The transcript from this week’s, MiB: Christine Hurtsellers, Voya Investment CEO, is below.
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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. Christine Hurtsellers is the CEO of Voya Investment Management. You may not know the name Voya that well. They’ve been around for 40 years, a lot of which was spent as ING. They run about $245 billion. They do over $7 billion in revenue.
Christine Hurtsellers has really a fascinating background in addition to being on all of the most important, most influential list. She’s worked in everything from structured product to fixed income to the CIO of Voya before becoming the CEO of Voya Investment Management, really very knowledgeable person about all aspects of investing. And one of the things that Voya is best known for are their defined contribution business. Really, I just found this to be a fascinating, fascinating conversation, and I think you will also.
So, with no further ado, my conversation with Voya Investment Management CEO Christine Hurtsellers.
VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My special guest this week is Christine Hurtsellers. She is the CEO of Voya Investment Management. The firm manages over $245 billion in assets and generates more than $7 billion in revenue annually. Previously, she was the Chief Investment Officer of the fixed income group at Voya and has had a number of interesting positions throughout her career.
Hurtsellers has been named to numerous Most Influential in Finance list. Most recently, she was named the Barron’s Top 10 Most Influential Women in Wealth Management.
Christine Hurtsellers, welcome to Bloomberg.
HURTSELLERS: Thank you so much, Barry.
RITHOLTZ: So, let’s start out with your current gig and then work our way back a little bit. You’re Chief Executive Officer of Voya Investment Management, but previously you were Chief Investment Officer. How do you make the leap from CIO to CEO? It seems like it’s a very different set of skills.
HURTSELLERS: Barry, you know, in some respects is different skills, but in a lot of ways very similar skills. And so, what in the world do I mean by that? You know a lot of what you need in the role of the CEO is good strategic thinking, so really being able to think about where the market source the business is going out, you know, three — three to five years from now.
And so, I’ve been an investor most of my career, so when you think about strategic thinking and reading the markets and opportunities, there’s a lot of similarities there. As well as you have to have a team approach, really have good intuition and figure out how are we going to set a strategy, how are we going to get people excited, and — and really moving in this direction.
And so, what they call E.Q., that emotional intelligence, you know, the more senior you become, over time, the more important that actually is and less so sheer technical skills that you develop early in your career. So really, it was a pretty natural move.
But I will tell you, Barry, the one thing that I really miss is my — I miss being in the markets for sure. I mean, just the joy of being with an investment team, that isn’t my day job anymore. But again, I love strategy, love working with people, and so I think it’s just a wonderful role for anybody to have.
RITHOLTZ: So, despite some pretty big challenges, Voya had a pretty good 2020. Tell us a little bit about last year. How did you guys do so well?
HURTSELLERS: Wow, well, you know, Barry, I mean, last year just started out in such a crazy fashion. And I would say the — the way that Voya did so well, I mean, number one, you know, we have great customer relationships and, you know, really differentiated products so much today. You know, people are talking about alternatives and private markets, and $70 billion of the assets that we manage are in that category.
So, number one, you know, we — we certainly have great products that — that our clients want. But — but more importantly, you know, it was really leveraging our culture into a period of real uncertainty. I mean, as you recall the markets just completely froze in the — in the spring. And — and so, you know, what did we do is — is things just got so disconnected. It was leveraging the culture of — of just being transparent and — and talking to our clients, and really walking them through.
We did tons of webinars talked about what was working, what was not, what was in the portfolio, what were we doing, and what were our views. And we got the feedback from clients. Hey, not all asset managers are doing that, right? But at the end of the day, we’re in the trust business. It’s their money we’re managing, and we want to be that trusted partner.
So how you behave and how your people rally together in times of stress, those are moments in life and in careers that truly define you. So, couldn’t be prouder of the team as we work through 2020 to push ahead through a lot of uncertainty.
RITHOLTZ: So, given how successful 2020 was, did that momentum carry over to 2021 as things began to open up and sort of returned to normal?
HURTSELLERS: You know, it — it has and a lot of the — a lot of the momentum that we continue to see just based on where yields are in the world and — and what’s going on really are on some of those more private asset classes that we manage. So, think commercial real estate or, you know, actually what we call private credit, meaning issuers that don’t come to a public credit market, and we have a very strong business there.
So as a result, as people continue to struggle with where am I going to put my money, I’m uncertain, you know, the yields are really low, we tend to see quite a bit of demand in — in those assets that we managed.
RITHOLTZ: Really kind of interesting. So, you guys are one of the larger investment managers in the defined contribution space, but for your size, you kind of fly a little bit under the radar. Tell us a little bit about that practice and — and how you became as large as you have in that space.
HURTSELLERS: Yeah, you know, Voya overall — you’re absolutely right, Barry, we are one of the largest companies that work with defined contribution plans and managing them for employers, and — and really having, you know, good — good tools really to engage employees and to help them save. And so, I would say though as you say Voya, you know, we — we call ourselves small, but mighty as a company.
We’ve got a great brand — great brand recognition, and our brand is really only, as Voya, only about — I want to say seven years old at this point. And yet, you know, we’re — we’re — our brand recognition is very attached to retirement. So, going back over all like — like how do we do this, and — and again we’re kind of small and mighty, we like to think and — and it’s actually true that we’re more agile. We can pivot more carefully or quickly actually than — than other people. And one of the things that we tell our clients when we engage on asset management specifically is we call ourselves big enough to deliver, but small enough to care.
And when you think about that, you know, what do those two things mean because, you know, when you wake up and you look at the newspaper today and you say, “Oh, my gosh, you know, these asset managers that call them between $200 billion to a $1 trillion are just going to go away, right? The industry is consolidating. But at the end of the day, I — I just don’t think clients want to wake up and — and just have a few select partners where they’re gigantic, and that customization and that high touch isn’t really available.
