNES: I always expect that lifespans are going to be prolonged going forward, I think you are you already seeing that, I think that just recently the death rate of cancer had declined in the last 5 years, we just talked about the number of new technologies we are already seeing it in the data so that would be one.
I think that also does the ability to have gene therapy for a hundred monogenic diseases that potentially could be susceptible to a technology like gene therapies that you give us a newborn that could dramatically change the lifespan and the quality of the lifespan of individuals with those genetic mutations, so that would be another area.
And I think when you think about the large parts of the market that really drive mortality, really it is cancer and it is also cardiovascular disease …
RITHOLTZ: Right,
HYNES: And I think we’ve made progress in terms of congestive heart failure and blood pressure and so again if we can craft know that you have more people at an earlier stage controlling all those risk factors, that will also likely lead to longer lives in the future.
RITHOLTZ: Quite interesting.
So let’s talk a little bit about Wellington, I think of you guys as an investor in the public spaces, but you have a pretty robust business in alternative assets like private equity and venture capital, I think that’s over $30 billion now.
Tell us a little bit about what’s attractive in that space.
HYNES: And so we have an over $30 billion in alternatives which are both long and short funds as well as an emerging private equity business. If I think about the private equity business, we and you mentioned that we were a public company, one of the things that we started you know, right around 2014 and 2015 is launching a late stage crossover fund.
So that was our first private fund, you know, came out of the observation that companies were staying private longer and there weren’t as many IPOs and it was a very natural adjacency to our public investing.
We just launched the 3rd of that platform and a few years ago, we also launched the first of a biology based private fund. Again, I think the big observation when you step back is that there are more companies staying private longer, there are more companies that are private when it — when I think about biotechnology, there are more private companies relative to public companies now than any part of my career.
So it is a very ripe area for investing in it in a really is very much aligned with how we invest in the public market, it is very adjacent to our public market investing. And I think if you think about Wellington going forward, we will have more platforms beyond those first two, it’s an area that we’re investing in as a firm.
So some of the older alternatives that are out there, hedge funds seem to have gotten very crowded over the past 20 years and some people have argued the same is true for the venture-capital side a lot of money is chasing only a finite amount of deals, what does the risk look like in private equity? Is there the possibility that that becomes a crowded space also?
HYNES: I will go back to what I talked about in terms of number of private companies, so again when we think about our cost set, think about Wellington’s very rooted process in terms of both valuation and assessing fundamentals, I think we think there is plenty of opportunity right now for using our skills as public investor, using the skills we have generated, skills we have honed over many, many years to apply those to the private market.
And I think the observation about maybe the productivity of the world that there are just a number of private you know a larger number of private companies and probably any time in history and in creating real value for the world and that’s the opportunity.
RITHOLTZ: Really interesting.
Let’s talk a little bit about sustainable investing, Wellington is known for its sustainability and alternatives approaches, you guys have a partnership with Woodwell Climate Research Center, what are some of the physical effects of climate change on capital markets? How is climate change affecting asset prices.
HYNES: So let me take a step back and talk about sustainability and then talk about our Woodwell Climate Research partnership and then how it impacts the market…
RITHOLTZ: Sure.
HYNES: In terms of sustainability, it’s — I would stay there — if you think about ES&G, environment social and governance, I think governance has been you know, an important part of our process for the past 25 years. Governance has always been an important part of our process. W now have more — we now define it more and we are interacting as a firm more with companies as well as for in terms — in terms of our oversight of governance of our of our holdings and I think that will continue.
I think in the last number of years the environmental has really become quite important in terms of new regulations being put in place in certain parts of the world and again, we have this very exciting partnership with Woodwell Climate Research Center and we’re working with a few of our clients on this partnership, and were asking questions such as how does climate impact asset prices.
And we spent fascinating insights into how water shorter — shortage for example or heat maps so we are bringing that climate research down to very specific parts of geographies and then connecting them and trying to connect them then to well, these businesses and this geography and is that going to have an impact potentially on municipal bonds, for example, or even on the equity in the medium to long-term.
So that — what we’re trying to do is take those insight, make sure we are asking the right questions, take those insights and bring it down to a very specific mapping of climate risks and then trying to connect that to actual stock and credit.
And so we are in the process of doing that, it’s a very exciting partnership and we’re also doing with that data, doing climate reviews of our portfolio.
So again what do our portfolios look like from a climate perspective?