And over half of our assets that we manage, Barry, are what we call customized, meaning the client has specific needs that they need. It’s not just to what we call a generic benchmark in the marketplace. So again, that — that’s our brand, that’s our value, and — and it’s really resonating with clients. And so, we’re — we’re growing as a company, you know, despite the rhetoric around the difficulty to compete in the trillion-dollar club.
RITHOLTZ: So, let’s talk a little bit about that customization. What does a typical client look like? And what do they want beyond just the standard 60/40 or these days 70/30 stock and bond portfolio?
HURTSELLERS: Well, you know, we have a — a variety of — of clients, but — but on the institutional side, specifically, when you think about insurance companies or some of the pension funds, they have unique liabilities that they’re managing assets against. So — so they need somebody that’s going to engage them.
And then plus, when you look at the context of the market and — and where the equity markets are and all the liquidity in the world, more and more clients are nervous about, you know, yields being so low, and — and where can I really put things in terms of what asset classes offer great returns.
And so, what does customization look like? Let’s just take a — a somewhat simple example in the fixed income market. And so, there’s a — there’s a product or a trend called LDI or liability, you know, sort of immunizing liabilities for pension funds, right? And so, as the equity markets have done well, so many of the pension funds are saying, wow, I want to do what I call immunize and actually move my overall pension funds that I have as a corporation into more of a fixed income laddered bond portfolio. So that — that’s essentially what’s happening.
And — and yet that fixed income laddered bond portfolio, there aren’t a lot of corporate issuers out there so you end up taking, you know, trading equity volatility for a concentrated credit risk. So what do we do? We actually blend in private credit with public bonds for those clients to offer them a unique solution where they can diversify some of the exposure to the companies that they’re invested in. So that would just be one small example of how do we customize something to help our clients come up with a better solution.
RITHOLTZ: So that sounds not so much like you’re reaching for a yield with different credit risk or higher credit risk, but you’re diversifying into yield that might be a little more attractive because it’s not yet part of the public market.
HURTSELLERS: Absolutely right, Barry.
RITHOLTZ: Really intriguing. And you mentioned some of your clients are big insurance companies and pension plan. They have very specific liabilities at specific future dates. How do you manage towards that future, you know, date certain liability? Hey, we’re going to have to have X in 2032.
HURTSELLERS: Really, it’s — it’s — as you say, it’s just that — that dialogue with the clients in terms of do they have specific liquidity needs and in point in time that — that they’re looking to us to help them deliver. I do — a lot of the — specifically, some of these clients more and more are asking how can I get yield and maybe not need as much liquidity? So when you think about — when you think about the markets today and really the growth of private markets, I think that a lot of institutions are waking up and saying is liquidity necessarily as necessary, meaning that they can quickly liquidate their bond portfolios, right, within a few days or do I actually have opportunities in my business model where I can have, you know, long-term investments and tuck it away?
So, when you think about that and what we can do across Voya, private credit could be a great example. We also have what a private equity business that focuses on what we call secondary, so think about buying secondary private equity investments in, you know, the marketplace at a — at a very attractive kind of going in investment level.
So, when you think about those things, Barry, those — those really are opportunities where, yes, you don’t necessarily call Voya tomorrow and say, “Please liquidate my real estate or my private equity portfolio,” but if you’re patient and you have a long run business strategy, these can be some great opportunities to enhance your yield and your return.
RITHOLTZ: So, the tradeoff is a little better yield in exchange for less liquidity. But if you have that future liability and you don’t need it for a decade seems like a pretty reasonable tradeoff?
HURTSELLERS: Absolutely. And so, again, as — as we hear a lot of the rhetoric in the market of, oh, you know, our private assets, do people really understand them or, you know, is it a bubble, you know, with — with the growth of private assets? And again, I would say no. I mean, certainly, there are risks and opportunities within any broad-brush sector of the market, but again, it’s highly logical just given the state of the world and — and investment opportunities that these types of asset classes continue to grow.
RITHOLTZ: Let’s talk a little bit about 2020. What sort of challenges did you face managing Voya’s investment management group during the lockdown and the pandemic and work from home. How — how did you work your way through that?
HURTSELLERS: Well, Barry, we — all of us I think in the industry, right, we can have a lot of answers that was really surprising. And, in fact, I think at the beginning, you know, if you would’ve asked me, “Hey, Christine, how long do you think the — the people are going to be working from home as a result of this pandemic?” I would have told you, ah, six weeks. You know, the summer is coming. Things are going to get better. And — and — and actually, you know, we’ve been at work from home for over a year at this point, and we’re still working from home and — and won’t be back until the fall.
So — so what did we do? Didn’t have a playbook, but a lot of listening. We were able from a technology standpoint to move pretty seamlessly, you know, from — in the office to out of the office, but — but then it was a matter of how in the world — how in the world do we keep our employees engaged. So, we tried a lot of different things.
We did, you know, webcast where, you know, I would — would talk about, you know, how the business was doing, how the clients were feeling. We tried a lot of things with our team. We do no meeting Fridays in the summer to try to give them some bandwidth because, you know, people are just plugged in all the time.
And so, some of the issues really when I think about the business, you know, that the markets, after the Fed came in, sort of calmed down, right? So, the real challenge is once we got through the spring really was keeping our employees as healthy as they were dealing with working from home, kids, kids not in school, a feeling a bit detached. So, we spend a lot of time and energy and we still do on thinking about how can we be a good place to work for employees in a world like we have today, which is virtual.
RITHOLTZ: So, let’s jump right to that question, Pensions & Investments named Voya Investment Management one of the Best Places to Work in Money Management. I — I think this is like your sixth year in a row on that list. So, what do you guys do that’s different than the average money manager as a — as an employer that makes it so attractive?
HURTSELLERS: Well, Barry, thank you for mentioning that. That’s something — you’re absolutely right. We’ve — we’ve been named up by our employees for six consecutive years, and it’s not something that — that we take lightly. It’s an honor and it’s something our employees vote on.
And — and, you know, the context overall as far as why are we winning this year after year, and then I’ll pivot to COVID specifically, really is those two — two things that come out from our employees consistently. They love the teamwork, you know, the — the approach, the open-mindedness, and we spend a lot of time investing in that and psychological safety and different things as a company. So, they love the teamwork and they love the fact that — that Voya is mission-driven and we give back to our communities.
And so, we have — you know, we give — as an example, we give all employees 40 — 40 hours or a full week of paid leave to go and go out and volunteer in the community, whatever cause that they want. And so, that would just be one small example of things that we do that make our employees really feel proud of what Voya does and that we make the world better for our communities and our — our client.
But I would say pivoting to 2020 specifically because, you know, certainly, I mean, as a leader, I was like I don’t know for (inaudible) again, how are people doing, and we are certainly serving them and trying to stay connected in a virtual world. But I think — I think what really resonated with the team in 2020 was, you know, just the transparency, the transparency of leadership, of seeing them and, you know, trying to say, “Well, this is what I know and this is what I don’t know, and — and here’s kind of what we’re going to do about it.” Because again when you think about it, times were pretty uncertain last year, and so just being authentic, present, Voya pivoted very quickly in terms of benefits and trying to help people adjust through this, more flexibility, things like that.
And so, when — when employees really feel like they — they understand where you’re coming from, that you’re authentic, that they believe you, and then also you see them and you’re becoming more flexible, expanding your mental health benefits is an example as people were dealing with COVID.
And certainly, as the summer continued and we had George Floyd — the murder of George Floyd and the emotions associated with that, and having conversations and really working towards how are employees feeling about all of these different things they’re dealing with, I think those are the key things that — that really helped get us through 2020. And — and — and so as a service a result, thankfully, our employees continue to really be engaged and want to work with Voya Investment Management.
RITHOLTZ: So, we’ve been hearing from — from some CEOs of — of very large wealth managers like J.P. Morgan Chase and Morgan Stanley both talking about we want everybody back in the office, it’s time to go back to work. What do you think is going to happen with work from home in the future? Are we just going to go straight back to the pre-pandemic offices or is it going to be some different hybrid model in — in the future? And — and what are you guys doing?
HURTSELLERS: Well, you know, it’s so interesting watching all of this unfold as — as we learn, Barry. So, starting with — with what we’re doing and — and thinking about it broadly is, you know, we’re — we’re going to be what’s called hybrid. I mean, we don’t think 100 percent in the office is right nor do we think 100 percent virtual is right. And so, we’ve gone through very robust surveying of our people and thinking what’s the right thing to do.
So why are J.P. Morgan and Morgan Stanley going back? You know, I would say, you know, very real, you want to maintain your culture. You want to maintain team work. And on the investment side particularly, when you think about also an idea generating, you know, being a part like this for so long can impact your investment results because sort of those sidebar conversations where you get good ideas as an investor for every people, you know, you really can’t replicate that on Zoom or with a telephone call. So — so yes, you know, people need to come back.
Do they need to be here five days a week? Absolutely not. Do I think that people should be mandating? You have to be in, you know, Tuesday, Wednesday, Thursday, no. That’s also not flexibility. So, we’re taking an in-office flexible approach.
And — and, Barry, I — I could go on and on. I have so many views around this.
But, you know, what do our employees telling us, and where am I really concerned, and where do I think people and leaders may be missing it? It’s — it’s our — it’s our female employees, particularly.
And when you think about, you know, what a female person is — is — is dealing with uniquely — and all employees — all employees, but when you think about, you know, children and balancing and you look at the overall U.S. statistics about who’s dropping out of the workforce …
HURTSELLERS: … it’s the working mothers, And so, if you, as an employer, are saying, “OK, you have to come in just as the industry is really, really an industry that has — has — has not done well in terms of diversity and inclusion with our employee population,” and now you’re coming in and saying, “OK, well, you guys all have to come into the office,” I — I just think that that could create some real challenges as the — as people are trying to work through more inclusion, more diversity.
So again, our choice is let’s listen to our people. Let’s figure out what — what works. We’re going to learn as we go, but we want to — we want to be an employer of choice for all of our employees.
ROMICK: So maybe this is an obvious observation/question, but let me ask it anyway. If you’re flexible and you’re offering a hybrid model, is this going to help you in terms of recruitment and retention? It seems like from a employment strategic perspective, it’s a big advantage.
HURTSELLERS: I agree with you. I — I — Barry, I think it is a big advantage. And — and listen, we don’t have all the answers yet, but some of the things that we’re doing as far as this hybrid world is — is we’re going through a whole process as far as, well, what different technology do we need to be putting into people’s homes? And how do we change what our workplace looks like if it’s a little bit more of the hoteling space, so we’re literally renovating, as we speak, two of our offices to accommodate that, our New York office and our Atlanta office.
So, we don’t have all of the answers, but we’re giving it a lot of thought. And we do think that this is going to make Voya Investment Management, you know, continue to be a best places to work and a — and a place of — of choice.