And if I take a very big step back, I think the next — the next stage will be social again, how does social it interact with the public markets and I would suspect, Barry that we are going to — sustainability is not a fad, it’s here to stay, and it is really going to impact how the markets evolve in terms of where assets go and to what kind of funds.
And so it’s very important area of investment for Wellington in terms of both talent in terms of talent that comes with ESG background as well as technology investment for us in terms of how we can use our climate for example, our governance insight into portfolio construction.
I think we’re early in the process but eventually it will become part of the dialogue of all stocks in a number of years.
RITHOLTZ: So in June you take over for Brendan Swords as Wellington’s 5th CEO since the firm went private 1979. You are the first woman to serve in that capacity, you’re only one of two female CEOs amongst the largest asset managers, what does this tell us about governance as an issue both in corporate America generally but in the finance sector specifically?
HYNES: So I’m going to answer that in two parts, one would be very Wellington specific and then maybe want about — a comment about corporate and of the world of corporations and what the future might hold from a Wellington perspective, as you said, I’m going to be the fifth-generation CEO of the private partnership era since 1979, I think the most important thing to know is we really value stewardship, we really value passing the baton to the next generation, leaving the partnership in a better place like my goal is that this partnership and the firm will be thriving 50 years from now.
So that is very important in terms of that is a very Wellington specific stewardship of the firm.
If I shift and think about governance, you know, I — you know, I just have an observation, you know, I think it is a novelty now that — a female becoming a CEO and it’s very exciting to see a number of peers in the industry and in the other in — in other industries becoming CEOs, hopefully, it won’t be such a novelty in ten years.
And the observation I’m going to make and I – it’s an observation based on seeing what’s happening in the healthcare industry is being broader data is that I do think that more women in all industries have more experience running parts of the business group we are going to see more females become CEOs and hopefully you know hopefully 10 years from now, there will be a lot more deserving women who have had the opportunity to run businesses and be prepared to be CEOs of corporations around the world.
You know, when I think about myself being a managing partner that we talked about earlier, that really provided me that experienced that experience for me, it really broadened my perspective and I got to know the firm and got to know about the client and the firm and the talent throughout the organization that has helped me prepare for the next — for the upcoming succession from Brendan.
RITHOLTZ: That is quite interesting.
So over the past — let’s call it decade or so certainly since the great financial crisis, we’ve seen a lot of assets flow towards passive, you guys seem to have done pretty well as an active manager, what are you doing to compete more effectively against passive? Is that going to be an ongoing shift or is this eventually going to reach some form of equilibrium?
HYNES: I strongly believe this is a very important place for active management, there is also a very important place for passive.
And it’s our job at Wellington being an active manager, and that is our strategy going forward so how do we — how do we deliver, how do we help our clients achieve their investment outcomes? And when you think about our clients and again, back to what are we trying to do for clients?
We are trying to help them, their future liabilities or know how they fund their pension fund for example, how do people retire with more assets that they can live a fulfilling retirement, that’s what we’re trying to do and we believe that we can deliver investment excellence that the alpha part of — the alpha part of the equation will become even more important going forward.
So if you think about where interest rates are, you know, what is the outlook for bond returns going forward when interest rates are you know, close to zero with the equity market you know having a strong run for the past 12 years, we think alpha will become even more important part of the outcomes for our clients.
And so again, that is our number one focus, investment excellence, we can deliver to our client, we will do well and help them solve their problems and hopefully gain more of their trust and gain further business over time.
RITHOLTZ: That’s insisting. You mentioned interest rates. How much attention do you pay to the macro is what the Federal Reserve is doing impact how you adjust your portfolios? Do you think about the state of economy or is all that stuff background and you focus on finding companies of the right valuations?
HYNES: So I will talk about Wellington and I will talk about Jean and how she incorporates or how I incorporate interest rates and what is happening at the macro level.
So we have half of our business in fixed income so what happened on the Federal Reserve or the European government is critical to investing in fixed income. So it’s a very important part of our dialogue at the firm. We have you know, a very strong macro research effort at Wellington to help support both our equity as well as our fixed income and credit fixed income rate investors as well as our credit investors with their investment.
So for the firm, macro investing is very important.
I would say for myself as a healthcare investor, I probably would lean more that fundamentals and we talked about healthcare what’s happening and I will spend most of my time thinking about what is happening with mechanisms of action or how cancer is going to be cured, that is the most important thing to get right, but I found it very important over my career to make sure that you’re focused on the macro and there are probably two macro things, one would be what’s happening in regulations around the world, regulatory bodies, what’s happening in politics that the big important macro effort of us in terms of understanding what could influence healthcare fundamentals.