And again, just going to flexibility, going to workforce diversity, we’ve got a pivot. So, you know, and I’m very mindful of this, and this is a little bit different too, Barry, from — from some of our competitors, so let me just tell you this. Is — I’ve heard some competitors say, “Well, you know, the senior people, you know, we’re going into the office. We want people to see us because you kind of lead by example, right?
Well, you know, Barry, I’ve — I’ve had five children. I have — one of the things about me, I have five sons, right? And one of my sons is on the autism spectrum, which has its own, you know, unique challenges and — and opportunities. And I — I think long and hard how do I want to lead by example for Voya Investment Management and our people, and it’s with understanding, flexibility, and enabling them to succeed in their careers.
And so, that’s the approach we’re taking, Sir. You’re seeing Christine Hurtsellers every day in the office even though we’re — we’re still closed, hoping that people will follow my example, absolutely not.
RITHOLTZ: That’s really interesting. And — and we do a lot of research in preparation for these conversations. I did not know any of that about you, and that’s really intriguing. It’s more than just let me show up and — and pretend to be productive in the office. You’re living the actual life-work balance that so many employees aspire to.
HURTSELLERS: Yes, that’s right. Yeah, yeah, and I — and I know, Barry, you know, a lot of times people will — will — will fail, well, you know, who are you, what your role and wouldn’t expect that I have raised five children including one with special needs. So yeah, so — so you’re absolutely right.
So that drives a lot of my passion, right, when I think about the industry, and where we need to go, and what can we do differently, and — and how can the legacy or the world, you know, that I leave behind, you know, my story how to make it a better place. So, I do think I bring a certain level of understanding and empathy as far as how complex, you know, the working world can be to navigate.
RITHOLTZ: Well, thank you for sharing that. That’s really very, very interesting, and I think a lot of listeners are going to appreciate that.
Let’s talk about Alliance Capital, what did you do for them in terms of their securitized assets?
HURTSELLERS: Barry, at Alliance I was — I was part of a team that really just focused on mortgage — mortgage product, mortgage derivatives. Way back in the day, it’s such a bad word. Now, post the GFC, we actually managed sort of CDOs that they were called. So, think about, you know, structured mortgage product, it was a growing business at Alliance Capital. But again, you know, most of my career, you know, from the very beginning has been — was focused on really the housing market, aspects, securities and — and so that sort of was my original pass and — and my love.
RITHOLTZ: So, let — let’s stay with that. You were Freddie Mac for a while, right? I — I recall reading your portfolio team had about $650 billion in assets. Tell us a little bit about your Freddie Mac experience.
HURTSELLERS: Yes, yes, Barry, I worked at Freddie Mac and left there right at the end of 2004, but — but worked there and managed a variety of assets there. So back in the day, you know, pre-GFC or Global Financial Crisis, you know, they had these very large what they called “retained portfolios.” And so, kind of going into Freddy, I — I worked quite a bit on what are called “collateralized mortgage obligations” or CMOs, then what we call mortgage derivatives, so think really esoteric product, you know, sort of what we call interest-only or principal-only securities.
So, a lot of structuring, just a lot of deep knowledge around the housing market, really interesting time in my career because at that point inside the GSEs of Freddie and Fannie were huge in terms of their participation in the mortgage market, and they have these very large portfolios at the time.
RITHOLTZ: So, in the early days anyway in the early 2000’s and throughout most of the 90’s, the GSEs were doing all conforming mortgages. There were none of the subprime or at least very, very little subprime all day, no money down, no income check sort of stuff. They were pretty safe mortgages. It was only later in the cycle that — and they were losing so much market share to private banks that they dove into it, I think you might have missed most of the crazy stuff if you left Fannie and Freddie in 2004. Tell us what your experience was like pre-financial crisis at Freddie Madam Chair.
HURTSELLERS: Sure, Barry, and — and this is something, you know, when — when you think about it, so certainly Freddie and Fannie were prominent in the GFC, right, as we went through the financial crisis in the U.S. housing market. So the — the seeds of the global financial crisis, you know, began in the 90’s. And, you know, as the market screw and Freddie and Fannie got more aggressive on what they were underwriting and competing against one another, things — you know, that –that explains part of that journey.
But — but again, you know, lessons learned though, you know, they were highly levered institutions and they had, you know, guaranteed debt that — that enabled them to lever. So — so again, lots of — lots of — you know, interesting things going on at the time.
You know, I — I did resign or I moved on to the company I’m now with, you know, before the global financial crisis happened. But again, a lot of these things within broader housing and the financial markets were many years in the making before it sort of all kind of imploded on us, if you will, in — in 2007.
RITHOLTZ: So, let’s talk housing a little bit. Housing prices have blown up over the past year, in large part, because there’s almost no supply around. Whatever comes out seems to get a — just a overwhelming amount of bids. What do you think of the state of the housing market here? And what’s the likely outcome going forward?
HURTSELLERS: Well, Barry, just from a — kind of an investor tactical view, you know, when you think about asset classes and what you recommend to your clients, housing-related securities would be really towards the bottom of the list because, as you say, you know, house prices have gone up very quickly that — well, the government — the Federal Reserve has been buying securities, you know, agency securities associated with housing, so you have a combination of a sort of a — a federal push liquidity event there, as well as you’ve certainly got all of these people all over the place, you know, bidding up the housing market. And, in fact, you know, just recently, housing prices came up again and they continue to skyrocket.
So — so — so thinking about, but does the housing market today within itself, you know, enough to really be the seeds of yet another financial crisis? I would say no. I would say it’s a little bit more isolated.
Now, granted houses are, you know, is the largest asset for most, you know, Americans. It’s a very important part of their net worth, and so the housing market getting volatile on us is — is not a good thing.
I mean, however, as you just referenced, Barry, I think a lot of this is a combination of low interest rates in its — its demands. Right now we see even building houses is getting more challenging based on commodity prices going up. So — so this is a period of time we’re going through. Plus, finally, you know, millennials are — are forming housing finally your household so quicker than ever as a result of COVID. So, I would call this more of a tactical risk, if you will, not a systemic risk like the global financial crisis was. There’s just not enough leverage in the system.
RITHOLTZ: Yeah, that household formation data is fascinating because it fell off a cliff after the financial crisis. The first, I don’t know, five or seven years was way below average. And then over the past two years, it really seems to tick up. How closely do you pay attention to data points like household formation?
HURTSELLERS: Yeah, we — we watch it pretty closely. And I think, you know, we’ve — we’ve always had a big — you know, a big level of assets and securitized products. We’re — we’re very good at it at Voya Investment Management. And we do watch it. It’s a little bit of a — a slower moving train, Barry.
But I think what — what people had often forgotten about the millennials is this is that they — they would say, well, you know, they’re different. They want to travel. They want to do X, Y, and Z, and they don’t want to house this.
And we’ve had the theme that, no, no, you just forget these — these people are going to live until they’re 100, right? So, you just — they’re growing up slower. They’re doing things slowly. But ultimately, our millennials, is household formation going to happen? Absolutely, it is, and these are important demographic trends to watch.
So, I think COVID just accelerated it as — as people were, well, you know, working in apartments, as well as it’s certainly the work flexibility of being able to work in the suburbs and not (inaudible) accelerated, but this is just an acceleration of a very natural trend that we see.
RITHOLTZ: Quite interesting. So, I’ve always found that fixed income people approach stocks generally, but investing and risk management different than the folks who kind of grew up on the equity side of the street. Tell us a little bit how did your background prepare you for — for your current job.
HURTSELLERS: Well, Barry, you know, first of all, as you say with — with fixed income versus equity investors found, you know, I get to work with — with both is — is you’re absolutely right, just to start out, you know, fixed income investors tend to be cynical or more cynical because, you know, for them success is par, right, like this every dollar that you invested and you have, you know, all kinds of downside risk. So, you can make up …
RITHOLTZ: Hey, I got $1 back.
HURTSELLERS: … all with some coupon — yeah, I got $1 back and a little bit of coupon before I lost, you know, what we call 40 percent or 50 percent or points so, you know, like high-yield. So — so that sort of explains to everybody whereas equity — they’re optimistic, right? Oh, this company is growing. Isn’t this wonderful?
And so, even in our employees, you do see of mindset difference. And so, kind of going back to your — your question though of — of how did fixed income prepare me for this role, I would say, you know, certainly a certain level of — of really focused on the facts, right?
But — but also, I would say, you know, for my career specifically, you know, I spent most of it in what we call structured products as we were talking about. And I think that that is — is a great market because you can kind of combine the discipline of the fixed income investor also with the enthusiasm of — of the housing market and interesting things going on in the world.
But overall, I think coming out of it, you know, just balance off as a leader. As a leader I like to use this — this phrase with people. When you lead people, you need to have what I call authentic optimism. And why is that? It’s like you have to believe that the world is a better place and that your strategy is going to deliver, and you’re adding value, but you have to, you know, face things authentically because also employees don’t want you to just be telling stuff that isn’t true, right?
So — so it’s kind of that balance as investors are as leaders is what I call authentic optimism.
RITHOLTZ: That’s really intriguing. So, you mentioned when we were talking about housing and — and mortgage-backed securities, the Federal Reserve was a big buyer. They’re keeping rates low. What are the reasons are there for rates being so low? We — really we know the central banks can affect short-term bond yields, but even the long-term yields are — are way down, what’s the driver of today’s low rates? Is it inflation, price-insensitive buyers just demand for yield or — or something else entirely?
HURTSELLERS: Yeah, Barry, certainly one contribution as you say is really the Federal Reserve’s buying program, right? So, they continue to buy lots of treasury securities and certainly mortgage-backed securities as well. So that’s an effect.
But when you — when you peel it back why is the long run bond market or those 10-year yields still anchored is so low, it’s — it’s we think about it, it’s — it’s telling you what does the world believe what we call terminal fed funds really is. And so, when you think about that, what does that mean? That’s like the real rate where Fed funds can be in order to sort of have economic growth. And it’s — it’s pretty low.
So, the market is still telling you, yeah, they’re going to be some inflation risks potentially, but the long run, you know, lots of people around the world are aging, so you think about China. You think about, you know, the United States. And productivity, what’s it going to be? But at the end of the day and the people are telling you we don’t think that real growth is really going to be that — that — that strong or that robust. And so, really that is the reasoning behind why are long-term rates still so low.
RITHOLTZ: Tied to growth rate. So — so when I look around the spectrum of — of credit quality, seven-year junk bonds were just trading at 2.5 percent, actually a touch under. That — that seems to be unthinkable that something relatively risky is paying so little yield. Tell us a little bit about the dynamics behind that. Why would I want to buy a high-risk piece of a supposedly safe investment with so little yield?
HURTSELLERS: Well, Barry, we — we call high-yield. You know, one of the things we say is we call it the asset class and, you know, formally known as — as high-yield.
RITHOLTZ: That’s funny.
HURTSELLERS: … and you’re absolutely right, right? That — that is what we call it. And as you say, you know, it’s — it’s been challenged for quite some time. And so, what — what really is — is going on inside of there?
And — and it goes back to, you know, the issue you were raising is that treasury rates or interest rates are so low. So, when we think about high-yield specifically, we kind of divided it up into two things, and we think about the risk premia versus treasuries are sort of the spread. And when you look at — you know, say the higher quality high-yield, they’re all, you know, called 160 basis points over treasuries is that’s not the tightest they’ve ever been.