And then secondly would be what’s happening with interest rates because the biopharmaceutical stocks are long dated, you are looking so far into the future in terms of how you think about earnings stream. So you know, making sure that that’s part of the process in terms of valuations and how much you want to pay for those long dated assets, but it’s part of the equation that is very necessary think about when constructing portfolios.
RITHOLTZ: I have to ask you little bit about some of the craziness we have seen in the market this past month. We had Gamestop going wild but we’ve also seen a little bit of frothy activity in Bitcoin in Tesla, what are your thoughts on the question of is this just pockets of froth or are we looking at a more significant bubble?
HYNES: I guess the I observation I would have is that we’re 12 years into a bull market, valuations are higher than they have been and that is partly due to the low interest rates that we talked about, the Fed policy around the world.
So again, getting — making sure we know the future direction of interest rate will be very important to valuation. I’m not the expert on Tesla or other areas but I do observe that some parts of my investment universe that the relationship between growth and valuation is that extreme in some parts of that not and certainly most part they are at very attractive valuations.
So I guess as a value investor, that’s just a very interesting relationship to me that I’m watching very closely.
RITHOLTZ: So I think of the CEO role as a full-time job. I would also imagine running a $51 billion healthcare portfolio as a full-time job. You’re going to continue managing the Vanguard Healthcare Funds, that seems like a lot to do at once, how are you going to juggle the two?
HYNES: A couple of things, one number — one we are naming, we have been the president, my managing partner colleague Steve Klar will be president, so will be will be a partner with me in terms of running parts of the organization so that would be number one.
Number two, I really believe in empowering the — empowering the leader and so we have a management team both in terms of running the business as well as running our regional offices, very excited about our leadership team and that’s a group of about 20 people so that would be an observation number two.
And then I would stay in terms of as observation number 3, specifically for healthcare, you know, we have expanded the team over the last number of years, the team has matured and they’re both their research and risk-taking skills, so again, I’m going to be able to leverage that 15 person plus team very significantly as I go forward.
And then maybe the last — just the last thing to share with you, Barry, is that one of the things — I think this is very specific of one of maybe my super strength is that I’m very organized, and again making sure and I spent a lot of time thinking through how I’m going to spend my time going forward and again, then it’s up to me to execute that plan to make sure that I both — spending significant time on managing healthcare assets for the Vanguard shareholders as well as the firm and all the clients of the firm.
So I feel very comfortable in the plan going forward and how I’m going to be spending my time. And then just hopefully, there is a benefit, the benefits of it will be that I’m going to be staying very close to our investors, I’m going to be, you know, we are going to be in the morning meeting together, we are going to be in company meetings together, and so staying close to investors hopefully will help me think about how we are going to evolve as investors, how are we going to use more science, how are we going to use more technology to help us evolve?
So again there are synergies to both the roles and I could I think we hopefully at the end of my term at Wellington as CEO, that we will look back and say that was the benefit that, you know, that that was a benefit both to the firm as well as to — as well as to Vanguard shareholders.
RITHOLTZ: So let me throw a curveball at you, Jean become CEO and then Jean notices the manager of the Vanguard Healthcare Funds is of falling behind prior performance. How are you going to fire that manager? What are you going to do swapping hats that way?
HYNES: So we talked about governance and our fiduciary responsibility at Wellington is another area that we take very seriously. And so we have a plan in place. So first of all, it will be Vanguard’s responsibility to decide you know, how well of a job I’m doing. So Vanguard will be the ultimate decision-maker there. And then from myself, we have again — it’s very important that we have fiduciary oversight of me as an investor as well.
So we have a plan in place to make sure that happens.
RITHOLTZ: Makes sense. I assume that there was some mechanism that you guys weren’t just spitballing, not with that much money.
HYNES: (LAUGHTER)
RITHOLTZ: So let’s jump to our favorite questions that we ask all of our guests starting with what are you streaming these days, tell us what’s keeping you entertained either Netflix or podcast or what are you doing for entertainment at home?
HYNES: So one of the things I – Barry, you may or may not know that I have four daughter and so they are in their early 20s and late teens and so I’ve been pretty busy over the last 25, 22 plus years so one of the things I’m streaming now is these series that never got to watch since I was working full-time and raising a family.
And so I watched West Wing, 2020 with the big West Wing year for me, I never watched a series so that would be one. And then this British series, Bridgerton, that was a big series with my daughters over the holidays, you know, we bingewatch that when they were all home.