HURTSELLERS: You know, they have been narrower, right? Believe it or not, if you look at spread relative to the risk-free rate. And plus, you know, you have good economic momentum and you have, you know, the market when you think about high-yield or these credit rating agencies, right, other rate to debt, and we’re seeing more upgrades than downgrades, meaning the credit, you know, the balance sheets you’re repairing, and so the economy is — is helping this sector.
So near-term, it’s logical that that you’ll do this slow but, you know, it’s certainly longer run — this isn’t our call for today, but longer run when the economy gets a hiccup and things get choppy, we’ve seen this before, these — these asset yields, if you will, can go from 250 to north of six percent in a heartbeat. So, a little treacherous …
HURTSELLERS: … but yes — I mean, you saw this kind of activity actually really in — in the spring of 2020, I mean, just prices capped out so wide. So, people do need to be mindful that emotion and fragility can, you know, certainly affect this sector, and that’s why it was called high-yield not your best quality.
But again, for now logical where it’s priced just given how low interest rates are and how many clients and business models really need higher yields in order to — you know, to have the savings or hit their targets.
RITHOLTZ: That’s really fascinating. And — and it raises again an obvious question, how do you run a big fixed income portfolio as a manager when yields are this slow, when the spread is this tight, and when investors are not necessarily getting paid for taking risks there?
HURTSELLERS: Yeah, you have to — you know, you can’t — the — the cost of sitting in cash, Barry, or — is also quite high, right? So, call return on cash zero, so you’ve got to come up with — with some things, you know, to do for your clients. And so, as you say, you know, what do you do, you — you play — you — you fly a little closer to, you know, sort of your lower-risk budget, so you don’t want to be over your skis in terms of the overall risk that she would take because the opportunity to stretch just isn’t there in many of the sectors that you and I have been talking about.
So, you got to be careful, you got to be super, super diligent as far as what areas makes sense, what securities do you really believe, and try to keep some dry powder to react. But, you know, when — when is this going to happen? You know, you wake up every day and — and early in my career, Barry, for — for people that might be listening that are early is — is — is this axiom is that it always feels terrible at the lows and it always feels great at the top of the market, right? You’re at the top of the market. It’s like, of course, the economy is great. You know, life is good and that’s when it all falls apart.
So, you got to be mindful. Are we there yet? No, but as the Fed starts to, over the next year or two, drain liquidity, they have been doing massive support of risk assets, you know, things are going to get choppy. So, we’re trying to be very diligent, look at what we’re doing but keep some dry powder.
RITHOLTZ: That’s pretty — that’s pretty interesting. Another silly question, are we ever going to see rates on the 10-year over four percent in our lifetime or is this a — and I — I know that this is a classic magazine cover indicator. We’ll never see rates back to normal in our lifetime, but it feels like rates are stuck down here for at least the foreseeable future. What are your — what are your views on — I know this is a ridiculous question? Hey, where’s the 10-year likely to be in 2031?
HURTSELLERS: Yeah, I know. Oh, and so 10-year tenure, well, you know what, that …
RITHOLTZ: That’s right.
HURTSELLERS: … that is a — that is a — that is a great question because you — you got to balance, Barry, the ingenuity and the productivity of the human spirit, which is pro-growth and — and very exciting, which are some of these — these natural headwinds of, you know, an — an — an aging world, people needing yield.
I remember sort of conventional wisdom is like, oh, you know — you know when people age they’re actually going to start draining assets, and that’s going to be inflationary. I don’t really believe that. So — so it’s a good question. Can we get back to, you know, a 4 percent percent 10-year and real growth being stronger than where we are today 10 years from now if we have — you know, Tesla has automatic cars and all kinds of wonderful things are happening? Yes, we can.
Is it going to happen near-term? If it is, it’s an investment opportunity for folks, and so you should jump on board if yields really rise because people may over index right now on inflationary pressures. But, you know, can the economy — the way that I’m looking at it — sustain, you know, a real growth rate and this year’s different, a real gross weight that high, particularly given challenges with immigration and labor force? No.
So, if yields were to go high due to inflation, it would be very damaging, more of the stagflation event. And again, not good for real growth. So, Barry, as — as much as I think, oh, gosh, this is consensus. Am I still saying that treasuries are going to stay low? Yeah, I do. I just think it’s really challenging to get what we call “escape velocity” out as the slow growth world structurally that we’re living in right now.
And, you know, the massive amount of debt that the U.S. — I mean, just a lot of things, you know, could — could point you to say now it’s going to be really hard to believe the Fed can completely walk away from the markets in terms of everything they’ve done, and that this, you know, the world economy — the U.S. economy is — is strong enough on its own without intervention to support those types of yield levels. I don’t see it.
RITHOLTZ: So, speaking of the Fed, let me give you a promotion and put you in the role of Jerome Powell as Fed Chair, what do you think you would do what should the Fed be doing given the current circumstances?
HURTSELLERS: Yeah, I think — you know, actually I think Jerome Powell is exceptional as was Janet Yellen. And I — I would do what he’s doing, and it’s communicate, communicate because there’s a lot of risk in the market given that the Fed does have so much that they’re doing in terms of unconventional support of the markets. And they’re — they’re being very slow, they’re communicating being very careful. And so, all this, you know, sometimes market participants will say, oh, my gosh, you know, the Fed is behind the curve and — they’re going to lose control of the market.
Well, listen …
HURTSELLERS: … if you’re the Federal Reserve, it’s like fool me once, fool me twice. You know, we sort of believe that, you know, growth was strong and inflation was strong and kind of got worried, you know, and taper tantrum or, you know, fill in the blank of different things that have happened in the market. And they’re like, well, you know what, we’re going to be judicious, we’re going to be careful, we’re going to be slow. And — and — and I believe absolutely it’s the right thing to do.
And I think what market participants are missing right now, some that — that talk a lot about this, I think they’re still underestimating how important all of the stimulation has been to the calmness of the markets and the growth that we have in addition to — in addition to fiscal. So again, I — I think Jerome Powell and — and the governors are spot-on in — in what they’re doing, and — and I solely support, you know, everything that they’ve done.
RITHOLTZ: So, let’s stay with that and — and stay with the concept of the — the taper tantrum and the ability to get off of emerging sea footing. Forget four percent, I’m with you that that isn’t happening anytime soon barring some catastrophe, but how far can — can interest rates rise without disrupting the equity markets. Can we see a 2.5 percent 10-year without the equity markets freaking out? How do we get back to normal whatever normal might be these days?
HURTSELLERS: Yeah, and — and I think it’s a — we’re — we’re in a tricky spot, right, as — Barry, as you know, the Fed starts to remove the support of the bond market through purchases and — and you said, can we — at what level on the 10-year does it start to disrupt the growth? I think you hit on a really important theme early on. It really goes a lot down to the housing market. You know, again that is the most important asset that most Americans have.
And so, if you get — you get 10 years, you know, up to say 2.25, 2.5, I think that really starts to create some potential challenges for — for the equity market because this housing start to roll over so that reduces the momentum. At what level if you — going back to our conversation about high-yield earlier on, so let’s just say to ourselves, OK, you know, 10-year interest rates go up 2.5, you know, so you would, excuse me, say that the, you know, high-yield spread, you know, to a 10-year treasury, let’s just call it, you know, two percent or 2.5 percent.
So, if you get some of these competing asset classes that detract to the yields relative to equities where you’re like, huh, I can clip the coupon and I can earn 4.5, five percent. Again, I think that’s where things get pretty challenging for the equity markets, so long way of saying I think once you get to like 2.25, 2.5, it’s going to take the air out is the bond balloon, so we got to be very careful.
RITHOLTZ: And that is not that far away, although I guess in terms of — of 25 bp interest rate increases, I guess it’s a — a good couple of years away. Let’s stick with the Fed for a bit. You know, the — the consensus seems to be we’re not going to see any increases this year and probably no increases until late 2022, do you think the consensus is spot-on or — or is this really going to be subject to new economic data, and that’ll impact the Fed’s thought process?
HURTSELLERS: Yeah, certainly, Barry, you know, the Fed is — is going to watch data, so they’re — you know, they’re mindful of all of that. But again, I would say the Fed also loves to — not loves, but has learned, right, as post-global financial crisis to try not to surprise the market and to move slowly. So — so typically, you know, they — they announced that they’re thinking about tapering, and then they start to give you more details.
And so, realistically, what’s the soonest that they’re probably going to really back office from some of their initial support? Call that early next year, so early ’22. And then once they do that, we’ve learned from them they’re going to wait at least another year, 18 months most likely, before they actually try to raise the rate. So, the market is pricing in, I believe, call 100 basis points in ’23. You know, is the market wrong in this? I think no, I think that it’s going to be while. I think they’re going to be, you know, very slow.
I think what’ll happen is the market, even 100, is — is pretty aggressive in that time frame. You know, I think the Fed is going to spend start raising rates and move quickly. So again, I think that the market is probably going to get ahead of itself and forecasting to many Fed increases and what actually is delivered. But for now, you know, that — that part of the market, that part of the curve, what the Fed is doing and flow seems pretty logical to me.
RITHOLTZ: So, I hope this isn’t too silly of a question, but — but it comes up from time to time. So you’re responsible for billions of dollars in bonds and yet investors are looking for more yield, do you want to see rates rise? It — it arguably hurts your existing positions, but when you’re laddered, it generates more yield on the backend. What are your thoughts as a fixed income manager about the possibility of — of yields going higher from here?
HURTSELLERS: Yeah. You know, Barry, you know, with our clients’ eyes and — and the world eyes on, you know, higher rates would be a good thing, right, if you think that real growth justifies it. And also, there are a lot of business models — a lot of our clients, whether it’s pension funds or insurance companies where their business models are really struggling to work, right, given how low rates are.
And what do I mean by that? You know, pensions that need a certain level of return in the market in order to deliver the pension benefits to their employees, an insurance company that may be sold on annuity to its clients that now needs higher yields in order to make the profit margins and build capital that they need. So again, there are a lot of parts of the world.
When no retirees who need — rely on income and so as low as rates are, this creates, you know, societal and business challenges. So again, higher rates from where we are today is a good thing.
Now, if it were some sort of disrupted stagflation quick thing, and — and certainly we’ve seen fragility in markets in the last 10 years that I think are concerning, but as long as it’s a natural outcome, gradual and as result of — of real growth, then it’s a good thing for clients and — and for the United States and the world.
RITHOLTZ: Really interesting. I know I only have you for a finite amount of time, so let’s jump to our favorite questions we ask all our guests. Starting with tell us about what you’re streaming these days, give us your favorite work from home Netflix and Amazon Prime shows.
HURTSELLERS: OK, Barry. One of my favorites that — that I’m recommending is a show on HBO Max called Ted Lasso. And so, I highly recommend it to viewers. Why do I like it? I’ll just give you in a nutshell. It’s a — it’s a funny, funny series, and it’s about a — an American football coach from a college who’s hired by a major soccer franchise in the U.K. to be their coach.