RITHOLTZ: Yes, that’s funny. It’s always interesting to see what people go back to, we never saw Madmen and we ended up just …
HYNES: Yes.
RITHOLTZ: …. watching that very interesting period piece just like — just like West Wing.
Tell us about your early mentors, who helped to shape your career?
HYNES: So we already talked about Ed, I would say that you know Edward just so vital, someone that I worked alongside with for 20 years and I and I again back to Ed being just giving me the space to grow, the space to learn mistakes, so he was very critical.
There’s another person Bill Perlmutter (ph)who is one of the managing partner — he was a managing partner, he has since retired, he’s recently retired from Wellington, but I would consider him a sponsor, he was always looking out for me to the mid-cap growth portfolio manager so I guess I was helping him but he was always making sure that my career is moving along.
RITHOLTZ: Let’s talk about what you’re reading these days, tell us about some of your favorite books and what you are reading now.
HYNES: So I really like historical fiction where you learn about a place or a time through fiction but in my favorite book this year was “Educated” I am on my bed stand right now I have Barack Obama’s book so that’s my next — my next book to read in the coming months.
RITHOLTZ: Sounds good.
What sort of advice would you do this to a recent college graduate who was interested in a career in either stock research or asset management or working in finance?
HYNES: I would give two pieces of advice, one would be always — just always be learning, when I observe talents at Wellington, I get very excited about the talent at Wellington, the one with this growth mindset that are always learning, always challenging the status quo of how we do things, so you know, just very exciting to see.
So again, always have the curiosity growth mindset, always thinking about what more you — could you be doing in your — in your in your role.
So that would be important piece of advice.
And then secondly and just of the asset management industry and research in terms of researching stocks and it’s just such a great business so I would encourage — I would encourage people graduating from college to think about the asset management industry and again, there is a significant broader purpose here in terms of serving individuals and beneficiaries all over the world to help them lead better lives long-term.
And so how do we attract talent to that mission, how it and again — are — we’re allocating capital to companies that are going to make the vaccines that save, you know that really are going to start to save the world and protect the world, I think that is the kind of mission that I’d like to make sure that everyone knows.
And just, you know, how it how exciting it is to be — to meet companies and to meet heads of R&D and to meet CEOs and see how they’re changing the future the world, that is just intellectually, I’ve never — I’ve never, I wake up every I never have a Sunday night that I don’t want to go to work the next day, it’s just to such a great business to be in.
RITHOLTZ: Quite interesting. And our final question, what do you know about the world of investing today that you wish you knew 30 years ago when you were first getting started?
HYNES: I think — when I think about the world, I think about the world of investing, I think about it in 3 phases sort of — and we talked about being a deep researcher, being an investor and I and I take being an investor meaning to can you do recommend — can you take all your research insights and make recommendations? And then finally being a risk taker and taking the risk in portfolios.
I guess if I had to know back 30 years, it probably would’ve been really perfecting each stage and in getting maybe more training, I think that’s one of the things we’re going to — we’re really focused on at Wellington is making sure we’re training during those pivot point so that would be a one thing. These are skills you can be — you can learn and skills that you can get better at with development and so that is a very important initiative on my part in terms of how do we develop investors along that path?
And then I think, you know, personally just being very flexible, pivoting when you have new information. That’s I think really — it’s hard to do after you — you might’ve invested two or 3 years and into a stock and then something changes, that ability to be flexible, a skill (ph) that I think is critical to investment success and the earlier you can learn that, the better.
RITHOLTZ: Terrific stuff. Thanks, Jean, for being so generous with your time.
We have been speaking with Jean Hynes, she manages the $51 billion Vanguard Healthcare Fund and is the incoming CEO at Wellington Management which runs over $1 trillion in client assets.
If you enjoy this conversation, well be sure and check out any of the previous 387 prior such conversations we’ve had over the past seven years. You can find them at iTunes, Spotify, wherever you feed your podcast fix. We love your comments, feedback and suggestions, write to us at mibpodcast@bloomberg.net, give us a review on Apple iTunes, you can sign up for my daily reads at Ritholtz.com, check out my weekly column on Bloomberg.com/opinion.
Follow me on Twitter @Ritholtz. I would be remiss if I did not thank the crack staff that helps us put together these conversations each and every week. Reggie Brazil is our audio engineer, Michael Boyle is my producer/booker, Atika Valbrun is our project manager, Michael Batnick is our head of research.
I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.