And he’s kind of this goofy southern person. You know, he’s — he’s — and I live in the south so I didn’t mean anything by that. But he’s just really, you know, wonderful and (inaudible) his head. And people should just watch it because it’s sort of one of these things where you’re in over your head, you’ve got to pivot, but the qualities of the human being, you know, his — his compassion, his ability to motivate and communicate as a leader are actually — they shine through in the series, it’s funny.
And so, when you think about leading and you think about leading through COVID-19 and everything right, it goes back to just trying to have a sense of humor and to really care about your people. And so, even though it’s a comedy about soccer, I find that it has a lot of good messages as far as how to lead well.
RITHOLTZ: Yeah, it’s a — it’s a charming series. I believe it’s Apple Plus (sic) or Apple TV.
HURTSELLERS: Oh, OK.
RITHOLTZ: And I — and I know Season 2 starts the last week in July, so I’m looking forward to seeing that also. Tell us about some of your early mentors, who helped to shape your career.
HURTSELLERS: Well, you know, one of my early mentors was Rob Kapito who’s President of Blackrock. And kind of funny story, I met him years and years ago giving kind of a talk at a — at a conference. And why was he an important mentor to me, he said to me — I was working in Ohio at the time and he said, “Christine, you got to get out of Ohio and move to the East Coast for your career.”
And I had three kids at the time, so — so not the most obvious thing. But, you know, I listened to him, and he gave me great advice over that period of time in my career. And I moved east, and I never looked back.
RITHOLTZ: Let’s talk about reading and books. What are some of your favorites and what are you reading right now?
HURTSELLERS: Well, you know, right now I’m reading “The Handmaid’s Tale.” Going back to, you know, shows and series and things that you stream, I — I thought wow, you know, I’ve — I’ve actually never read anything by Margaret Atwood, and books are always better than — than TV, and so I’m reading that.
One thing, it’s — it’s funny, you know, people in my life, whether it’s team members or whatever will give me — give to me, you know, the latest non-fiction book about, you know, leadership or markets and things. And you know what, Barry, I almost never read that.
RITHOLTZ: It’s the last thing you want to read, right.
HURTSELLERS: You know, so if you were to look at my reading list, it’s all fiction. It has nothing to do with finance. But again, I think, you know, when you look back over the years, I think to be a good investor and advice for young people that are thinking about it is to really push the way that your brain works through creativity, through reading fiction, through music. Those are the things, qualities in a highly technical world that I think are underrated as far as what to do to be a good investor.
RITHOLTZ: You want to give us a couple of titles?
HURTSELLERS: Oh, as far as my favorite books that I’ve read …
HURTSELLERS: … oh, yeah. I would say, you know, one of my very favorite books, I — I love — I love Steinbeck going back to being sort of a — a dark fixed income investors. If you read something like “Grapes of Wrath,” you — you absolutely want to jump out a window. But one of my favorite books is “East of Eden,” and I — and by Steinbeck.
And again I just love, you know, non-fiction that — that has you study human nature and human interaction. Those are the types of things that — that I absolutely love.
RITHOLTZ: What sort of advice would you give to a recent college grad who is interested in a career in investment management or finance?
HURTSELLERS: Well, you know, certainly, expand your mind in creative ways as — as we just talked about. But also I would say, you know, for — for our young talent I always remind them don’t — don’t specialize too quickly. Take some risks with your career as you go into finance. There’s so many great people that you can learn from, so make sure that you start building relationships early on.
And the thing that I find, you know, sometimes on the investment side, senior investors can be kind of scary. You know, sometimes you get these like big personalities or whatever. But you find, you know, human nature with people.
If you catch him at the right time, people love to share. They love to give back. They love to explain to you why did I do this trade, why am I thinking about this way. So just for our young talent to not be shy, to find those manners, to create those relationships, and — and to make sure that you try a lot of different things early in your career. And then after that point in time and you find your true genius or passion, that’s when you actually start to specialize and go a little deeper.
RITHOLTZ: Really interesting. And our final question, what do you know about the world of investing today you wish you knew 30 plus years ago when you were first getting started?
HURTSELLERS: I would say, oh, that’s such a great question, Barry. One of the things is get comfortable being wrong, and so, you know — and — and I’m going to tell you why — why do I say that is back when I was running fixed income, I put a picture out on the trading floor and it was a picture of a deer in the headlights. And why I have that is I would every — but every day look at that and say, “Am I being that deer in the headlights?” Because as much as you know you can stay in the investment game, oh, it’s like 60 percent of the time you’re right and the rest you’re wrong, people don’t like to be wrong and sometimes were naturally risk-averse.
And so, what I would do — I kept that deer in the headlight photo right on my desk. And one thing that I would say to the team and I continue to say to myself, and as I said I would give you as far as investments and career, I always tell people to — and this would go to market turmoil — don’t doubt in the darkness things you decided in the light.
And what do I mean by that is that there are dark times where the markets go crazy. You know, certainly spring of 2020 was one of those examples. But the decisions that you make in the light are when you’re thinking about the facts, when you’re kind of meditating and you have a calm mind because that’s where people make mistakes. They get over — overly emotional, they react, they panic, things happen. So again, are you being a deer in the headlights, and don’t doubt decisions you’ve made when you were calm and in the light when things get rough.
RITHOLTZ: Google tells me a version of that is (inaudible) Edmund (ph), but I’ve never heard that quote before. Very, very intriguing.
Christine, thank you so much for being so generous with your time.
We have been speaking with Christine Hurtsellers. She is the CEO of Voya Investment Management, which runs about $245 billion in assets. If you don’t know the Voya name, they have been around 40 years, but their previous name was ING U.S., and — and that might be a — how you might be more familiar with them.
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I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.